Monday, 30 May 2011

New insolvency SI: The Investment Bank Special Administration (England and Wales) Rules 2011

The Investment Bank Special Administration (England and Wales) Rules 2011 have been published. These Rules set out the procedure for the Investment Bank Special Administration process under the Investment Bank Special Administration Regulations 2011(a) (“the Regulations”). The main features of Investment Bank Special Administration are that:

(a) the investment bank enters the procedure by court order;
(b) the order appoints an administrator;
(c) the administrator is to pursue the special administration objectives in accordance with the statement of proposals approved by the meeting of creditors and clients and, in certain circumstances, the FSA; and
(d) in other respects the procedure is similar to administration under Schedule B1 of the Insolvency Act 1986(b).

Where the investment bank is also a deposit-taking bank, the Rules also apply in relation to the Special Administration (Bank Insolvency) and Special Administration (Bank Administration) processes under Schedules 1 and 2 of the Regulations.

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Friday, 27 May 2011

Four time bankrupt - is regime tough enough?

The Insolvency Service (IS) have published an interesting press release which details the activities of a debtor who has been declared bankrupt four times. This does raise the question of whether the regime is tough enough, i.e. should more serious consequences have flowed from the third bankruptcy? The creditors of that bankruptcy and the fourth bankruptcy might certainly think so. Here are the details from the story: 

"A four-time bankrupt, Darran Anthony Matthews, was last week sentenced to 24 weeks imprisonment by Southampton Magistrates’ Court following an investigation and prosecution by the Insolvency Service and the Department for Business, Innovation and Skills.

Matthews, a farmer of Sherbourne in Dorset, who had already had his discharge from bankruptcy suspended indefinitely, was found guilty on four counts of obtaining credit without disclosing his bankrupt status.

In spite of a bankruptcy order against him in 2009, Mr Matthews obtained credit of almost £12,500 from four creditors without letting them know that he was a bankrupt, as he was required to do. The further debt incurred by Mr Matthews was in addition to the deficiency of nearly £22,500 in his bankruptcy. Mr Matthews has failed to pay any of these creditors.

In court, Mr Matthews pleaded guilty to four charges of obtaining credit without disclosing relevant information, contrary to s.360 of the Insolvency Act 1986. He was given a six-month sentence for each charge. The sentences are to run concurrently (i.e. at the same time).

Since he had been made bankrupt on three occasions prior to his latest bankruptcy, Mr Matthews must have been aware of the restrictions applicable to him as a bankrupt. In addition, these restrictions were reiterated to him by the Official Receiver in July 2009, prior to the suspension of his discharge from bankruptcy.

Commenting on the case Stephen Speed, Chief Executive of The Insolvency Service said:

“People struggling with debt who want to benefit from the debt relief arrangements offered by the insolvency regime must also be prepared to abide by the restrictions that come with that relief. Those who flout the terms of their bankruptcy orders must be prepared to face the consequences of such a decision, as Mr Matthews has found to his cost”.

Commenting on the case, Liam Mannall, an investigator with the Department for Business, Innovation and Skills said:

“Mr Matthews’ sentence sends a clear message to bankrupts who fail to keep to the terms of their bankruptcy order. We can and will investigate bankrupts, and where appropriate, take action when we find evidence of them deliberately acting to the determent of their creditors”.

Mr Matthews’ discharge from bankruptcy remains suspended indefinitely."

Picture Credit: Insolvency Service, 2011. 

Thursday, 26 May 2011

Insolvency Items in the News - Gazza's IVA and IVA advice

There are a couple of interesting insolvency items in the news. First, Mr Paul Gascoigne's bankruptcy issues seem to be behind him. This will come as a relief and there should be no more debt upset for him (pictured). The BBC are reporting that a bankruptcy petition against the 43 year old former footballer has been dismissed in the High Court in London. He apparently owed more than £30,000 to HMRC. Gazza is coming to a composition with his creditors using an IVA. As the BBC note, "...the court heard that a proposal had been put forward by Gascoigne which would allow him to pay off the full debt to HMRC within a structured time scale. District Judge Clarke, sitting at the Bankruptcy Court in London on Wednesday, heard that Gascoigne's "individual voluntary arrangement" had been approved on 13 May at a meeting of creditors."

