Thursday, 30 April 2009

Fraudulent Conveyances – Professor David Graham QC’s experience of this troublesome subject

Professor David Graham QC first encountered the area of fraudulent conveyances when he was asked as a pupil, of the late Professor Muir Hunter QC, to research the origins of the Elizabethan statute of 1571. He was working on the Eicholz case. Eicholz was a solicitor; it was discovered after his death that he had been misappropriating clients funds to a substantial amount which had to be reimbursed by the Law Society’s compensation fund. The trustee in bankruptcy successfully recovered a house given by the debtor to his mistress and other assets.

Relying on a well-known treatise, Kerr on Fraud and Mistake, David’s researches unearthed no more than a limited amount of historical material. Fifty years later David realises how inadequate his original contribution to the subject was and at long last is in a position to shed much more light on the subject.

Long before the reign of Elizabeth I the common law was familiar with issues relating to the transfer of land, chattels and other assets made in fraud of creditors. The standard work on the subject is Professor Glenn’s treatise (Glenn, G. Fraudulent Conveyances and Preferences. Rev. ed. Buffalo, N.Y.: W.S. Hein. 2001 (reprint)). This American scholar had first embarked on the subject with several articles in the Columbia Law Review, just before the first world war. Professor Graham has now also come across Roberts (Roberts, W. A Treatise on the Construction of the Statutes 13 Eliz. c.5 and 27 Eliz. c.4 relating to Voluntary and Fraudulent Conveyances, and on the nature and force of different considerations to support deeds and other legal instruments, in the common law and equity. Fred B. Rothman & Co, Littleton, Colorado, 1979 (reprint)). An edition of this work appeared in the United States in 1825 and provides the reader with contemporary transatlantic material.

Shortly after the black death, in 1350, Parliament enacted legislation to deal with the situation where an insolvent debtor, anxious to avoid execution by seeking refuge in a religious sanctuary, conveyed property to another in trust. At least two subsequent statutes, the last at the beginning of the reign of Henry VII,  also addressed this mischief.

It is also probable, judging by the texts recorded in the Liber Albus, prepared in about 1420 by Sir Richard Whittington’s (pictured) legal advisor, that similar ordinances had been known in the City of London since the time of the Jewish bankers during the thirteenth century. Several other medieval statutes were designed to recover misappropriations of Crown funds collected by public officials. 

Several cases reported by Dyer in his reports refer to the pre-1571 legislation. It is extremely probable that Dyer, a distinguished member of the Middle Temple, was responsible for drafting the fraudulent conveyance statute of that year as well as the pivotal bankruptcy statute at the time. In the same session of Parliament there was also a separate statute designed to set aside transactions by persecuted Catholics who had fled abroad leaving behind unpaid penalties to the Crown, often transferring assets to be held in trust by reliable friends.

Professor Graham is hoping, whilst working in the Jenkins Law Library in Philadelphia in the next few weeks, to look at the Roman law background to the subject, in particular to the use of the actio pauliano. To what extent English medieval practitioners probably trained at Oxford or Cambridge, were aware of this civil remedy is something to be pursued. Further research will also look into the Scottish experience, particularly to the early editions of Bell’s Commentaries. Finally, in this respect David hopes to look at the situation in other parallel jurisdictions, but in particular, in Jewish law.

Future blog entries dealing with Professor David Graham QC’s experiences will deal with, inter alia:

  • The early history of bankruptcy in England.
  • As junior counsel in the Poulson case that led to the establishment of a Royal Commission on standards in public life, Professor Graham (with help from Mr Michael Crystal QC who was also involved in the case) will reappraise the case taking advantage of vital cabinet papers now available in the National Archive at Kew. 
  • Other subject may well include: a re-assessment of the Cork contribution to insolvency law in the light of Professor Graham’s work with the committee on the harmonisation of European insolvency law in the early 1970s as well as his contribution to the main Cork Report.
  • Professor Graham, drawing on his extensive memory hopes to produce a survey of the major English treatises on bankruptcy and insolvency going back to the Stuart period. He has already published, for the Oxford Dictionary of National Biography, an item on Jabez Henry the author of an important pamphlet on the need for a European bankruptcy convention.
  • Professor Graham is also particularly interested in the methods employed that led to the adoption in Palestine and elsewhere of English company and bankruptcy law and hopes to encourage further research into this largely unexplored territory.   
Picture Credit: 

LDV enters administration - a repeat of history for an off shoot of Leyland DAF

A letter on the blog website of LDV notes that the company has applied to go into administration. Here is the letter:
"Dear employee, 

I have to write to you today to notify you that despite all our efforts over the past few months, we have so far been unable to secure the investment required for the business.  During the past few weeks, the global economic crisis has forced us to operate in exceptional conditions and we cannot continue in this position without funding indefinitely. 

We are still working with potential overseas investors who want to keep production in Birmingham, but they like many people at this time are finding it difficult to secure the necessary funds. 

We must now inform you that the deterioration in the position of the business has forced the directors to apply for administrationI must stress that this does not mean the business is in administration yet.  Our application will be processed on 6 May and we still have until that time to secure funding for our plans. 

The effect of this change in position to your payments is as follows:- 

Both hourly paid and staff have been paid up to the end of last week and at his point, the company is unable to confirm any further payments. 

As a result of this, only the senior management team will report for work until further notice and all employees are requested to leave he site after this briefing and await further information at home. 

I want to thank you for your support to date and assure you that we will continue to fight to secure the funding and valuable jobs here at LDV up until the final deadline. 

Evgeniy Vereshchagin 
LDV Group Limited"
The BBC have picked up on the story and report it in the following way:
"Struggling van maker LDV has applied to enter administration, a letter to staff on the firm's website says.

Chief executive Evgeniy Vereshchagin said LDV would continue to look for funding until 6 May when its court application was due to be considered.

He said employees had been paid up to the end of last week, but that the firm could not confirm any further payments. Staff were told to stay away from work.

Birmingham-based LDV could not be immediately reached for comment.

Most of LDV's 850 production workers were laid off in December, when production at the plant largely stopped.

"During the past few weeks, the global economic crisis has forced us to operate in exceptional conditions and we cannot continue in this position without funding indefinitely," Mr Vereshchagin said in the letter.

Earlier, Erik Eberhardson, the chairman of LDV's Russian owner Gaz, said he believed that LDV could be saved and the management buyout was the best option.

Two overseas investors had also been said to be interested in the company.

The cancellation of the 2010 British International motor show and a record drop in UK car production are the latest signs of trouble for a sector that has endured a bleak existence for months."

There are of course historical parallels with this case. The judgment in Re Leyland DAF Ltd [1994] B.C.C. 166, tells the story of a previous brush with insolvency law for a forerunner of the LDV business. 

Picture Credit:

Directors' Disqualification numbers up to a record 1,252 high in 2008

A story in yesterday's Times makes interesting reading, particularly if you are a naughty director. The story notes:

"A record 1,252 company bosses were disqualified from acting as directors in the last financial year in a sign that the Government is toughening its stance towards individual business executives.

The number of directors disqualified was up 9 per cent from 1,145 in the previous financial year, according to figures from the Insolvency Service.

The average length of disqualification also reached a record level, rising 12 per cent to 6.5 years in 2008-09.

Disqualification orders, which are made against directors of insolvent companies, ban individuals from serving as directors or taking part in the creation or promotion of a limited company for up to 15 years

Directors can be disqualified for a range of misconduct including failing to keep correct accounting records or failing to file accounts on time, in addition to criminal matters such as theft and fraud relating to the period before a business collapsed.

Jonathan Davies, a partner at Reynolds Porter Chamberlain, the law firm, said: “The figures show that the Government is intensifying its efforts to deter bad behaviour by company directors by seeking more and longer disqualifications”.

Of the 1,252 directors barred last year, 203 were disqualified for 10 or more years. All are entered on a public registry that can be searched freely on the Insolvency Service’s website.

Disqualified directors can also face up to two years in jail if they fail to pay a charge imposed by the Department of Business, Enterprise and Regulatory Reform (BERR) for its costs incurred in bringing the disqualification proceedings.

BERR is the only body able to bring disqualification proceedings, which must be approved by a court.

One of the jobs of the administrator to a failed company is to examine the actions of its directors and make a formal report to BERR saying whether they believe the directors acted appropriately.

Mr Davies said: “The recession is going to prove an additional challenge. As the number of corporate insolvencies rises sharply, administrative receivers are going to turn the spotlight on more and more directors, questioning whether they fulfilled all their obligations before their company became insolvent.”

Disqualified individuals can still go into business as sole traders but they are not entitled to set up limited companies so will will have unlimited liability for the losses of that business."

Picture Credit:

Wednesday, 29 April 2009

Farewell Lord Hoffmann - was he the greatest company and insolvency judge of all time?