Elsewhere, IVA advice firm Fairpoint has issued a profit warning according to Accountancy Age. It might be fair to point out that Gazza's IVA has not been organised by the firm!

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Wednesday, 25 May 2011

section 212 of the Insolvency Act 1986 considered - Re Mumtaz Properties Ltd [2011] EWCA Civ 610 (24 May 2011)

Lady Justice Arden (pictured) has handed down the Court of Appeal's judgment in Re Mumtaz Properties Ltd [2011] EWCA Civ 610 (24 May 2011). The case concerns, inter alia, section 212 of the Insolvency Act 1986 (IA86). At first instance various directors of the company were found liable to repay the amount of the directors' loan accounts and compensation for misfeasance and breach of fiduciary duty. In the appeal judgment Aden, LJ considers; what constitutes a de facto director; set off; and two questions relating to the amount of contributions by certain directors. The learned judge also refers to the recent judgment of the Supreme Court in Holland

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Tuesday, 24 May 2011

s.239 of the Insolvency Act 1986 - Green (Liquidator of Stealth Construction Ltd) v Ireland [2011] EWHC 1305 (Ch) (20 May 2011)

Mr Justice David Richards has handed down his judgment in Green (Liquidator of Stealth Construction Ltd) v Ireland [2011] EWHC 1305 (Ch) (20 May 2011). The case concerns a purported preference pursuant to section 239 of the Insolvency Act 1986 (IA86). In relation to the desire test the learned judge notes: 

"As I earlier mentioned, it is the decision to give a preference, rather than the giving of the preference pursuant to that decision, which must be influenced by the desire to produce the effect set out in s.239(4) (b). For these purposes, therefore, the relevant time is the date of the decision, not the date of giving the preference.

In Re MC Bacon Ltd [1990] BCC 78, the company reached the limit of its overdraft facility on 14 April 1987. It was loss-making and had lost a major customer, and the directors were planning to retire. The bank was insisting that a debenture be granted if it was to continue to provide facilities to the company. Discussions took place during the second half of April and the first half of May. The company executed a debenture towards the end of May. In considering the time at which the company must be influenced by the desire to put the other party in a better position, Millet J said at p.88:
"It was also submitted that the relevant time was the time when the debenture was created. That cannot be right. The relevant time was the time when the decision to grant it was made. In the present case that is not known with certainty. It was probably some time between 15 April and 20 May, although as early as 3 April Mr Glover and Mr Creal had resigned themselves to its inevitability. But it does not matter. If the requisite desire was operating at all, it was operating throughout."

In Re Fairway Magazines Ltd [1992] BCC 924, a director agreed to provide funding to the company under the terms of a written loan agreement dated 21 August 1990, which provided for the grant of a debenture to secure the loans. Advances were made under the agreement and on 27 September 1990 the debenture was executed. It was signed by the lender on the same date as the loan agreement and the only reason for the delay in execution by the company was that the director who was to sign on behalf of the company was slow in doing so and returning it to the company's solicitors. Mummery J referred to Re MC Bacon Ltd as relevant for a number of purposes, including:
"Finally, the relevant time to consider is the time when the decision is made to grant the debenture, not the date of the execution of the debenture itself. In this case the relevant date is the date of the agreement on 21 August 1990."
By contrast, in Wills v Corfe Joinery Ltd [1997] BCC 511, where two directors lent sums to a company in January 1994 on terms that they would not be called in for a year and were repaid by the company in February 1995, Lloyd J held that the decision to repay was made not when the loans were made on the agreed terms as to the date of repayment, but when the cheques for repayment were signed in February 1995. He said at p.513:
"However, I do not accept that January 1994 was the date by reference to which it is appropriate to consider whether, in giving the preference that undoubtedly was given, the company was influenced by the relevant desire. It seems to me that all that happened in January 1994 at most was that the loans became repayable in January 1995. A lot of debts were payable by the company in January 1995 and a lot of them were not paid. The fact that the directors' loan accounts were repayable in January 1995 does not lead to the conclusion that there was not a relevant decision to give the preference by actually paying those debts. It seems to me that the relevant decision to make the payments was and could only have been made at the time, or immediately before the time, when the cheques were drawn, that is to say, on 2 February and 6 February 1995. Even if, as I am prepared to accept for present purposes, what passed in January 1994 meant that there was an obligation on the company to pay the debt in January 1995, it was necessary for the board to review at that time whether to honour that obligation. If the board had known that the company was insolvent or would be made insolvent by honouring that obligation, it could not have made the payment."

Most preferences involve the payment of some debts in preference to others. All debts stem from an enforceable obligation to make the payment. If the decision to incur the debt, rather than the later decision to pay it, was the relevant time at which the company's desire was to be judged, the payment of debts would rarely constitute a preference under s.239.

It might be argued that there is a distinction between the payment of debts on the one hand and other obligations, such as an obligation to grant a security, on the other. I do not see why in principle that should be so. Even if there had been an enforceable obligation incurred in October 2007 to grant a charge, there would in ordinary circumstances after a delay of 12 or so months be a further decision to comply with the obligation, just as in the case of a debt there would be a further decision to comply with the obligation to pay the debt. Precisely the same considerations would apply in the former case as Lloyd J said would apply in the latter:
"it was necessary for the board to review at the time whether to honour that obligation. If the company had known that the company was insolvent or would be made insolvent by honouring that obligation, it could not have made the payment."

The position is, of course, all the stronger in a case such as the present where the company was not subject to any enforceable obligation to grant the charge. It would be a voluntary act and, after an interval of 12 months or more, would necessarily involve a decision to proceed with the grant of the charge.

In my judgment, the question of when the decision is made is a question of fact to be determined in the particular circumstances of each case. An existing contractual obligation is neither necessary nor of itself sufficient. There was no prior obligation to grant a debenture in Re M C Bacon Ltd but on the facts of the case Millett J found that the decision to do so had been made at some time in the period of negotiations up to 20 May 1987. In Re Fairway Magazines Ltd, where the delay in execution of the debenture was simply because the director had been slow to sign for the company, the company's decision was found to have been when the loan agreement was made, and the lender signed the debenture, a few weeks earlier. By contrast, on the very different facts of Wills v Corfe Jointer Ltd, the decision to repay the loans was made long after the loans were made and the obligation to repay them was incurred.

Because Miss Gillis and Mr Costa did not give evidence, I do not know what discussions or decisions in fact took place in October to December 2008, except that the instructions to prepare the charge were given to Mr Saunders in that period. That itself is some evidence that the decision was then taken to grant the charge. In circumstances where there has been a delay of over a year and where the company was under no obligation to grant the charge, and where even then the charge was granted only because Mrs Ireland raised the issue, the reasonable inference is that Miss Gillis, whether on her own or with Mr Costa, decided that the company should proceed to grant the charge to Mrs Ireland.

The time for judging whether the company was influenced by a desire to improve the position of Mrs Ireland is therefore about November 2008. This is entirely an issue of the thought processes of the directors of the company. They knew that the company was unable to pay its debts, including the debt to Mrs Ireland, as they fell due. Objectively it would seem likely that Miss Gillis wished to improve the position of her sister but in any event, without calling Miss Gillis and/or Mr Costa to give evidence, Mrs Ireland is unable to rebut the presumption created by s.239(6)."

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Bankrupt Logistics

Our list of famous bankrupts can now be augmented with the name of Stobbart. The News & Star is reporting that Mr Edward Stobbart is bankrupt. His family name is synonymous with the famous trucks which are a daily feature on our roads (pictured). The article continues: 

"The trucking legend who transformed the Cumbrian haulage firm Eddie Stobart into a household name was bankrupt when he died.

Legal papers which have just been released show Edward Stobart, who ran the firm for 30 years, had personal debts of £220,000 at the time of his death.

He died in hospital aged 56 in March after suffering a heart attack.