One of the greatest company law and insolvency law judges of the last 20 years or so retired last week. His name ("Baron Leonard Hubert Hoffmann of Chedworth, or Lennie to many") will always be linked with some of the most far reaching and important judgments in both subjects. For a critical evaluation of his contribution see:  McCormack, G. Lords Hoffmann and Millett and the shaping of credit and insolvency law (2005) L.M.C.L.Q. 2005, 4(Nov), 491-514. Here are some of the cases in which Lord Hoffmann (as he became) sat on the panel and in many cases gave the leading judgment/opinion:  
  • Re HIH Casualty & General Insurance Ltd, [2008] 1 W.L.R. 852  [2008] Bus. L.R. 905  [2008] B.C.C. 349 
  • Parmalat Capital Finance Ltd v Food Holdings Ltd (In Liquidation) [2008] B.C.C. 371   
  • Buchler v Talbot [2004] 2 W.L.R. 582  [2004] B.C.C. 214  
  • Re Pantmaenog Timber Co Ltd [2004] 1 A.C. 158  [2003] 3 W.L.R. 767  [2003] B.C.C. 659  
  • Stein v Blake (No.1) [1996] A.C. 243  [1995] 2 W.L.R. 710  [1995] B.C.C. 543  
  • Re Saul D Harrison & Sons Plc, [1994] B.C.C. 475   
  • Lipe Ltd v Leyland DAF Ltd (In Administrative Receivership) [1993] B.C.C. 385   
  • MS Fashions Ltd v Bank of Credit and Commerce International SA (In Liquidation) [1993] B.C.C. 70   
  • Re Bishopsgate Investment Management Ltd (No.2) [1994] B.C.C. 732   
  • Re Maxwell Communications Corp Plc (No.1) [1992] B.C.C. 372   
  • Re Arrows Ltd [1992] B.C.C. 131   
  • British & Commonwealth Holdings Plc (Joint Administrators) v Spicer & Oppenheim [1991] B.C.C. 658   
  • Re Abbey Leisure Ltd (1989) 5 B.C.C. 183   
  • Gomba Holdings (UK) Ltd v Minories Finance Ltd (formerly Johnson Matthey Bankers Ltd) (No.1) (1987) 3 B.C.C. 643   
  • Re Potters Oils, Re (No.2) [1986] 1 W.L.R. 201  (1985) 1 B.C.C. 99593      
  • Re Brumark Investments Ltd [2001] 2 A.C. 710  [2001] 3 W.L.R. 454  [2001] B.C.C. 259  
  • O'Neill v Phillips [1999] 1 W.L.R. 1092  [1999] B.C.C. 600  
  • Williams v Natural Life Health Foods Ltd  [1998] 1 W.L.R. 830   
  • Re D'Jan of London Ltd [1993] B.C.C. 646   
  • Re XYZ Ltd (1986) 2 B.C.C. 99520  
Lord Hoffmann has now joined Brick Court Chambers as a mediator. Here is Mr Joshua Rosenberg's Law Society Gazette piece on the Lord Hoffmann:
"So, farewell then Lord Hoffmann. The much misspelled judge retired as a law lord this week to earn some real money as an international arbitrator and mediator. He will practise from Brick Court Chambers – whose joint head, Jonathan Hirst QC, proclaimed that Hoffmann’s ‘reputation as one of the leading jurists of the last 20 years is unquestioned’.

Really? Some of us certainly questioned Hoffmann’s reputation just a decade ago. Perhaps a quick reminder would be in order.

First, though, I should stress that I am not questioning his intellectual powers, which remain formidable, nor his knowledge of the law, which strikes me as masterly. Mention Hoffmann’s name to any commercial lawyer and you will be told of some visionary ruling of his that has been followed by lesser judges ever since.

Nor am I objecting to his willingness to speak his mind when other judges would have been more tactful. The obvious example is the so-called Belmarsh case, decided in December 2004, when the law lords were asked whether there was a ‘public emergency threatening the life of the nation’ sufficient to justify legislation under which foreign terrorist suspects had been detained indefinitely.

Hoffmann thought not. This is a perfectly respectable point of view – though one, I believe, that underestimates the long-term threat to Britain. But there was really no need for him to have added that ‘the real threat to the life of the nation... comes not from terrorism but from laws such as these’. That sentence, which dominated media reports of the ruling, undermined his fellow law lords by giving the impression that they had decided the case on political grounds.

And although it seems a bit late now to say that the European Court of Human Rights ‘lacks constitutional legitimacy’ – as Hoffmann did in a lecture to the Judicial Studies Board last month – I believe he was on stronger ground in suggesting that the European judges should be slow to interfere when a national court has properly taken account of a Strasbourg ruling.

But, if Hoffmann’s reputation really had been unquestioned, he should now be approaching his retirement age of 75 as senior law lord – the very pinnacle of the judicial hierarchy. Appointed to the Lords when he was only 60, he would have become presiding judge in our final court of appeal if ‘senior’ had still meant ‘longest-serving’.