It has now emerged that Mr Stobart petitioned for his own bankruptcy at Warwick County Court last July. RSM Tenon, the insolvency firm dealing with the case, said today: “Known creditors have claims amounting to around £220,000. No material assets have yet been recovered. The investigations are ongoing.”

The business was started by Edward’s father Eddie in the 1950s as part of his agricultural business in Cumbria. But it was Edward rather than his father – known as Eddie to distinguish the two – who built up the business, taking over the fleet when he was just 21 in 1976..."

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Monday, 23 May 2011

Bankruptcy and the law in the Forsyte Saga

Mr John Galsworthy OM's 1932 Nobel prize winning Forsyte Saga is  a well-known and much loved exposition of upper middle class British family life. Law runs through the series of books, perhaps most obviously demonstrated by the third book, 'In Chancery', which was published in 1920. Bankruptcy also features. As Hunter has noted: "Philip Bosinney, in Galsworthy's Forsyte Saga, could not have sought to defend Soames Forsyte's bankruptcy petition, on the grounds that it was principally, if not wholly, motivated by the desire of Soames, a very rich man, to revenge himself on his wife's lover." (Hunter at 501 ft.40a). We have discussed bankruptcy as a weapon on the blog before. In the Forsyte Saga Soames Forsyte (pictured right) seems to have  been actuated not by a desire to participate in a distribution, but for more deep seated motivations. Bankruptcy is mentioned in chapter VII (Dartie v.s Dartie) of In Chancery:

"What worried him as a lawyer and a parent was the fear that Dartie might suddenly turn up and obey the Order of the Court when made. That would be a pretty how-de-do! The fear preyed on him in fact so much that, in presenting Winifred with a large Christmas cheque, he said: "It's chiefly for that chap out there; to keep him from coming back." It was, of course, to pitch away good money, but all in the nature of insurance against that bankruptcy which would no longer hang over him if only the divorce went through; and he questioned Winifred rigorously until she could assure him that the money had been sent. Poor woman!--it cost her many a pang to send what must find its way into the vanity-bag of 'that creature!' Soames, hearing of it, shook his head."

Chapter VI also notes:

"When his son-in-law Dartie had that financial crisis, due to speculation in Oil Shares, James made himself ill worrying over it; the knell of all prosperity seemed to have sounded. It took him three months and a visit to Baden-Baden to get better; there was something terrible in the idea that but for his, James's, money, Dartie's name might have appeared in the Bankruptcy List."

Galsworthy was a Kingston upon Thames resident and was born on Kingston Hill (the area where KLS is located). In 2007 Kingston University named a new £20 million building (pictured left) after the sometime barrister, old Harrovian, and jurisprudence graduate of New College, Oxford. Galsworthy was called to the bar in 1890. He was awarded the Order of Merit in 1929 having previously turned down a knighthood. He was too ill to collect his 1932 Nobel prize. He died six weeks after the award. For other debt related literature see here.

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Friday, 20 May 2011

What is a company for the purposes of Schedule B1, paragraph 3? - Panter v Rowellian Football Social Club & Ors [2011] EWHC 1301 (Ch) (20 May 2011)

His Honour Judge Behrens has handed down his judgment in Panter v Rowellian Football Social Club & Ors [2011] EWHC 1301 (Ch) (20 May 2011)The cases raises an interesting point for consideration, namely, can a 'club' (The Rowellian Football Social Club) be accounted a company for the purposes of jurisdiction to appoint an administrator. The learned judge concludes in the case that the court lacked jurisdiction and that a club of this nature is not a company. The case contains an interesting analysis of the company definition question. The judge notes in relation to the closet case on point: 

"Re Witney Town Football and Social Club involved a social and recreational club. It had rules which in many respects were not dissimilar from the rules of the Rowellian Club. Thus it existed solely as a body for the purpose of professional football. It had power to elect honorary day members. Rule 17 was however different from rule 12 of the Club:
The club shall only be wound up by a resolution passed at a special general meeting called for that purpose and the assets of the club shall be disposed of after payment of all outstanding loans and dues … Upon dissolution of the club, all net assets shall be devoted to Association Football and not distributed between the members.

The question arose as to whether the Club could be the subject of a compulsory winding up order. This turned on whether the Club was within the definition of unregistered company within the meaning of section 220 of the Insolvency Act 1986:
…the expression "unregistered company" includes any association and any company with the following exceptions …

At first instance it was held that the Club was not "an association" within the meaning of the definition and thus not amenable to the winding up jurisdiction. On appeal Morritt J (as he then was) upheld the decision of the county court judge.

As Morritt J explained the words "any association" cannot be given their literal meaning. The question is whether Parliament could reasonably have intended a club of this sort to be subject to the statutory winding up procedure. He referred to the well known decision of Re St James Club (1852) 2 De GM at 387 where there is a discussion of the nature of a members' club and the Lord Chancellor held that such a club was not "an association" to enable it to be wound up.

Morritt J went on to consider whether the Witney Town Football Club was not a club in the ordinary acceptation of that term. He then considered the rules of the club concluding that none of the rules he had specifically referred to took it out of the ordinary acceptation of the term members club. The fact that the assets would not be distributed to the members on dissolution did not warrant the implication that Parliament intended it to be subject to the winding up procedure in the 1986 Act.

Mr Roberts sought to distinguish Re Witney Town Football Club on the basis that rule 12 of the Club's rules made no provision for dissolution and no provision for what would happen to the assets on dissolution. However in other respects the rules are very similar. There are familiar aspects of a members club including provisions for election, a management committee, subscriptions, expulsion and the like. In my view the Rowellian Club is just as much a members club as the Witney town Football Club. It is not an association within the meaning of section 220(1) of the Act."

Judge Behrens concludes: "For all these reasons I have come to the relatively clear conclusion that there is no jurisdiction to appoint an administrator (either by the Court or otherwise) over an entity such as the Club. It follows that this application for an administration order falls to be dismissed." It seems as if insolvency can touch football at both ends of the divisions! 

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Re Specialised Mouldings - any anecdotes or memories on the adoption of employment contracts saga?

I have recently received an email from a former director of Specialised Mouldings Ltd, the company whose name will always been synonymous with the adoption of employment contracts issue and Mr Justice Harman's (pictured) famous unreported decision. The correspondent wrote:

"Andrew Conquest was administrative receiver of Specialised Mouldings Limited - a landmark case for insolvency practitioners in the area of employment liabilities 

My husband.... and I founded and were directors and major shareholders in Specialised Mouldings and are interested to know a little about the the insolvency judgement by Sir Jeremiah Harman and the subsequent House of Lords ruling re. the Specialised Mouldings Letter....

...the issuance of raw material import permits, likely caused the downfall of the business - we being unable to lay off workers even though we had no raw materials for completion of orders in hand."

Do any of the blog readership have any memories of the turbulent period back in 1994 when the Insolvency Acts of that year were passed and the furore surrounding Powdrill v. Watson, etc?

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Thursday, 19 May 2011

Memorandum of Understanding: IS, R3 and Jobcentre Plus

The Insolvency Service (IS - pictured), R3 and Jobcentre Plus have published a revised Memorandum of Understanding. As R3 note, "The 'Memorandum of Understanding' is an information sharing initiative initially set up by Phil Wilson, MP for Sedgefield. It facilitates close working between R3, the trade body for Insolvency Practitioners and Jobcentre Plus. Under the initiative, Insolvency Practitioners give ‘early warning’ of impending redundancies to Jobcentre Plus wherever possible, which helps the agency provide support to affected employees. The Memorandum was originally signed in 2009 by Jim Knight and Ian Lucas, the Employment and Business Ministers at the time. There has since been routine information sharing and liaison between Jobcentre Plus and Insolvency Practitioners. A new Memorandum, aiming to foster yet closer working between partners, will be signed by Chris Grayling, Minister for Employment and Edward Davey, Minister for Employment Relations, Consumer and Postal Affairs."

Mr Phil Wilson MP commented: “Losing a job is one of the most difficult situations people can face in their lifetime. It’s essential that they receive the right information at the right time to help them access training, claim benefits and find new employment. The Memorandum has already helped support thousands of individuals and, with many businesses continuing to struggle, it will play a key role for some time to come. With cross party support and with the recognition of the new Government, the joined up working between Jobcentre Plus and Insolvency Practitioners can go from strength to strength, to the benefit of the employees that sadly pay the price of business failure.”

R3 President, Ms Frances Coulson added: “The insolvency profession sees the human cost of business failure on a daily basis. The Memorandum helps us to work with expert government agencies to ensure that those facing redundancy are given as much support as possible at a very distressing time.”

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Wednesday, 18 May 2011

Insolvency in the news - kind banks and new books

An interesting insolvency related article has appeared in the Daily Mail (I found it on a train honest!). The piece notes that banks (example pictured) are being kind and not putting companies into liquidation. The banks are instead writing off the indebtedness. The author notes:

"The trend indicates that banks have been less eager to take court action and more willing to accept other solutions such as taking a stake in a business in exchange for writing off debts. But analysts warned it could also mean that banks were simply abandoning claims without forcing insolvency, allowing bust firms to keep trading and so hiding the real scale of business failures."

In other news, Professor Andrew Keay's new book has been published (Keay, A. The Corporate Objective. Edward Elgar, 2011). Here is the abstract:

"The Corporate Objective addresses a question that has been subject to much debate: what should be the objective of public corporations? It examines the two dominant theories that address this issue, the shareholder primacy and stakeholder theories, and finds that both have serious shortcomings.

The book goes on to develop a new theory, called the Entity Maximisation and Sustainability Model. Under this model, directors are to endeavour to increase the overall long-run market value of the corporation as an entity. At the same time as maximising wealth, directors have to ensure that the corporation survives and is able to stay afloat and pursue the development of the corporation’s position. Andrew Keay seeks to explain and justify the model and discusses how the model is enforced, how investors fit into the model, how directors are to act and how profits are to be allocated.

Analysing in depth the existing theories which seek to explain the corporate objective, this book will appeal to academics in corporate law and corporate governance as well as law, finance, business ethics, organisational behaviour, management, economics, accounting and sociology. Postgraduate students in corporate law and corporate governance, directors, and government regulators will also find much to interest them in this study."

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Tuesday, 17 May 2011

paragraph 63 of Schedule B1 to the Insolvency Act 1986 deployed - Lehman Brothers v International (Europe), Re [2011] EWHC 1233 (Ch) (17 May 2011)

Mr Justice Briggs has handed down his judgment in Lehman Brothers v International (Europe), Re [2011] EWHC 1233 (Ch) (17 May 2011)  in the RCJ (pictured). The case concerns an application by the Administrators of LBIE for directions pursuant to paragraph 63 of Schedule B1 to the Insolvency Act 1986 (IA86) designed to enable them to identify client money and its traceable proceeds received or held by Lehman Brothers International Europe ("LBIE").

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Monday, 16 May 2011

IPs and Olympic tickets - Mr Hunt on the BBC

At the end of last month I posted up a brief bit of commentary which mulled on the idea that the Olympics ticket regime might give rise to some irresponsible behaviour in terms of people over extending themselves so as to be able to get hold of Olympics tickets. It was therefore with some surprise that I clocked Mr Stephen Hunt on the BBC Breakfast news this morning. He also appeared on the Today programme talking about the same issue, namely, the volume of tickets he has subscribed for, some £36,000 worth. Whilst his profession was not noted on the BBC Breakfast programme it has been mentioned on the website write up and was mentioned on the Today programme. Indeed, it seems as if John Humphreys (pictured) had read my post having in mind his first question! Perhaps Stephen will be the subject to test my hypothesis! At least he will be able to advise himself if the worst happens! 

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Friday, 13 May 2011

IS publication: Consultation on Restructuring Moratorium

"I am setting out today the stakeholder responses to our consultation on proposals for a Restructuring Moratorium.

When launching the consultation, the Government was focused on setting a path to balanced and sustainable economic growth across the economy, with increasing jobs and prosperity. This included looking at the challenges and risks faced by business in the refinancing and restructuring of existing debts.

The consultation document invited views on a Restructuring Moratorium which would enable viable businesses, with a realistic prospect of implementing a successful restructuring of their financial affairs, to obtain a flexible breathing space outside of a formal insolvency procedure during which the restructuring could be negotiated and

Forty-two businesses, individuals, and representative bodies responded to the consultation. Responses received suggest that, whilst the refinancing and restructuring of company debt remains a valid concern, the urgency of the case for introducing such a moratorium is not as great as previously thought. Those working on large restructurings tell us that they have been able to use existing mechanisms to get around some of the problems that the moratorium is designed to address.

There have been suggestions that a greater impact might be achieved by the restructuring moratorium were it also to tackle issues such as termination clauses (whereby suppliers can cancel essential contracts and threaten the viability of
company’s rescue plans) and “cram down” mechanisms (to reduce the power of small creditors to block proposals). These are significant and difficult issues. It would be helpful to have further discussions with the main stakeholder groups to explore how much support there might be for addressing these issues; the best way in which to do so and the implications of introducing such further measures.

The Government has therefore decided that the next step should be to publish the responses to the consultation that it received to allow all concerned to understand the various views expressed. My officials will then work with stakeholders both to refine the moratorium proposals and to consider in more detail the additional areas that have
been raised."

Picture Credit: Insolvency Service. 

Thursday, 12 May 2011

IVAs and contingent creditors - Peoples Phone Ltd v Nicolaou [2011] EWHC 1129 (Ch) (06 May 2011)

His Honour Judge Behrens has handed down his judgment in Peoples Phone Ltd v Nicolaou [2011] EWHC 1129 (Ch) (06 May 2011).  The case contains an interesting discussion of IVAs and contingent creditors on appeal from the Wakefield County Court (pictured). On contingent creditors the judge notes: 

"As the question whether PPL is a "contingent creditor" is academic I propose to deal with it relatively briefly:

1. There is no definition of contingent debt or liability in section 382 of the Insolvency Act 1986.

2. In Glenister v Rowe the Court of Appeal held that a party to litigation against the bankrupt prior to the bankruptcy where the order for costs was made after the bankruptcy. The discretionary nature of the Court's power to order costs indicated that there was no liability contingent or otherwise in the absence a Court order. Similarly in the Birmingham City Council case a liability to repay benefit which was determined to have been a recoverable overpayment subsequent to the bankruptcy was not a contingent liability as at the date of the bankruptcy. This was because the liability only arose when a determination of misrepresentation which took place after the bankruptcy. This determination was not a mere formality so there could not be said to be a contingent liability as at the date of the bankruptcy.

3. On the other hand in the T & N case David Richards J held that potential claimants for asbestos related injuries who had been exposed to asbestos but had not suffered compensatable loss as at the date of the creditors' meeting were contingent creditors. In those cases the contingency was whether the claim in tort was completed by the development of the relevant condition.

4. Miss Temple submitted that this case was analogous to the two Court of Appeal authorities referred to above. She pointed out that rectification was a discretionary remedy and thus covered by those two decisions. In the T & N case there was no discretionary element. Either the claimants developed the relevant condition or they did not. It was on that basis they were contingent creditors.

5. To my mind there is force in Miss Temple's submissions. I agree that PPL was not a contingent creditor within the meaning section 382 of the Act. As at the date of the IVA it was an actual creditor. Whether it remained an actual creditor after the date of the Deed of Surrender depends on the outcome of the rectification proceedings. If the rectification proceedings succeed it remains an actual creditor throughout."

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Wednesday, 11 May 2011

Schemes of Arrangement and COMI - Rodenstock GmbH (The "Scheme Company"), Re [2011] EWHC 1104 (Ch) (06 May 2011)

Mr Justice Briggs (pictured) has handed down his judgment in Rodenstock GmbH (The "Scheme Company"), Re [2011] EWHC 1104 (Ch) (06 May 2011). The case concerned a scheme of arrangement in an insolvency environment. As the learned judge observed: "Due to an apprehension that, if the Scheme is not sanctioned, the Company may be unable to avoid insolvency significantly beyond the end of April, both stages of the court proceedings relating to the Scheme have been undertaken with considerable urgency, with a view to obtaining the court's decision before the end of term, and the onset of the Easter holiday period on 22nd April 2011. The sanction hearing therefore took place on 19th April 2011, and after considering the matter and concluding that the Scheme ought to be sanctioned, I made the appropriate order on 21st April 2011, stating that my reasons for doing so would be provided thereafter in a reserved judgment." 

The judgment contains some interesting analysis of how the insolvency laws and COMI sit with schemes of arrangements. The learned judge notes: "It is apparent therefore that the Insolvency Act confers jurisdiction on the court to wind up both insolvent and solvent unregistered companies, with no express jurisdictional restriction referable to the company's place of incorporation, COMI or establishment. The court did not, however, treat the very broad provisions of the Insolvency Act (formerly in the Companies Acts) as giving it carte blanche to wind up foreign companies, regardless of the presence or absence of any connection with England, or of the utility or otherwise of making a winding up order. On the contrary, there evolved three judge-made conditions for the making of a winding up order in relation to a foreign company namely:
i) that the company had a sufficiently close connection with England usually, but not invariably, in the form of assets within the jurisdiction;

ii) that there was a reasonable possibility of benefit accruing to creditors from the making of a winding up order; and

iii) that one or more persons interested in the distribution of assets were persons over whom the English court could exercise jurisdiction.

See Real Estate Development Co [1991] BCLC 210, per Knox J at 217, approved by the Court of Appeal in Re Latreefers Inc [2001] BCC 174."

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Tuesday, 10 May 2011

Insolvency Event: ILA dinner - 16th November 2011 - Natural History Museum

The Insolvency Lawyers Association (ILA) have announced the date for the 2011 annual dinner. The date for your diary is 16th November 2011. The event will again be held at the Natural History Museum (pictured). Professor Sarah Worthington QC FBA gave an interesting lecture last year. It will be interesting to see who speaks at this year's event. 

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s.212 IA86 - Brown & Anor v Button & Ors [2011] EWHC 1034 (Ch) (04 May 2011)

His Honour Judge Behrens has handed down his judgment in Brown & Anor v Button & Ors [2011] EWHC 1034 (Ch) (04 May 2011). The case considers s.212 Insolvency Act 1986 (IA86). s.212 notes:

"212.— Summary remedy against delinquent directors, liquidators, etc.
(1) This section applies if in the course of the winding up of a company it appears that a person
(a) is or has been an officer of the company,
(b) has acted as liquidator […] 224 or administrative receiver of the company, or
(c) not being a person falling within paragraph (a) or (b), is or has been concerned, or has taken part, in the promotion, formation or management of the company, has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company.
(2) The reference in subsection (1) to any misfeasance or breach of any fiduciary or other duty in
relation to the company includes, in the case of a person who has acted as liquidator […] 225 of
the company, any misfeasance or breach of any fiduciary or other duty in connection with the
carrying out of his functions as liquidator […] 225 of the company.
(3) The court may, on the application of the official receiver or the liquidator, or of any creditor
or contributory, examine into the conduct of the person falling within subsection (1) and compel
(a) to repay, restore or account for the money or property or any part of it, with interest at
such rate as the court thinks just, or
(b) to contribute such sum to the company's assets by way of compensation in respect of
the misfeasance or breach of fiduciary or other duty as the court thinks just.
(4) The power to make an application under subsection (3) in relation to a person who has acted
as liquidator […] 225 of the company is not exercisable, except with the leave of the court, after
[he]226 has had his release.
(5) The power of a contributory to make an application under subsection (3) is not exercisable
except with the leave of the court, but is exercisable notwithstanding that he will not benefit from
any order the court may make on the application."

After a thorough examination of the facts the learned judge concludes, "In my view therefore the claims against Geoffrey Button and James Button succeed in respect of the moneys actually received by them. The claim against Mrs Button fails. Subject to arithmetic and questions of interest there will be judgment against Geoffrey Button for £57,546.50 (£29,935.88 + £18,211.13 + £9,399.74) and against James Button for £65,375.91 (£28,763.36+ £23,253.05 + £13,359.50)."

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