That convention was abolished in 2000 when Lord Irvine, the Lord Chancellor, announced that Lord Bingham was to become senior law lord. It was a brilliant move: Bingham had never seemed entirely comfortable as Lord Chief Justice and went on to flourish in the House of Lords. But I suspect it would never have happened but for the Hoffmann debacle of 1998.

It was in November of that year that the law lords heard and decided the first of three appeals involving Augusto Pinochet. The former Chilean dictator was challenging attempts to extradite him to Spain, where he faced charges of torture and hostage-taking. Put simply, the House of Lords had to decide whether Pinochet had immunity from arrest and extradition. Earlier, the High Court had decided he did enjoy immunity for everything he had done as head of state. If the law lords were to reject an appeal by the Spanish prosecutor, Pinochet would return to Chile in triumph.

There was immense interest in the outcome, which turned out to be a cliff-hanger. Delivering their televised judgment, the law lords appeared evenly split until Hoffmann, the most junior, voted to allow the prosecutor’s appeal – agreeing with Lords Nicholls and Steyn that Pinochet did not have immunity from prosecution. Hoffmann gave no reasons of his own.

A few days later, it emerged that Hoffmann was a director and ‘chairperson’ of Amnesty International Charity Ltd, a body set up to support Amnesty International. Nothing wrong with that, of course – or the fact that his wife had been employed by the campaign group for some 20 years. But Amnesty was a party to the case. It had been given leave to intervene and address the law lords in support of the Spanish appeal.

The normal thing for a judge to do in such circumstances is to declare an interest and invite the parties to object or acquiesce. It has long been rumoured that Lord Slynn, who chaired the panel of five law lords, paused at the start of the hearing in the expectation that Hoffmann would do just that. He did not. Perhaps Hoffmann thought he might be removed from a case he must have wanted to hear. Perhaps he thought it might cause unnecessary delay. He has never said.

According to rumour, Slynn felt let down by Hoffmann. The ruling given by Slynn’s panel had to be ‘vacated’ – the only time this has ever happened – and the case was reheard by a fresh panel. But we may never know what happened unless an insider now feels free to tell us: Slynn died earlier this month.

Need I explain why the Slynn-Hoffmann ruling was set aside by an appeal committee of five other law lords? It must surely be obvious to any lawyer. As Lord Browne-Wilkinson said in the House of Lords on December 17, 1998, ‘in the special circumstances of this case, including the fact that Amnesty International was joined as an intervener and appeared by counsel before the appellate committee, Lord Hoffmann, who did not disclose his links with Amnesty International, was disqualified from sitting.'"

Picture Credit:

New Book - Professor Vanessa Finch's 2nd edition hits the shelves - Corporate Insolvency Law - Perspectives and Principles

The 2nd edition of Professor Vanessa Finch's text book: Corporate Insolvency Law: Perspectives and Principles (Cambridge University Press, 2009) has hit the shelves! Well, my inspection copy has arrived in the post today. It is also now available at the CUP website in hardback and softback edition. I have only glanced over the book in the most cursory fashion due to other time constraints. On brief examination (i.e. looking to see if any of my articles have been cited) I note the following - it is larger than the first edition, carries an excellent bibliography and has been much expanded generally, especially in relation to corporate borrowing and pre-pack administrations. The new history section has also been expanded. I am off for a proper read now! 

Picture Credit:

Lightfoot Revisited - the changing face of UK personal insolvency law through the statistics

In R. v Lord Chancellor Ex p. Lightfoot [2000] Q.B. 597, Simon Brown L.J. (as he then was; pictured on the right in ermine in his capacity of a Lord of Appeal in Ordinary as Baron Brown of Eaton-under-Heywood) was able to say (at page 617) that:
"Some 20,000 bankruptcy orders are made each year."
If we note the table below we can see that he was only some 1,550 or so people out for the year in question (2000), but that he was roughly in the ball park. Perhaps the most important thing to take from his introductory comment is the relatively low number of individuals passing through the singular legal procedure that is bankruptcy in the year 2000 compared to 2008. Some eight years later there were 64,480 people who were declared bankrupt in 2008. This amounts to a threefold increase in redress to this so called relief and rehabilitation mechanism.

A perusal of the excellent insolvency statistics database at the Insolvency Service (IS) always makes interesting reading. I have reproduced here the historical table of personal insolvency since 1960. In retrospect the increase of redress to bankruptcy from 2004 makes uncomfortable reading for proponents of the reduction in automatic discharge movement. More work on the drivers of personal insolvency needs to be undertaken before we can definitively say whether or not the legislative change in the automatic discharge period or the over extension of credit argument is responsible for the hike in figures from 2004. 

The fact that Individual Voluntary Arrangements (IVAs) have experienced a similar upswing since 2004 could lend weight to the argument that it is the extension of credit driver that lays behind the increase in both procedures. Protagonists might however retort that this view is simplistic and that it does not take into account the rise of the so called 'IVA factories.'

With the recent increase in the Scottish personal insolvency statistics due to the LILA procedure, it looks as if the IS statisticians will be kept busy with the DRO procedure

      Not Seasonally Adjusted  
Year Total Bankruptcy  Individual Deeds of
Orders Voluntary Arrangements
1960 3,220 2,944 : 276
1961 3,941 3,642 : 299
1962 4,602 4,273 : 329
1963 4,370 4,129 : 241
1964 3,766 3,552 : 214
1965 3,762 3,556 : 206
1966 4,062 3,862 : 200
1967 4,386 4,224 : 162
1968 4,298 4,150 : 148
1969 4,772 4,552 : 220
1970 5,087 4,907 : 180
1971 4,793 4,643 : 150
1972 4,337 4,244 : 93
1973 3,917 3,817 : 100
1974 5,718 5,608 : 110
1975 7,271 7,143 : 128
1976 7,207 7,108 : 99
1977 4,485 4,403 : 82
1978 3,902 3,826 : 76
1979 3,500 3,456 : 44
1980 4,038 3,986 : 52
1981 5,151 5,075 : 76
1982 5,700 5,654 : 46
1983 7,032 6,981 : 51
1984 8,229 8,178 : 51
1985 6,776 6,728 : 48
1986 7,155 7,093 : 62
1987 7,427 6,994 404 29
1988 8,507 7,717 779 11
1989 9,365 8,138 1,224 3
1990 13,987 12,058 1,927 2
1991 25,640 22,632 3,002 6
1992 36,794 32,106 4,686 2
1993 36,703 31,016 5,679 8
1994 30,739 25,634 5,103 2
1995 26,319 21,933 4,384 2
1996 26,271 21,803 4,466 2
1997 24,441 19,892 4,545 4
1998 24,549 19,647 4,901 1
1999 28,806 21,611 7,195 0
2000 29,528 21,550 7,978 0
2001 29,775 23,477 6,298 0
2002 30,587 24,292 6,295 0
2003 35,604 28,021 7,583 0
2004 46,650 35,898 10,751 1
2005 67,584 47,291 20,293 0
2006 107,288 62,956 44,332 0
2007 106,645 64,480 42,165 0
2008 p 106,544 67,428 39,116 0

Picture Credit: 

Groundbreaking CVA at JJB facilitated by KPMG - the first listed company to go through the procedure?

Following my recent posts on CVAs and related articles (one and two), as well as the recent Insolvency Service CVA reform proposals, it is interesting to note that JJB Sports has managed to agree a CVA with its creditors. A number of news agencies are reporting on the issue. Here is the BBC's take on things:
"Troubled retailer JJB Sports has secured a vital deal that could save it from administration.

JJB's landlords and creditors have voted for a company voluntary agreement (CVA) that could secure the company's future, along with almost 12,000 jobs.

The deal could settle debts on 140 closed stores and allow the retailer to pay monthly, instead of quarterly, rent on its remaining 250 stores.

JJB has struggled to survive as sales have slumped during the recession.

"We are delighted by the result of the meetings and the overwhelming support given to the company by our creditors, with every creditor present at the meeting supporting us," said Sir David Jones, executive chairman of JJB.

"The approval of the CVA proposal by creditors is a major step forward in... [securing] JJB's long term future," he added.


The CVA will now be lodged with the courts and, if there is no successful challenge, is expected to become effective at the end of May.

The agreement means that JJB will not have to repay much of the debt owed on its closed stores.

It also means that rent becomes due monthly instead of quarterly, which will help the company's cashflow.

JJB had already been granted an extension on loan repayments by its creditors but a longer term solution was needed in order to save the company.

Faced with losing most of their money if JJB went into administration, creditors had little choice but to agree to the deal.

They include Barclays, HBOS and Kaupthing banks.

"Today's CVA agreement is ground-breaking and shows that an innovative approach to tackling the problems faced by many companies in the harsh economic climate can ensure the company continues to trade," said Richard Fleming at KPMG.

The company placed two of its subsidiaries - Original Shoe Company and Qube - into administration earlier this year and was forced to sell its gym business in March in order to raise cash."

Picture Credit: