Bankruptcy, Insolvency and Corporate Rescue

We have moved to Jordans Insolvency Law Online - http://www.jordansinsolvencylaw.co.uk/

2011-06-16T07:45:00.017+01:00

The bankruptcy blog has now moved to Jordans Insolvency Law Online. All future blog posts will be on the new site. Daily blog updates will continue but the site coverage will be more comprehensive as there are also case summaries from Guidhall Chambers, legislation updates from KPMG's Sue Morgan, practitioner interviews, and access to the Jordans stable on insolvency materials (BPIRs, Keay & Doyle's Annotated Guide, Keay & Walton, etc) on the new site.

Thank you for visiting this site over the last three years. We have had 185,655 visitors from over eighty countries and have averaged around 600 visitors a day over the last year. Thank you for reading the blog and for your comments. See you at the new site!

Insolvency items in the news: insolvency defined and the Duchess and bankruptcy

2011-06-15T07:03:00.043+01:00

The Daily Mail and the Daily Telegraph are reporting that Sarah, Duchess of York (pictured) is constantly in a state of near bankruptcy. We have addressed the Duchess' liquidity issues before and the plight of some bankrupt peers. This latest twist in the Duchess's finances might see her name added to that of the Duke of Manchester and Duke of Leinster as a ducal bankrupt. The Telegraph note:

"In the first episode of Finding Sarah, her new six-part documentary series for Oprah Winfrey's television channel, the Duchess said: "I don't really understand finances at all".

She is believed to be receiving £200,000 for taking part in the series, which sees her submit to a string of tearful therapy sessions with TV counsellors and experts.

US television analysts have said the figure is "very low" compared to the sums paid even to medium-profile personalities in mid-ranking American reality TV shows.

"At the moment I'm just worried about paying off people that need to be paid off," the Duchess said. "There's three firms and three personal friends"...

"I lost all my jobs, I lost all my staff, I lost everything," she said.

"I've tried very hard not to go into financial bankruptcy." The Duchess blamed her financial illiteracy on her years spent receiving an allowance from the Queen as the wife of the Duke. "When we got divorced I didn't know how to do anything," she said...

In other news Mr John Kay has published an interesting article in the Financial Times which carries an exposition of the insolvency rules. The article is entitled: "New rules to protect the many from the few." The piece notes:

"...But in the past two decades many corporate collapses involved businesses that were not fundamentally bad but whose financial structures could not accommodate even modest setbacks. Bankruptcy of a corporate entity in these circumstances may have large, adverse and avoidable consequences for people who were not party to the original agreements. These issues arise for any business with a dominant market position or engaged in the production of a key public service. Elderly people who find that the bed on which they lie has been the subject of a financial transaction on which the lessee has defaulted are just a particularly hard case.

In 1986 Britain created a new insolvency regime, loosely modelled on the US Chapter 11, designed to make it easier to continue the business of a failed company. In many respects, this has worked well – perhaps too well. Pre-packed administration deals are marketed as a means of escaping liability for over-rented property, while US airlines fly in and out of Chapter 11 almost as often as they fly in and out of Chicago, waving creditors goodbye without changing the pilot. A recent Office of Fair Trading report highlighted the too common phenomenon of the administrator who remains in charge of the business for several years until his own fees have exhausted the assets.

General insolvency rules are inadequate when a care home, or a bank, or a water supply company fails. The first priority in these cases must be the residents, depositors and customers: creditors come after. We need special regimes for such businesses, which would limit gearing, without discouraging entrepreneurs looking to enter these sectors.

A resolution authority, more powerful than the existing Insolvency Service, could not only protect unsecured creditors more effectively, but also balance the interests of creditors with those of the public at large. Without such an institution it is hard to see how we can ever take schools and hospitals out of direct state control. We are engaged in yet another round of reform which ducks the issue of what happens when these organisations fail. Failure is intrinsic to the market economy: but the legitimacy of capitalism depends in part on how it deals with the consequences of such failure. Recently, it hasn’t been doing too well."

Picture Credit: http://i.telegraph.co.uk/multimedia/archive/00885/duchess-of-york-460_885957c.jpg

New Museum Acquisition: Thomas Davies, The Laws Relating to Bankrupts..., London, 1744

2011-06-14T07:00:00.036+01:00

The Muir Hunter Museum of Bankruptcy has aquired another interesting item. The collection now contains Mr Thomas Davies' "The laws relating to bankrupts, brought home to the present time : with several special cases, modern determinations, and precedents relating thereto, and directions for creditors and debtors : also a list of the fees in bankruptcy, and the method of proceeding therein", printed in London by Henry Lintot MDCCXLIV (1744).

The book (pictured) measures 8.5 x 13". The leather binding is in good condition with only slight wear and rubbing. Internally the text is very good, with only slight worming to the upper right corner of the last several leaves. There are two previous owner signatures, an undated Samual Sedgwick and what appears to be a 'Dan Jones', Lincoln's Inn, dated November 20th 1765. This is a rare work and scholars are welcome to use by appointment.

Insolvent: some definitions

2011-06-13T07:44:00.018+01:00

Building on our last post on bankruptcy definitions I thought it might be useful to include some definitions of the term insolvent in this jurisdiction and elsewhere.

England and Scotland

"A person is deemed to be insolvent within the meaning of this Act if he has either ceased to pay his debts in the ordinary course of business, or he cannot pay his debts as they become due. (Sale of Goods Act 1979, s 61(4) (as amended by the Insolvency Act 1985, s 235, Sch 10, Part III, and the Bankruptcy (Scotland) Act 1985, s 75(2), Sch 8)

"'I admit that a man is not insolvent, because he postpones the payment of a demand for a week or ten days, during which the creditor consents to wait, or renews a bill; and yet these are indications of a want of present power to fulfil his engagements. These, however, are cases to be decided by a jury upon the whole matter. My understanding of insolvency is a man's not being in a condition to pay 20s [now 100 pence] in the pound, in satisfaction of all demands.'" Teale v Younge (1825) M'Cle & Yo 497 at 506, per Garrow B

"The ordinary import of the word insolvency is an incapability of paying the party's just debts.'" Parker v Gossage (1835) 2 Cr M & R 617 at 620, per Parke B

"[By a marriage settlement real property was vested in trustees upon trust for the wife for life, and after her death to pay the rents to the husband, until he should be bankrupt or 'insolvent', with a gift over to the children.] 'The settlement here creates a series of vested estates, the interest of the children taking effect in remainder upon the bankruptcy or insolvency of their father. On his becoming bankrupt in the lifetime of his wife, his interest in remainder, unless it went over, would have passed to his assignees, and the intention of the gift over was to preserve the property to the children in the event in which it would otherwise pass to the assignees. Neither can there be any question that what took place was an insolvency within the meaning of the settlement. The word insolvent has no technical meaning in such cases, but simply means incapable of paying debts that are due…. It is impossible to say that there was not an insolvency in this case, although no doubt a mere request for time, or a compromise of disputed claims, would not amount to an insolvency.' Re Muggeridge's Trusts (1860) John 625 at 627, per Page Wood V-C

'I cannot help thinking it quite clear that the term “insolvent” means public insolvency; not necessarily the taking the benefit of, or being made liable to, the Insolvent Act, but being incapable to pay his debts in ordinary course; or, in other words, having “stopped payment”…. It may at least mean “not paying” as well as “being incapable of paying”.' R v Saddlers' Co (1863) 10 HL Cas 404 at 463, per Lord Wensleydale

'There are decisions as to the meaning of the word “insolvent”. They all state that “insolvency” means commercial insolvency, that is to say, inability to pay debts as they become due.' London & Counties Assets Co Ltd v Brighton Grand Concert Hall & Picture Palace Ltd [1915] 2 KB 493 at 501, 503, per Buckley LJ

Australia

'“Insolvent” is a word that has no technical meaning in the law of England; it simply means “unable to pay debts”. In this State [South Australia], in consequence of the laws for the relief of insolvent debtors using the term insolvent where in England the term “bankrupt” is used, the word has, in my opinion acquired, in addition to its primary meaning, as above, the technical meaning of subject to legal process under those laws…. So well established has this meaning become in popular usage in this State that if anyone were told that a certain individual—I am not speaking of companies, which are not subject to the Insolvent Acts—had “become insolvent”, he would, I believe, understand by that expression not that he was merely unable to pay his debts, but that he had become subject to the process of the Court of Insolvency.' Re Salom, Salom v Salom [1924] SASR 93 at 95, 97, per Murray CJ

Canada

'The question … is, was the debtor “in insolvent circumstances” or “unable to pay his debts in full” when he executed the mortgage in question? The authorities shew that these two phrases denote the same financial condition…. Various tests of insolvency have been from time to time formulated and applied, but the one which has been received with most favour in this province is that given by Vice-Chancellor Spragge in Davidson v Douglas [(1868) 15 Gr 347 at 351]. He there says that in considering the question of the solvency or insolvency of a debtor the proper course is “to see and examine whether all his property, real and personal, be sufficient if presently realised for the payment of his debts, and in this view we must estimate his land, as well as his chattel property, not at what his neighbours or others may consider to be its value, but at what it would bring in the market at a forced sale; or at a sale when the seller cannot await his opportunities, but must sell”…. The Spragge test seems to me the proper one as applied at least to a non-trader.' Trotter v Pedlar [1921] 1 WWR 233 at 235–236, per Mathers CJKB

Picture Credit: http://www.ilovesweethearts.co.uk/blogJo/wp-content/uploads/2011/01/library.jpg

Bankruptcy - some definitions

2011-06-10T07:29:00.010+01:00

We have discussed the historical derivation of the term bankruptcy before. I thought it might be useful in this post to include some further definitions of the term. These examples are drawn from both primary and secondary sources in this jurisdiction and elsewhere. This post will be updated with further definitions as and when the shelves (pictured) bear fruit.

"Bankruptcy is a proceeding by which the State takes possession of the property of a debtor by an officer appointed for the purpose, and such property is realised and, subject to certain priorities, distributed rateably amongst the persons to whom the debtor owes money or has incurred pecuniary liabilities." (2 Bl Com 472)

'"Bankrupt' includes any person whose estate is vested in a trustee or assignee under the law for the time being in force relating to bankruptcy." (Bills of Exchange Act 1882, s 2)

"'Bankruptcy' includes liquidation by arrangement; also in relation to a corporation means the winding up thereof." (Law of Property Act 1925, s 205)

'That section [the Bankruptcy Act 1869, s 72 (repealed; see now the Insolvency Act 1986, s 363)] enacts that “Every Court having jurisdiction in bankruptcy under this Act shall have full power to decide all questions of priorities and all other questions whatsoever, whether of law or fact, arising in any case of bankruptcy coming within the cognizance of such Court, or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice” under the provisions of the Act. It appears to me very clear that “bankruptcy” does in this section include “composition.” The word “bankruptcy” is a general term, and is used to include all the three modes of settling the debts of a debtor with his creditors which are included in the Act; and the words, “Every Court having jurisdiction in bankruptcy,” include, surely, every court having jurisdiction in a composition. In my opinion, therefore, bankruptcy does clearly include composition.'" Re Thorpe, ex p Hartel (1873) 8 Ch App 743 at 745, per Mellish LJ

Scotland

"[By a codicil to a will a testator bequeathed a sum of money, upon trust to pay the income thereof to his son 'during his life, or! until he shall become bankrupt'.] 'He has become bankrupt according to the law of Scotland…. In default of evidence I shall assume that bankruptcy in Scotland is a bankruptcy within the meaning of the words “shall become a bankrupt”…. We all know what a bankruptcy means. It means shortly a cessio bonorum for the benefit of all the creditors of the person who makes that cesser, and unless it were proved to me that by the municipal law of a particular country there was some such unfairness or some such departure from what is sometimes called “natural law” that I ought not to regard it as a bankruptcy within our law, and within the meaning of this clause, I should certainly regard bankruptcy according to the law of any civilised country as a bankruptcy within the meaning of the instrument before me.'" Re James, Clutterbuck v James (1890) 62 LT 454 at 455, per Kekewich J

Canada

"'Bankruptcy is a well understood procedure by which an insolvent debtor's property is coercively brought under a judicial administration in the interests primarily of the creditors. To this proceeding not only a personal stigma may attach but restrictions on freedom in future business activity may result. The relief to the debtor consists in the cancellation of debts which, otherwise, might effectually prevent him from rehabilitating himself economically and socially…. Insolvency, on the other hand, seems to be a broader term that contemplates measures of dealing with the property of debtors unable to pay their debts in other modes or arrangements as well. There is the composition and the voluntary assignment, devices which, in appropriate circumstances, may avoid technical bankruptcy without too great prejudice to creditors and hardships to debtors. These means of salvage from the ravages of misfortune are of the essence of insolvency legislation, and they are incorporated in the Bankruptcy Act."' Canadian Bankers Assocn and Dominion Mortgage & Investments Assocn v A-G of Saskatchewan [1956] SCR 31 at 46, SCC, per Rand J

Picture Credit: http://farm3.static.flickr.com/2317/2460028088_a0baeb592e.jpg

Statutory Demands and set-aside applied: Mahon & Anor v FBN Bank (UK) Ltd [2011] EWHC 1432 (Ch) (06 June 2011)

2011-06-09T07:52:00.000+01:00

HHJ Simon Barker QC has handed down his decision in Mahon & Anor v FBN Bank (UK) Ltd [2011] EWHC 1432 (Ch) (06 June 2011). The case concerns an interesting discussion of the courts ability to set-aside statutory demands. On set-aside the learned judge notes:

"...IR 6.1 concerns the form and content of a statutory demand and IR 6.1(5) provides :

(5) If the creditor holds any security in respect of the debt, the full amount of the debt shall be specified, but—

(a) there shall in the demand be specified the nature of the security, and the value which the creditor puts upon it as at the date of the demand, and

(b) the amount of which payment is claimed by the demand shall be the full amount of the debt, less the amount specified as the value of the security.

A set aside application is not a trial, and there is no jurisdiction to make binding findings of fact or a substantive determination of issues on the merits. This is emphasised by the language of IR 6.5(4) under which the discretion is permissive and the tests do not envisage a final determination. The court is engaged in a summary process requiring consideration and some evaluation of the available evidence, but not a conclusive or final determination.

Although the court may give directions under IR 6.5(3), there is no automatic requirement for disclosure; and, oral evidence would be unusual, except to the extent that litigants in person may be allowed the indulgence of supplementing their written evidence by oral statements during the hearing.

As is implicit in IR 6.5(3), fresh evidence may be admitted up to and during the hearing. The exercise of this procedural discretion will be governed by the court's duty to comply with and further the overriding objective (the CPR being generally applicable to insolvency proceedings), and although an appeal, unconstrained by the Ladd v Marshall[2] criteria.

IR6.5(4) confers a discretion on the court, which is, of course, to be exercised judicially, that is in accordance with established principles of law, having regard to the circumstances of the case, and also bearing in mind the CPR. Sub-rules (a), (b) and (c) address particular grounds for the exercise of the discretion. Subparagraph (d) provides a residual ground, expressed openly and without qualification (save that "other grounds" obviously means that (a), (b) and (c) as individual grounds are excluded from or fall outside (d)).

First instance decisions to the effect that subparagraph (d) is designed to deal with procedural flaws in a demand and inappropriate for consideration of substantive matters have been criticised by the Court of Appeal, Budge v A F Budge Contractors Ltd [1997] BPIR 366, in which extensive reference was made to the Court of Appeal decision in Re a Debtor [1989] 1 WLR 271.

In Budge, Peter Gibson LJ, with whom Balcombe and Hutchison LJJ agreed, observed that it is "quite impossible to foresee all the circumstances which may arise and which may justify the proper application of that subparagraph. But … there is no point in setting aside a statutory demand for defects in the statutory demand which are not so substantial as to leave the debtor truly perplexed by its contents … [or … to require a creditor] to litigate his claim that he is owed money by the debtor, if it cannot be foreseen that there will be any ground on which the creditor will be denied his claim were the matter to be litigated".

In a sentence, and drawing on the judgment of Nicholls LJ, as he then was, in Re a Debtor [1989] 1 WLR 271, p.276, in addition to the above, the discretion under IR6.5(4)(d) is properly invoked and exercised in any case in which the court is satisfied that it would be unjust to allow the creditor to proceed to the next step, namely to present a bankruptcy petition.

Allegations of undue influence in the context of a guarantee to a bank given by a wife in respect of business lending to a husband or his company and where the wife raised a defence that the bank was on notice that her concurrence in the transaction had been procured by her husband's undue influence were the subject of appeals in eight cases considered by the House of Lords in 2001 and decided together under the lead name RBS v Etridge (No.2) [2001] UKHL 44.

Where a wife is a guarantor of lending to her husband or a business, the first task is to ascertain whether the guidance in Etridge is applicable to the lender/bank. In the ordinary course, there is no presumption of undue influence. There is a degree of sensitivity to the facts. However, the test is set at a very low level so that it should be a straightforward matter to decide. The short answer is, "[q]uite simply, that a bank is put on inquiry whenever a wife offers to stand surety for her husband's debts"[3]. To which I would add, that this is all the more so where the wife is not known to the lender/bank and is volunteered as a surety by the husband...."

Picture Credit: http://s0.geograph.org.uk/geophotos/01/35/47/1354729_260ec9f0.jpg

Insolvency items in the news: bankruptcy from legal fees, no win no fee and some alleged misconduct

2011-06-08T08:54:00.001+01:00

There are some interesting items in the news which have insolvency related themes. The Daily Telegraph is reporting that a magistrate who was recently acquitted of serious sexual assault is now facing bankruptcy as a result of his legal costs. Elsewhere, the BBC are reporting that bankruptcy costs are to rise. The story notes:

"The rise in the cost of going bankrupt could discourage people with financial problems from seeking a solution, debt experts are warning.

The fee for petitioning for bankruptcy rose by £75 to £525 at the start of the month. With the court fee added on, the total upfront cost is £700.

The Insolvency Service said the increase was needed to cover the cost of administration.

The charges, including court fees, have gone up by 37% since March last year.

Insolvency practitioner Mark Sands, from RSM Tenon, has warned that the increase would put extra pressure on individuals who were likely to be under stress or depressed.

"So many people flounder around and do not see a way out," he said.

"They are going to be put off exploring bankruptcy as a solution."

Squeeze

The £525 charge is a deposit to cover the cost of managing a bankruptcy, which allows the bankrupt person to throw off the burden of debt and make a fresh start.

The Insolvency Service recovers a full administration fee of £1,715, less the deposit, from the bankrupt's assets or surplus income at a later stage. This sum is not being increased.

The Insolvency Service has seen its income squeezed because of the falling value of homes and other assets which are recovered from bankrupts.

Currently, the £1,715 fee is never fully paid in half of bankruptcies.

There has been some criticism of the rising cost.

"It is unfair to families who are struggling but I felt that any money I had was going to be taken anyway," said a recent bankrupt who spoke to BBC News,

Jon Elwes, from the Money Advice Trust, said: "This increase in the cost of going bankrupt is likely to swell the numbers of people falling through the net of the current insolvency regime.

"Our advisers at National Debtline speak to people everyday for whom bankruptcy would be the best solution to their debt problem, but for the fact they cannot afford the associated fees."

Lower cost

There is now a cheaper and easier alternative, the Debt Relief Order (DRO), which costs £90.

“We have to strike a balance between giving bankrupts debt relief and a fresh start, and the need to provide some return to creditors”

...In the first quarter of this year there were 6,788 DROs, a 20% rise on the previous year.

However, people can only ask for a DRO if their debts are less than £15,000 and savings and assets are less than £300.

"What if you have £16,000 of debt?", said Mark Sands of RSM Tenon.

"You are faced with that barrier of hundreds of pounds before you can opt for bankruptcy to resolve your difficulties."

Una Farrell, from the Consumer Credit Counselling Service, said: "It is a very steep rise. We already have to do a lot of work helping our clients to get the money together to pay the fees."

But Mr Horne said the Insolvency Service was obliged by Parliament to break even, a task which had become increasingly difficult.

"It has always been our policy that if bankrupts can pay something towards their debts then they should," he said.

"We have to strike a balance between giving bankrupts debt relief and a fresh start, and the need to provide some return to creditors."

Elsewhere, The Guardian and Accountancy Age are both reporting on the no win no fee issues surrounding IPs and the recently mooted reforms to legal aid. The Guardian story notes:

"But the move to restrict the use of conditional fee arrangements applies not just to personal injury cases but also to a range of other legal disputes, including insolvency situations. The plans have raised fears that insolvency practitioners may find it harder to pursue fraudulent company directors to recover cash for creditors. HMRC would be the biggest loser, with its losses due to insolvencies and fraud running into billions of pounds every year."

"Frances Coulson, president of R3,said: "Under these proposals it will be harder for insolvency practitioners to recoup money from dodgy directors, so creditors such as the business community and HMRC could be left with nothing. It is essential that insolvency is exempt from these proposals so that businesses and HMRC are not left out of pocket and wrongdoing is not seen to be excused. Every penny left in the pocket of a director in a carousel fraud case is likely to fund another fraud."

Finally, a sometime BCCI and Madoff estate legal advisor is also under investigation for alleged expenses irregularities.

Picture Credit: BCCI

The Marquess of Reading and Debt

2011-06-07T07:47:00.004+01:00

Sir Rufus Isaacs, the Most Honourable The Marquess of Reading, GCB, GCSI, GCIE, GCVO, PC, KC (10 October 1860 – 30 December 1935 - pictured) is a truly remearkable figure. We will leave to one side the fact that he used to bleed from his eyes through over work, and instead, concentrate on his contribution to the insolvency jurisdiction. First, we will undertake a brief biographical overview of the Lord Reading's life. Born in London, the son of a fruit merchant, Lord Reading attended University College School. He did not go to University, instead spending time in the the family fruit business and as a ship's boy. He became a member of the London Stock Exchange before being called to the Bar as a member of Middle Temple in 1887. The Lord Reading went on to take silk, become a Member of Parliament, become Solicitor-General, Attorney-General, Lord Chief Justice (1913-1921), Ambassador to America, and Viceroy of India (1921). The Reading Marquessate is the highest ever rank in the English peerage to be awarded to a Jew. The Lord Reading was sometimes referred to as the "Hebrew Earl."

We can now turn to a consideration of his contribution to the insolvency jurisdiction. The Courts (Emergency Powers) Act 1914 was the brainchild of the Marquess. The statute allowed the court to exercise it's discretion so as to allow a debtor more time to pay their creditors in the event of the war causing delay to payment. The Marquess had himself suffered some liquidity problems whilst at the London Stock Exchange. These may have been some inspiration for his war time debt amelioration activities due to this experience. Specifically, the statute provided a principle, "to place the remedies of creditors, whether judicial or by way of self-help, in the discretion of the Court, which can refuse the creditor to exercise his remedies of the debtor is unable to satisfy the debt of obligation as a result of the war."

As Lord Chief Justice, the Lord Reading has only one reported case to his name. Savill v Dalton [1915] 3 K.B. 174 concerned the issue of whether an action is maintainable upon an order for the payment of money made by a county court in the exercise of its bankruptcy jurisdiction.

Four years after his death a similar statue was enacted to deal with World War II debt issues, namely, the Courts (Emergency Powers) Act 1939.

The 2nd Marquess, Colonel Sir Gerald Isaacs QC, was also a barrister, silk, sometime Treasurer and Bencher of Middle Temple, and Member of Parliament. He won a Military Cross in World War I. His son, the 3rd Marquess, Michael Alfred, also won the Military Cross.

Olympic Tickets: How I beat the System (and Boris!)

2011-06-06T07:17:00.002+01:00

When John asked me to blog for his site, I am sure that he didn't think I would get him this much coverage!

This note is just to set out the approach I took to succeed in getting Olympic Tickets where so many appear to have failed. I also want to make it clear what risk I thought I was taking. I am by no means a mathematical or statistical expert and without any prior information on the odds of winning tickets I am not sure there could have been any accuracy in working out the odds before the recent ballot process.

If we take simple binomial theory, you can calculate the odds on certain events happening with a fixed number of attempts with fixed odds each time. In the case of a coin toss, the chances of it being heads on one toss is Evens, on two tosses the chances of getting at least one head is higher and the chances of them both being heads is lower. Add a third coin toss and the chances of getting at least one head goes up and the chances of all three tosses being heads becomes much greater. The Olympic ballot permitted bids for up to 20 events so if the odds of succeeding on each were the same as a coin toss then the chances of getting more than one event would be all but certain, with a guesstimate that you would expect about 10 events.

Of course I had to assume that the odds for each of the popular events would be more than evens. Even at 2:1 the odds change dramatically. At say 10:1 the odds of getting one or two tickets becomes quite low and all of them quite impossible.

But it is not that simple. You could bid for different tickets in a range for each event. In that case each event becomes its own binomial experiment. If there were say 10 tiers of ticket and the odds were 10:1 on each, you might expect to get at least one of each so overall you might succeed in getting one for each event applied for. If there happened to be a single tier of price for each event which was not oversubscribed then you would be certain of getting that ticket or better. Assuming that the ballot was held on each event on a reducing price basis starting with the most expensive tickets, you would also have a tendency to be successful for more than the cheapest. In fact, you might assume that most people would apply for the cheaper tickets so there would be much less competition for the top tiers. Against this you might assume that there were less of these which might even things up but LOCOG gave no information on this.

You can see that the combinations become mind-boggling, and without knowing whether the odds are 10:1 or 100:1 you cannot confidently predict the outcome. I did however make a working assumption that all tiers would be oversubscribed and therefore the general binomial principles would apply in that the chances of getting some increase with the amount of bids and the chances of getting them all reduce.

Having decided on my 20 choices it was of course important that I would be happy if I only received one of them. In my case the headline figure was £35,918 but that is the sum of the top tickets applied for in every tier. If I succeeded in half of them at the mid-price tier on average, you would expect the amount to be £9,000 if the prices were reducing evenly (but they are not. They are not even evenly priced in comparison to each other). Odds are all very well but in the case of the Olympics the top price of some of the tickets were huge. The Opening Ceremony costs run from £2012 to £20.12 and the maximum you could bid for was 4. The risk range on this event alone was therefore £8,048 to 80.48. If you happen to get the top rate then this makes the total sum potentially much larger and throw out any broad assumptions you might make.

This takes me on to the thorny issue of the credit limit provisions. The bidding rules seemed clear. By taking part in the application process you were not contracting to buy the tickets. If the funds were not in place at the time requested then the application would be rejected. This was very important for me as I could not be put in a position where the application left me financially embarrassed. What this provision did mean was that you could add an element of capping to the bid process. If you get your binomial-based guess completely wrong then your risk was limited to the amount of your bank balance or credit limit. It would be unfortunate if your application produced a request for an amount £10 over your limit but it did cap your risk. The existence of this provision led me to conclude that many people would bid beyond their credit limit and that all events would be greatly over-subscribed. It seems I was wrong. I have heard no stories of limits being exceeded except in my case, and I bid what appears to have been an exceptional amount! No doubt my error on this point alone meant that the chances of succeeding in more than one event was higher than I thought.

In my case I received an email saying that an attempt had been made to take funds and that this had been rejected. The polite email suggested that a second attempt would be made in a few days to give me a chance to put things right. The consequences of a second rejection was that they would not contact me again and I would not receive my allocation. No fuss and no financial penalty. The second chance was not in the bidding terms & conditions but the consequences of rejection were. I contacted by credit card company who confirmed the amount rejected. I then asked for an increase in my limit and explained the reasons for it and this was granted.

This was an unexpected twist and probably rendered much of the previous calculations moot. I had a simple and well-informed (at least in part) choice. I could choose to pay a large fixed sum for the certainty of some tickets from the 20 events I selected or choose to have none at all. In this I was more fortunate than most, including Boris. If I could meet the initial cost and wait, I could have some choice in how to use, sell or return some or all of the tickets. That comes at a price, but it is better than being powerless in a blind ballot.

As I write I wait to hear what my £11k successful bid actually amounts to. On the basis that I have set out above it is much more likely statistically that I have succeeded on one large event and one or two smaller ones than the sum of a lot of small events only. Hopefully in any case, my relatives and friends will recognise the value in getting THEIR bids in to me early, particularly before my credit card bill is due. Act now to save disappointment!!!!

Picture Credit: http://www.olympics-accommodation-finder.com/files/olympic%20rings2.JPG

New BIS report: Credit, debt and financial difficulty in Britain, 2009/10. A report using data from the YouGov DebtTrack survey

2011-06-03T07:02:00.014+01:00

BIS (pictured) have published a new report entitled "Credit, debt and financial difficulty in Britain, 2009/10. A report using data from the YouGov DebtTrack survey." (URN 11/963). The report uses data from the YouGov DebtTrack survey, a series of online surveys carried out between November 2009 and October 2010, to explore credit use and the extent of consumer indebtedness in Britain. The report notes that: "Overall, the analysis suggests a decrease in the proportion of households using unsecured credit since 2008/9, but an increase in the level of debt, both in absolute terms and as a proportion of household income. Evidence indicates that the incidence of financial difficulty may have declined during 2009/10; although the average proportion of households in structural arrears on payments remained unchanged compared with 2008/9, there has been a decrease in this indicator during 2009/10, as well as more subjective measures of financial stress."

Picture Credit: BIS.

Evening Standard Features Bankruptcy Blogger

2011-06-02T07:07:00.001+01:00

Stephen's Olympic ticket activities have been picked up by the Evening Standard. The story notes:

"A man who discovered he had secured Olympic tickets costing £11,000 told today how he decided to keep them all - after crunch talks with his wife.

Stephen Hunt, a Bloomsbury insolvency practitioner, said there was initially not enough money in his account to cover the payment and he was forced to make the "horrible choice" between increasing his credit limit or losing the tickets.

When he applied for £36,000 worth he expected to get hardly any but now hopes the huge payment will mean a seat at one of the "big three" events - the opening and closing ceremonies or the men's 100 metres final.

Mr Hunt, 42, a father-of-three and West Ham fan from Hertfordshire, said: "I checked my card and there was no debit and then I received a helpful email from the ticket agency saying we've tried to take money, it's been refused but we'll give you a second chance.

"We agreed to go for it. We contacted our bank and the bank agreed to increase. It's about double what I was hoping for."

Speaking to the BBC, Mr Hunt, who specialises in fraud investigation and company liquidation, added: "I'd rather scrimp and save for a bit extra then be disappointed."

At least 250,000 people are thought to have lost out after last night's midnight cut-off, who the organisers said would be contacted through email. They include the Mayor of London, Boris Johnson, who said he was "cheesed off" after checking his account this morning to see he had lost out in the online ballot.

...

Families will have to wait for up to another three weeks to discover which 2012 events they will see.

Games organiser Locog reported 20 million applications from 1.8 million people bidding for 6.6 million public tickets.

There were more than one million bids to see the opening ceremony and men's 100 metres final.

Those who failed to secure tickets must join the scramble for any remaining tickets on a first-come, first-served tickets basis.

These are likely to include unsold seats at less popular events."

Picture Credit: The Olympic Movement.

Publications: Two Insurance Insolvency documents published.

2011-06-01T07:40:00.017+01:00

The Law Society (pictured) has published a practice note on the Insolvency of a Qualifying Insurer. The document outlines what should be done in the event of the insolvency of a solicitor's insurer. In a related 'insurance field' development the International Association of Insurance Supervisors has published a document outlining guidance on ICP 16 of it's remit, namely, "The legal and regulatory framework defines a range of options for the orderly exit of insurers from the marketplace. It defines insolvency and establishes the criteria and procedure for dealing with insolvency. In the event of winding-up proceedings, the legal framework gives priority to the protection of policyholders”.

Picture Credit: http://static.guim.co.uk/sys-images/Guardian/About/General/2010/9/14/1284447623196/The-Law-Society-006.jpg

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

2011-05-30T07:44:00.012+01:00

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.

Picture Credit: http://www.editorsweblog.org/parliament_000.jpg

Four time bankrupt - is regime tough enough?

2011-05-27T07:29:00.014+01:00

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.

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

2011-05-26T07:19:00.029+01:00

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!

Picture Credit: http://img.thesun.co.uk/multimedia/archive/00755/Gazzacry_350x420_755611a.jpg

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

2011-05-25T07:03:00.028+01:00

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.

Picture Credit: http://i.dailymail.co.uk/i/pix/2009/07/09/article-0-0037D5E600000258-866_233x319.jpg

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

2011-05-24T07:22:00.023+01:00

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)."

Picture Credit: http://openlearn.open.ac.uk/file.php/2987/!via/oucontent/course/327/w100_3_i003i.jpg

Bankrupt Logistics

2011-05-24T07:11:00.022+01:00

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..."

Picture Credit: http://4.bp.blogspot.com/-jJOQJbP30TI/TZR-zaBkM1I/AAAAAAAADH8/K1fHX6AFFoo/s1600/eddie-stobart.jpg

Bankruptcy and the law in the Forsyte Saga

2011-05-23T07:15:00.002+01:00

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.

Picture Credit: http://www.ceejbot.com/EricPorter/Forsyte/promos/2001-series-soames-hat.jpg and http://www.e-architect.co.uk/images/jpgs/architects/kingston_university_cpetercook_jma300508.jpg

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)

2011-05-20T08:36:00.017+01:00

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!

Picture Credit: http://rothwelltown0.tripod.com/sitebuildercontent/sitebuilderpictures/crest.jpg

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

2011-05-20T07:57:00.025+01:00

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?

Picture Credit: http://3.bp.blogspot.com/_YrPhWhp-AW0/SeNhV4sSB9I/AAAAAAAAAL8/PBEER89GqF0/s400/_56581_harman2.jpg

Memorandum of Understanding: IS, R3 and Jobcentre Plus

2011-05-19T07:07:00.023+01:00

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.”

Picture Credit: http://www.insolvency.gov.uk and http://www.r3.org.uk/

Insolvency in the news - kind banks and new books

2011-05-18T07:57:00.016+01:00

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."

Picture Credit: http://www.itraveluk.co.uk/photos/data/502/bank-of-england.jpg

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

2011-05-17T07:17:00.005+01:00

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").

Picture Credit: http://upload.wikimedia.org/wikipedia/commons/0/0e/Royal_courts_of_justice.jpg

IPs and Olympic tickets - Mr Hunt on the BBC

2011-05-16T09:15:00.019+01:00

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!

Picture Credit: http://markmeynell.files.wordpress.com/2007/03/john-humphreys.jpg

IS publication: Consultation on Restructuring Moratorium

2011-05-13T14:30:00.000+01:00

The Insolvency Service (IS) has published the results of the recent consultation on a restructuring moratorium. The IS have also published the responses (including some confidential ones?!) Mr Edward Davey MP's ministerial statement notes:

"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

implemented.

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.

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

2011-05-12T07:24:00.017+01:00

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."

Picture Credit: http://www.visitoruk.com/images/wakefield_court.jpg

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

2011-05-11T07:04:00.003+01:00

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."

Picture Credit: http://2.bp.blogspot.com/-MHzd4w3Ahnk/TV67Rwk_CHI/AAAAAAAABfc/pgU1iZmaSFc/s1600/article-1258581-08C19B25000005DC-40_233x382.jpg

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

2011-05-10T14:36:00.000+01:00

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.

Picture Credit: http://i.telegraph.co.uk/multimedia/archive/01250/Nat_hist_1250628c.jpg

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

2011-05-10T07:07:00.000+01:00

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

who—

(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

him—

(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)."

Picture Credit: http://www.hmcourts-service.gov.uk/courtfinder/images/courts/leeds_co.jpg

Phoenix four undertake not to act as Directors - are the periods sufficiently lengthy?

2011-05-09T08:49:00.015+01:00

It has been announced (and reported) that the 'Phoenix Four' (Peter Beale, Nick Stephenson, John Edwards and John Towers - pictured) have undertaken not to act as company directors for between three and six years. MG Rover collapsed in 2005 with debts of £1.3bn and with the loss of 6,000 jobs. The directors have allegedly trousered £40 million each in remuneration as part of their role in the failed company.

You will remember that Mr Justice Newey's comprehensive report into the affair cost some £15 million. The disqualification periods are between three and five years, i.e.

Peter Beale - six years
John Towers - five years
Nick Stephenson - five years
John Edwards - three years

This might not seem particularly severe on the Re Sevenoaks Stationers scale (maximum of 15 years) - plenty of time to spend £40 million the creditors and employees might think! Some money has however been saved in reaching this compromise - there might not have been much left after the £15 million report! Mr Edward Davey MP, Minister with responsibility for corporate governance and company law said:

“These disqualification undertakings represent a successful conclusion to a lengthy and complex investigation into the collapse of MG Rover. Peter Beale, John Towers, Nick Stephenson and John Edwards have each been banned from being involved in the management of any company for several years. The outcome of this case serves as an important reminder that unacceptable conduct by company directors can result in lengthy periods of disqualification.”

The Mirror has published an interesting "where are they now" piece on the four directors. The article notes:

"NICK STEPHENSON FORMER MG ROVER DIRECTOR

Stephenson, 62, has fled to Florida where he's landed another lucrative job in the car industry.

He has been banned from being a director in the UK for five years, but this will not will affect his life by the beach across the Atlantic.

During his time at MG Rover, married Stephenson had an affair with a Chinese consultant called Dr Qu Li. As far as many fellow executives were concerned, she was simply an interpreter.

But, on at least one business trip to China, it was clear the relationship went further.

Dr Li was paid £1.69million for 15 months of consultancy services to MG Rover Group. The affair was documented in the 830-page report into the scandal, which said her fees were "excessive".

Between 2000 and 2005, he took on directorships at other firms, including Mira, which MG Rover contracted for consultancy serv-ices worth nearly £2.4million in 2001 and 2002. Stephenson, who made £8.9million from MG Rover and Phoenix Holdings, lived in a converted bakery near Birmingham at the time of Rover's collapse. He sold it for £395,000 in 2010.

A source said: "Nick was the geeky one. He was into car design and liked drag racing at the weekend."

£9M

JOHN EDWARDS FORMER MG ROVER DIRECTOR

Ex-car dealer Edwards, 58, blew his Rover cash on classic cars and private planes.

He lived in a lavish £1.3million home, owned expensive supercars and two small Cessna planes, despite not having a pilot's licence.

Edwards started out at the family firm - his father's Rover franchise, Edwards Cars.

In 2000, he became a director of MG Rover and Phoenix Venture Holdings and made £9million between 2000-5.

A former associate said: "All he has ever craved is extreme wealth. To him, Rover has always been a cash cow. His attitude will be, 'I took a risk £9M and I deserve the payback'."

He now lives in a nine-bed country pile with wife Mari-anne, 68, in the Cotswolds. He has been struck off as a director for three years and works for an engineering consultancy in the UK.

£9M

JOHN TOWERS FORMER MG ROVER CHAIRMAN

Towers was the natural leader of the Phoenix Four.

The 63-year-old, who has been disqualified as a director for five years, is refurbishing a £1.5million 450-acre retreat in the south of France with second wife Beth, 49.

The rolling estate, an hour from Toulouse, has a fine hunting lodge as its centre-piece and even includes its own deer herd.

Keen golfer Towers also owns a £1.5million apartment in a golf resort on "Million-aires' Row" in the Algarve and has a £650,000 home in Bourton-on-Dunsmore, Warks. He joined Rover in 1988 and quickly moved through the ranks, before becoming chief executive in 1991.

In 1994 he tried to arrange a buyout, with Honda, from then-owner British Aerospace. But the company was sold to BMW instead and Towers quit in 1996. He returned to Rover in 2000 with the Phoenix takeover. Between 2000 and 2005, Towers took home £8.9million in pay, pensions and bonuses.

£9M

PETER BEALE FORMER MG ROVER DIRECTOR

Moneyman Beale, 55, currently lives with wife Jane, 54, in a £750,000 Victorian manor house.

A Range Rover is parked on the driveway behind metal gates and a 6ft fence which surrounds the country pile in Dunhampstead, Worcs.

After the car firm's collapse, it emerged Beale picked up £8.981million during his time at MG Rover and Phoenix.

He was a partner at an accountancy firm before joining Edwards' dealership as finance director in 1989.

In front of a Commons committee in 2004, Beale did admit the four Phoenix bosses had taken "extraordinary rewards" from Rover, but insisted they had been earned because they had taken an "extraordinary risk".

Beale has been slapped with a six-year ban from being a director but has already retired.

He received a longer ban than the others because he was found to have wiped company records from his computer just a day after the investiga-tion into Rover's demise was set up.

£9M"

Picture Credit:http://2.bp.blogspot.com/_YrPhWhp-AW0/StirmlPt-aI/AAAAAAAAAsM/uNlFFCXbHPU/s1600-h/Phoenix4.jpg

Professor Lea's work on debtors - Mewse, A.J., Wrapson, W., Lea, S.E.G. (In Press). First steps out of debt: Attitudes and social identity as predictors of contact by debtors with creditors. Journal of Economic Psychology.

2011-05-09T07:25:00.027+01:00

A recent BBC news report has highlighted the work of Exeter University's (pictured) Professor Stephen Lea, a professor of psychology. In addition to his 2001 publication on student debt (Scott, A.J., Lewis, A., Lea, S.E.G. (2001). Student debt: the causes and consequences of undergraduate borrowing in the UK Bristol, Policy Press) Professor Lea has published an interesting co-authored article in the Journal of Economic Psychology with Dr Wendy Wrapson and Dr Avril Mewse. Here is the title and the abstract:

Mewse, A.J., Lea, S.E.G., and Wrapson, W. (2010). First steps out of debt: Attitudes and social identity as predictors of contact by debtors with creditors. Journal of Economic Psychology, 31(6), 1021-1034.

"Questionnaire research was carried out to identify factors that may encourage problem debtors to take the first steps towards getting out of debt. Consumers with debt problems were identified with the aid of creditor organisations and the Courts service for England and Wales. Responses were also sought from non-debtors from the same consumer groups as the debtors. Response rates from debtors were very low, but results confirmed the existence of a group of chronically poor consumers with widespread and long-lasting debt and also confirmed the demographic differences between this group of debtors and non-debtors found in previous research. These debtors showed marked attitudinal differences from non-debtors, with reduced optimism and financial self-esteem, and a less internal economic locus of control. They also showed a distinct social identity, identifying with fellow debtors and feeling stigmatised both generally and personally. Within the debtor group, engagement with creditors was higher in people reporting lower debt levels, but seeking advice was more frequent in those reporting higher debts. Engagement was associated with a stronger attitude of financial self-efficacy and with a perception of the debtor identity as more permeable. Neither demographic nor psychological factors significantly predicted which debtors would seek advice."

Picture Credit: http://robinteverson.org/images/exeter1.jpg

Latest Insolvency Statistics - First Quarter 2011

2011-05-06T13:19:00.001+01:00

The Insolvency Service (IS) have published the insolvency statistics for the first quarter of 2011. As the IS note "there were 4,121 compulsory liquidations and creditors’ voluntary liquidations in total in England and Wales in the first quarter of 2011. This was an increase of 3.7% on the previous quarter and an increase of 2.1% on the same period a year ago. This was made up of 1,074 compulsory liquidations (which are down 10.2% on the previous quarter and down 17.2% on the corresponding quarter of the previous year), and 3,047 creditors’ voluntary liquidations (which are up 9.7% on the previous quarter and up 11.2% on the corresponding quarter of the previous year). Additionally, there were 1,314 other corporate insolvencies in the first quarter of 2011 comprising 349 receiverships, 782 administrations and 183 company voluntary arrangements. In total these represented a decrease of 2.2% on the same period a year ago."

On the personal side (pictured left) the IS note that "There were 30,162 individual insolvencies in England and Wales in the first quarter of 2011. This was a decrease of 15.5% on the same period a year ago. This was made up of 12,539 bankruptcies (which were down 31.3% on the corresponding quarter of the previous year), 10,835 Individual Voluntary Arrangements (IVAs), (which were down 8.0% on the corresponding quarter of the previous year) and 6,788 Debt Relief Orders (DROs), (which were up 20.3% on the corresponding quarter of the previous year). In the first quarter of 2011, 84.2% of bankruptcies were made on the petition of the debtor, broadly comparable to the levels for recent quarters. The percentage of bankruptcy orders involving trading debts (self-employed bankruptcies) was 18.9% in the fourth quarter of 2010 (first quarter 2011 figures for trading-related bankruptcies are not yet available), notably higher than levels seen in recent quarters."

On statistics in the the long term the IS have noted, "In the twelve months ending Q1 2011, approximately 1 in 139 active companies (or 0.7% of all active registered companies) went into liquidation, which is comparable to the previous quarter, when this figure stood at 1 in 138. As Figure 3 shows, the liquidation rate remains low compared to a peak of 2.6% in 1993, and the average of 1.3% seen over the last 25 years. It should be noted that the number of active companies has changed considerably over this period; there were 2.3 million active registered companies in Q1 2011; this compares with only about 900,000 in the early 1990s and less than 800,000 in 1986.

In the twelve months ending Q1 2011, approximately 1 in 337 people became insolvent. This is down from 1 in 323 in the previous quarter. As Figure 3 shows, the individual insolvency rate has displayed a steeply upward path (with some fluctuations) since 2004 and is currently elevated compared to the annual average of 1 in 1800 (0.1%) people seen over the last 25 years."

A number of commentators (e.g. Yorkshire Post, Sky News) have discussed the figures. The BBC have focused on the fact that personal insolvency figures have fallen overall. The new president of R3, Ms Frances Coulson has provided the Beeb with a quote. She noted:

"Our research shows that, against the backdrop of increased living costs and falling income, four in five consumers have changed how they shop in a bid to save money. A further drop in personal insolvency may signal that the reining in of domestic belts is starting to pay off," he said.

"However, this data only captures those that are in formal insolvency procedures so we are unable to gauge how many households are struggling."

Picture Credit: Insolvency Service.

The New Supremes: Mr Jonathan Sumption OBE QC and Lord Justice Wilson and insolvency

2011-05-06T07:38:00.003+01:00

The recent announcement that Mr Jonathan Sumption OBE QC, the acclaimed historian and barrister (pictured right - for an excellent interview see here), has been appointed to the Supreme Court could not pass the blog by without some reflection on his not inconsiderable contact with the insolvency laws during his work as an advocate. In a more orthodox appointment, in terms of rising through the judicial hierarchy, Lord Justice Wilson (pictured below left) has been elevated from the Court of Appeal to the Supreme Court. We can also consider his insolvency contribution here. The successful applicants have commented on their appointments. Lord Justice Wilson said: “I am deeply honoured by my appointment which presents a huge challenge and casts a heavy burden of responsibility. I hope to contribute wisely to the development of the law.” Mr Jonathan Sumption QC said: “This is a challenging time for the development of the law, and I am honoured to have the opportunity of contributing to the work of one of the world’s great common law courts.” Now let us turn to the most important question - have either of these new Supreme Court Justices had much impact hitherto on the insolvency jurisdiction? A brief perusal of the cases throws up the following;

Sumption

Re HIH, McGrath and others v. Riddell and others [2008] UKHL 21 - this case concerned the principle of judicial comity under s 426 of the Insolvency Act 1986 (IA86) and whether differences in pari passu distribution between friendly jurisdictions justified refusal of assistance

Inherent jurisdiction of court and whether such common law jurisdiction exists to disapply English principle of pari passu distribution by allowing assets to be transferred to a foreign liquidation.

CRe Park Air Services plc, Christopher Moran Holdings Ltd v Bairstow and another [1999] 14 EG 149 - this case concerned the disclaimer of a lease and determination of loss and damage to a landlord under section 178(6) of IA86.

Powdrill and another v Watson and another ; Re Leyland DAF Ltd (No 2) ; Re Ferranti International plc [1995] 1 BCLC 386 - the world famous case on the adoption of employment contracts. Sumption acted for the administrators.

Re New Bullas Trading Ltd [1994] 1 BCLC 485 - the famous case on the characterisation of a charge on book debts - is it floating is it fixed - now resolved by Re Spectrum.

MS Fashions Ltd and others v Bank of Credit and Commerce International SA (in liq) and others (No 2) [1993] BCLC 1200 - the famous case on set-off.

With the above cases in mind it could be argued that Mr Jonathan Sumption QC's appointment to the Supreme Court is a welcome development for the development of our subject.

Wilson, LJ

As Wilson, LJ is a family judge we might not expect to see much insolvency related material. His contribution is a bit more scanty and a bit more recent than Sumption's. Wilson, LJ has given insolvency related judgments in:

BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc and Others (2011) Times, 14 March - a case on s.123 IA86.

Rubin and Another v Eurofinance SA and Others (2010) Times, 5 October - a case which involves issues around the conflict of laws, bankruptcy and enforcing a bankruptcy order from US court.

Picture Credit: http://www.smh.com.au/ffximage/2005/09/12/jonathansumption_narrowweb__200x236.jpg

New Museum Item: Polly Peck International plc auction catalogue

2011-05-05T07:20:00.093+01:00

In 1990 the textile manufacturer and fruit and vegetable supplier Polly Peck International plc collapsed with debts of £1.3bn. The collapse of the company led to it's chief executive, Mr Asil Nadir (pictured), fleeing the realm to Cyprus. He returned to face criminal charges on the 26 August 2010. The company's demise into administration led to a number of reported decisions, e.g.

- Polly Peck International PLC (in administration) v Nadir [2006] EWHC 3727 (Ch).

- Polly Peck International Plc (In Administration) v Henry [1999] 1 B.C.L.C 407; [1998] O.P.L.R. 323; Times, December 16, 1998.

- Polly Peck International Plc (In Administration) (No.5), [1998] 3 All E.R. 812; [1998] 2 B.C.L.C. 185; Times, May 18, 1998; Independent, May 13, 1998.

- Polly Peck International Plc (In Administration) (No.5) [1997] 2 B.C.L.C. 630; (1997) 94(1) L.S.G. 23; (1997) 141 S.J.L.B. 21; [1996] N.P.C. 176.

- Polly Peck International Plc (In Administration) (No.4) [1996] 2 All E.R. 433; [1996] B.C.C. 486; [1996] 1 B.C.L.C. 428

- Re Polly Peck International Plc (In Administration) (No.3) [1993] B.C.C. 890; [1994] 1 B.C.L.C. 574

- Polly Peck International Plc v Citibank NA [1994] I.L.Pr. 71; Times, October 20, 1993

- Polly Peck International Plc v Nadir (No.4) [1993] B.C.C. 886; [1994] 1 B.C.L.C. 661

- Polly Peck International Plc v Nadir (No.3), 17 March 1993, Times, March 22, 1993; Independent, March 31, 1993

- Polly Peck International Ex. P the joint administrators [1994] B.C.C. 15

- Polly Peck International Plc v Nadir (Asil) (No.2) [1992] 4 All E.R. 769; [1992] 2 Lloyd's Rep 238; [1993] B.C.L.C. 187.

- Re Polly Peck International Plc (In Administration) (No.2), [1992] B.C.L.C. 1025; Independent, May 18, 1992

- Re Polly Peck International Plc (In Administration) (No.1) [1991] B.C.C. 503

As part of the administration of the company, PWC as administrators were able to sell off a considerable number of antiques which were located in the company's headquarters in Berkeley Square, London. One commentator has noted that, "The book value attributed to these was around £6 million, but upon later inspection and independent valuation the total sum was stated at approximately £2.5 to £3 million." The Muir Hunter Museum at KLS has acquired a copy of the auction catalogue from the auction. The catalogue is a lavish document which cost £20 at the time of publication. The items contained within its pages are stupendous. The company's board had a keen eye for a nice object.

Picture Credit: http://i.telegraph.co.uk/multimedia/archive/01703/AsilNadir_1703288c.jpg

New Museum Item: Winding up revenue stamp

2011-05-04T07:58:00.028+01:00

The Muir Hunter Museum of Bankruptcy at KLS's collection of bankruptcy revenue stamps has now been augmented with a winding up revenue stamp (example pictured). The new stamp is a Queen Elizabeth II - 2/6d winding up stamp. The item is of particular interest as it is still attached to a portion of the document upon which it was originally affixed. Unfortunately it is only a fragment of the document. These stamps were used to denote payment of fees incurred in the winding up of an insolvent company. The Companies (Winding Up) Act 1890, ssections 53 and 54 governed the fees stamps (see an example of a notice of the appointment of a liquidator here).

Insolvency Statistics - past and present

2011-05-03T07:53:00.037+01:00

James Nicholls, an attorney of the Court of Insolvent Debtors wrote a tract on the present practice of the court of insolvent debtors in 1822. The book was entitled: Nicholls, J. The Present Practice of the Court of Insolvent Debtors. Henry Butterworth, London. 1822. This book makes for remarkable reading especially in relation to the activities of the Society for the Discharge and Relief of Persons Imprisoned for Small Debts, throughout England and Wales, of which James Nicholls was solicitor. The book is notable for the excellent breakdown of statistics compiled by Edward Smith, the patentee for the execution of the laws and statutes concerning bankrupts. These statistics show, "the number of commissions of bankruptcy each year, from the year 1790 to the 16th May, 1822, both inclusive, and distinguishing the number of commissions against bankers." With the creation of the insolvent laws (i.e. those laws designed to relieve the insolvent debtor as opposed to the bankruptcy laws which were only available to traders) many people thought that the incidence of bankruptcy commissions were reduced. However, this is not borne out by Edward Smith's figures. Here is the table:

Years Number of Commissions Number of Commissions against Bankers

1790 747 None

1791 769 1

1792 934 1

1793 1956 26

1794 1041 2

1795 879 7

1796 954 6

1797 1115 3

1798 911 3

1799 717 6

1800 951 8

1801 1199 3

1802 1090 8

1803 1214 8

1804 1117 6

1805 1129 9

1806 1268 5

1807 1362 1

1808 1433 5

1809 1382 7

1810 2314 26

1811 2500 4

1812 2228 17

1813 1953 8

1814 1612 29

1815 2284 26

1816 2731 37

1817 1927 5

1818 1245 6

1819 2056 14

1820 1695 4

1821 1587 11

It has been observed, at least in the popular press, that bankruptcy statistics have only been recorded since 1960. The Insolvency Service do only keep records from that date on their website. But there are many other sources from which an historical picture of redress to the insolvency laws can be examined from a statistical perspective. A small number are given below in chronological order:

1800 - Neild, J. Account of Persons confined for Debt in England and Wales. London, 1800.

1802 - Neild, J. An Account of the Society for the Relief and Discharge of Persons Imprioned for Small Debts. Nichols, London, 1802.

1802 - Neild, J. Account of the Rose, Progress and Present State of the Society for the Discharge and Relief of Persons imprisoned for small debts throughout England and Wales. London, 1802.

1804 – King, J. Remarks on Imprisonment for Debt, on the Recent Progress of the Law and Increase in Lawyers. 2nd Edition. 1804.

1808 – Neild, J. An Account of the Rise, Progress, and Present State of the Society for the Discharge and Relief of persons imprisoned for small debts throughout England and Wales. London. 1808.

1811 - Report from the select Committee appointed to take into consideration the present state of commercial Credit, vol. II, 1810-1811.

1823 – Parliamentary Report on the Recovery of small debts, Jl. HC., col.4, 1823.

1842 - A Faithful Guide through the Insolvent and Bankrupt Courts according to the last Two Acts of Parliament of 1842. By a Solicitor of Twenty Years experience. London. 1842.

1848 – Return of the Bankrupts and Insolvent Debtors in each Year between 1801 and 1819, and 1820 and 1846. (1847-48) 51, no.120 (PP).

1850 – Bankruptcy Analysis. British Almanac of the Society for the Diffusion of Useful Knowledge. London: Charles Knight, 1831-1850.

1852 - The Pounds, Shillings, and Pence of Bankruptcy. By a Working member of the Court. London 1852.

1854 – Report of Her Majesty’s Commissioners Appointed to Inquire into Fees, Funds, and Establishments of the Court of Bankruptcy, and the Operation of the Bankrupt Law Consolidation Act, 1849. (1854) 23, no.1770.

1854 – Bankruptcy Administration. The Banker’s Magazine 14 (October 1854): 541 – 45.

1858 – Returns from the Accountant in Bankruptcy. (1857-1858) 47, no.189. (PP).

1859 – A Return of the Number of Applications for Bankrupts Certificates Heard Before Each Commissioner during each of the last Five Years. (1859) 22, no.52.

1859 – Court of Bankruptcy Proceedings of the London and District Court, in the year 1858. (1859) 26, p.545. (PP).

1862 – Proceedings of the Court of Bankruptcy, 1861. (1862) 56, p.685.

1864 – General Returns by the Chief Registrar of the Court of Bankruptcy, 1862 and 1863. (1864) 48, p.303.

1865 – General Return for the Year 1864 of All Matters Judicial and Financial within the Bankruptcy Act 1861. (1865) 65, p1.

1867 – General Return for the Year 1866 by the Chief Registrar of the Court of Bankruptcy. (1867) 57, p.33.

1868 – General Return for the Year 1867 by the Chief Registrar of the Court of Bankruptcy. (1867-68) 57, p.1.

1869 – General Return for the Year 1868 by the Chief Registrar of the Court of Bankruptcy. (1868-1869) 51, p.89. .

1870 – General Return for the Year 1869 by the Chief Registrar of the Court of Bankruptcy. (1870) 57, p.5.

1871 – General Report by the Comptroller in Bankruptcy for the Year 1870. (1871) 58, no.210.

1872 – General Report by the Comptroller in Bankruptcy for the Year 1871. (1872) 50, no.237.

1873 – General Report by the Comptroller in Bankruptcy for the Year 1872. (1873) 54, no.251.

1874 – General Report by the Comptroller in Bankruptcy for the Year 1873. (1874) 54, no.68.

1875 – General Report by the Comptroller in Bankruptcy for the Year 1874. (1875) 61, no. 272

1876 – General Report by the Comptroller in Bankruptcy for the Year 1875. (1876) 61, no.210.

1877 – General Report by the Comptroller in Bankruptcy for the Year 1876. (1877) 69, no.314.

1877 – The Report of the Comptroller in Bankruptcy. The Banker’s Magazine 37 (July 1877): 537-544.

1878 – Statistics of Failures in the United Kingdom. The Banker’s Magazine 38 (February 1878): 106-108.

Picture Credit: Insolvency Service.

Will the Olympics cause an upsurge in bankruptcy? Gambling and rash and hazardous speculation or unreasonable extravagance which may have materially contributed

2011-04-28T07:31:00.013+01:00

Some commentators have called the Olympic ticket bidding process 'reverse gambling.' (e.g. the BBC). This is because applicants have apparently been bidding for more tickets than they might be able to afford. In other words, applicants are hoping that they will not get all of the tickets that they have applied for. If they do get all the tickets they have applied for they will be hugely over exposed with immediate effect. This is because applicants' accounts will be debited with the ticket costs automatically on the 22nd June 2011. Applicants will not know that these payments have occurred until the money has been taken from their accounts. This may mean that a number of Olympic ticket applicants may suffer liquidity issues as a result of the process. The applicants will also not be able to sell their tickets on until 2012. The BBC are reporting that two people have applied for £22,000 worth of tickets.

Will we see redress to the personal insolvency laws as a result of this Olympic ticket bidding process? If we do will the 'reverse gambling' nature of the process give rise to BRO or BRU culpability for gambling or even rash and hazardous speculation or unreasonable extravagance which may have materially contributed to the bankruptcy? Schedule 4A of the Insolvency Act 1986 governs Bankruptcy Restrictions Orders (BROs) and undertakings (BRUs). The grounds for making order are:

"(2) The court shall, in particular, take into account any of the following kinds of behaviour on the part of the bankrupt—

(a) failing to keep records which account for a loss of property by the bankrupt, or by a business carried on by him, where the loss occurred in the period beginning 2 years before petition and ending with the date of the application;

(b) failing to produce records of that kind on demand by the official receiver or the trustee;

(c) entering into a transaction at an undervalue;

(d) giving a preference;

(e) making an excessive pension contribution;

(f) a failure to supply goods or services which were wholly or partly paid for which gave rise to a claim provable in the bankruptcy;

(g) trading at a time before commencement of the bankruptcy when the bankrupt knew or ought to have known that he was himself to be unable to pay his debts;

(h) incurring, before commencement of the bankruptcy, a debt which the bankrupt had no reasonable expectation of being able to pay;

(i) failing to account satisfactorily to the court, the official receiver or the trustee for a loss of property or for an insufficiency of property to meet bankruptcy debts;

(j) carrying on any gambling, rash and hazardous speculation or unreasonable extravagance which may have materially contributed to or increased the extent of the bankruptcy or which took place between presentation of the petition and commencement of the bankruptcy;

(k) neglect of business affairs of a kind which may have materially contributed to or increased the extent of the bankruptcy;

(l) fraud or fraudulent breach of trust;

(m) failing to cooperate with the official receiver or the trustee."

Picture Credit: http://www.olympics-accommodation-finder.com/files/olympic%20rings2.JPG

Newsround(up): Insolvency items in the (predominantly Scottish) news

2011-04-28T07:14:00.036+01:00

The Herald Scotland has published an interesting piece entitled: "Stop cashing in on insolvency." The piece focuses on the recent high profile payments to PWC, etc. Insolvency, and insolvency practitioners (IPs) are such an easy target for journalists. The purportedly unfathomable question of "high can one make profit from insolvent estates?" gets wielded out every now and then, particularly during the slow news story periods. If only the journalists would look (constructively) behind the headline figures and examine what the IPs are actually doing for the levels of remuneration that they receive. If they did this then we might get some interesting analysis. Elsewhere the same paper is reporting that insolvency is increasingly hitting the poor. Whilst slightly inconsistently the BBC is reporting that Scots personal insolvencies are falling. I prefer Aunty's approach as the figures are drawn from official sources. The article notes:

"According to the Accountant in Bankruptcy (AiB), 4,262 people were declared insolvent between January and March - a drop of 7%.

However there was an 8% increase in the number of people declared bankrupt.

Meanwhile the number of companies going bust rose by 11% in the first quarter and increased by 4% compared with a year ago.

Insolvency is when an individual or firm has no means to repay debt, whereas a bankrupted person or firm has assets to sell in order to pay off the debt."

Do also check out Accountancy Age's piece on the upcoming president.

Picture Credit: http://www.world-guides.com/images/scotland/scotland_map1.jpg

Insolvency Event: Insolvencies of International Financial Institutions: Issues and Possible Solutions - 2 June 2011, 18.00 - 19.30 - Slaughter & May

2011-04-28T07:10:00.018+01:00

The British Institute of International and Comparative Law and Queen Mary, University of London, have advertised the following insolvency event: "Insolvencies of International Financial Institutions: Issues and Possible Solutions. The vent is due to take place on 2 June 2011, 18.00 - 19.30 at Slaughter and May, One Bunhill Row, London EC1Y 8YY (pictured). The speaker is H Rodgin Cohen. The advert notes that:

"Rodgin Cohen is a partner and Senior Chairman at Sullivan & Cromwell LLP, New York. He has been

involved in the leading regulatory and securities law matters on behalf of major US and non-US banking and other financial institutions and their trade associations. He is concerned about the continuing uncertainties in relation to cross-border insolvencies and will propose possible solutions."

Picture Credit: http://www.whybrow.co.uk/images/slaughter/photo1.jpg

Museum items from the Grand Bazaar, Istanbul - liquidation stamp on the Tramways & Electricite de Constantinople Societe Anonyme

2011-04-27T07:46:00.043+01:00

I have recently returned from a short holiday in Istanbul. Whilst there I had in mind the recent article by Chief Registrar Baister on the country's insolvency provisions (see: Baister, S & Altynsoy, E. The bankruptcy law of the Republic of Turkey (2009) 2 CRI 67) and the ways in which Turkey dealt with individual insolvents in the past. Whilst hunting down a fez in the Grand Bazaar I came across what must now be accounted one of the Muir Hunter Museum of Bankruptcy's more obscure items. We now have added to the collection a bond certificate of the Tramways & Electricite de Constantinople Societe Anonyme (pictured). The item has been stamped with a liquidation stamp (pictured below) noting "Societe mise en Liquidation, 13 Decembre 1938."

As soon as I have undertaken more research on the company and the document I will update this post with details on the company's decline into liquidation. In the interim, one authoritative source notes; "on June 30th 1914, all parties in the Consortium of Constantinople gave their blessing to strengthen their powerful alliance in energy and public transport into a single mega-company, the Brussels based “Tramways et Electricité de Constantinople”, to be run on day to day basis by the Belgian group Sofina." Don't worry readers I also found a fez!

New BIS/IS publication - Debt Relief Orders

2011-04-27T07:05:00.018+01:00

BIS and the Insolvency Service (IS) have published a new publication on Debt Relief Orders (DROs - pictured). See here. The document provides information on applying for a DRO and explains the procedure for those already subject to an order. The document provides an additional text to 'How to make someone bankrupt' (URN 11/867) and 'How to petition for your own bankruptcy' (11/868), also published 21 April 2011.

Picture Credit: BIS/IS.

Two new objects for the Muir Hunter Museum of Bankruptcy at KLS

2011-04-26T07:34:00.076+01:00

The Muir Hunter Museum of Bankruptcy at KLS has acquired two further interesting obejcts. The first is a signed letter written by the Earl Loreburn. A graduate of Cheltenham College and Balliol College, Oxford, Sir Robert Threshie Reid DCL, QC, KCMG, PC, the 1st Earl Loreburn, Baron Loreburn of Dumfries (1846–1923) was called to the bar by the Inner Temple in 1871. His biographer notes that he was, "...Especially able in commercial suits, ‘he could unravel complicated details in a partnership and track a fraud through all its windings’ (The Times, 1 Dec 1923)." Lentin continues with a vivid physical description of Reid; "A stout, bluff, good-natured man, addicted to his cup of tea and his clay pipe, with a strong physique and a large head (which critics called ‘swelled’), determined in his opinions, yet kindly and soft-spoken, he was well liked for his frank, open demeanour, his informality, and his sportsmanship. In an age when first names were less frequently used than later, he was widely known as ‘Bob’ Reid."

Loreburn took silk in 1882 aged 36. In 1894 he was knighted following his appointment as Solicitor-General. In the same year he became Attorney-General following his predecessor's elevation to the Court of Appeal. Loreburn was appointed Lord Chancellor in December 1905. He was raised to an earldom in the coronation honours of 1911. Loreburn's noteworthy insolvency opinions include:

- Chatterton v City of London Brewery Company, Limited [1915] A.C. 631

- Hollinshead v P&H Egan Ltd [1913] A.C. 564

- Moss Steamship Co Ltd v Whinney [1912] A.C. 254

The second item is in fact six items as it is a tracnhe of bankruptcy revenue stamps. The bankruptcy revenue stamp stamp collection grows apace! The stamps are 1921 KGV 1/6, 2/-, 2/6, 5/- 10/- & £1 - all on small pieces. One of the stamps (bottom left) is particularly noteworthy as the document upon which it is attached contains guidance to creditors on the use of stamps.

ROT's place in administration in the Court of Appeal - Sandhu (t/a Isher Fashions UK) v Jet Star Retail Ltd & Ors [2011] EWCA Civ 459 (19 April 2011)

2011-04-21T07:52:00.026+01:00

Does a buyer who has received goods on ROT terms cease to have authority to sell those goods once it has became insolvent and entered into administration? That, inter alia, was the question before the Court of Appeal in Sandhu (t/a Isher Fashions UK) v Jet Star Retail Ltd & Ors [2011] EWCA Civ 459 (19 April 2011). The panel in the case consisted of Lord Justices Maurice Kay (pictured), and Moore-Bick and Lady Justice Smith. Moore-Bick, LJ gives the substantive judgment. He notes:

"Mr. Arden's case rests on two main propositions: that in relation to the buyer's authority to dispose of the goods before it has paid for them, the effect of the retention of title clause is broadly the same as that of an agreement for a floating charge; and that in the case of a floating charge the company's authority to dispose of its assets is limited to disposals made in the ordinary course of business and ceases on insolvency.

The second of those propositions was not seriously in dispute. Nowadays a debenture which creates a floating charge normally expressly permits the borrower to dispose of assets "in the ordinary course of business", but from time to time disputes have arisen over the precise meaning of that expression. In Ashborder BV v Green Gas Power Ltd [2004] EWHC 1517 (Ch), [2005] 1 BCLC 623 Etherton J. reviewed a number of authorities in which the question has been considered and in doing so drew attention to the case of Driver v Broad [1893] 1 Q.B. 744, in which Kay L.J. expressed the view that there is no distinction between a debenture which expressly gives the company liberty to dispose of the charged property "in the ordinary course of its business" and one that does not, the concept being, in his view, inherent in the term "floating security" or "floating charge." The case therefore supports the proposition that a debenture creating a floating charge limits the company's ability to dispose of its assets to disposals under transactions made in the ordinary course of its business. In paragraph 227 of his judgment Etherton J. set out certain conclusions that he thought could be drawn from the decided cases about what is meant by the ordinary course of a company's business in this context. The last of these conclusions, on which Mr. Arden placed particular reliance, was that transactions which are intended to bring to an end, or have the effect of bringing to an end, the company's business are not transactions in the ordinary course of its business. For my part I would accept that as a correct statement of the law."

Picture Credit: http://www.thomasmoreinstitute.org.uk/files/pictures/kay.jpg

New Item for the Museum: Bankruptcy Act 1883 and 1890 - Notices and Statements of Affairs

2011-04-21T07:06:00.013+01:00

The Muir Hunter Museum of Bankruptcy at KLS has acquired four new documents which relate to a late 19th century bankruptcy case in Stockton-on-Tees, County of Durham. The four notices (which include statements of affairs- pictured) relate to Re Sanders and Sons, and in particular a Mr George Sanders and his attemtps to seek a release from his indebtendess from his creditors pursuant to the Bankruptcy Acts of 1883 (s.82) and 1890. They are dated 6th June 1892. The Trustee in Bankruptcy is a Mr Frank Brown of Finkle Chambers, Stockton-on-Tees. The Official Receiver was Mr JR Stubbs of Middlesborough. Mr Sanders, in partnership, carried on business at Prince Regent Street, Stockton-on-Tees, as a 'provision merchant and commission agent.'

Mr Registrar Jaques retires today from the Bankruptcy Registry at the RCJ

2011-04-20T08:05:00.021+01:00

Hot on the heels of Mr Registrar Simmonds' recent retirement, the Bankruptcy Registry has now lost another one of it's judges to retirement. Mr Registrar Jaques retires today. Mr Registrar Jaques (68) was called to the Bar (Lincoln's Inn) in 1963. He was appointed as a Deputy Bankruptcy Registrar in 1996. Registrar Jaques was appointed a Bankruptcy Registrar on 6 April 1998 and retires from a heavy judicial workload. Amongst other things Registrar Jaques sat on the Insolvency Rules Committee from 15.03.07 until 14.03.10. Registrar Jaques also bankrupted Koo Stark. His recent notable reported cases include:

Freeburn v Hunt [2010] C.L.Y. 1903
Phoenix Kapitaldienst GmbH, Re [2008] B.P.I.R. 1082
Maccaba v Lichtenstein [2006] B.P.I.R. 994

The Judicial Appointments Commission have advertised for a new Bankruptcy Registrar. Happy retirement Registrar Jaques!

Picture Credit: http://upload.wikimedia.org/wikipedia/commons/0/06/Beach_view_Curacao.jpg

Insolvency Service - petition charges changes

2011-04-20T07:40:00.008+01:00

The Insolvency Service (IS - pictured) has announced changes to the petition charges for bankruptcy petitions and winding up petitions. The costs are going up. The IS note:

"1. For petitions presented up to and including 31 May 2011 - NO CHANGES to current deposits.
2. For petitions presented on or after 1 June 2011:

a. Debtor’s deposit on a bankruptcy petition increases from £450 to £525.

b. Creditor’s deposit on a bankruptcy petition increases from £600 to £700.

c. Creditor’s deposit on a winding up petition increases from £1,000 to £1,165.

d. No changes to bankruptcy or company case administration fees.
e. No changes to the Secretary of State fee or fee bands.

The case administration fee is a fee charged by The Insolvency Service to every bankruptcy (£1,715) and winding up (£2,235) case on the making of a bankruptcy or winding up Order. The case administration fee is partly discharged by the deposit paid on the petition."

Insolvency Service Announcement - New Insolvency Rules - 2013 as a date for the diaries for new publications

2011-04-20T07:39:00.013+01:00

The Insolvency Service (IS - pictured) have announced some new information on the new Insolvency Rules. From what follows it seems as if the new insolvency rules will come into force in 2013. The IS note:

"New Insolvency Rules

Towards the end of last year we invited views on whether or not to continue our work on a full re-write of the 1986 rules, as the final phase of work to modernise the Insolvency Rules. We asked for opinions also on an alternative option of making only necessary amendments to the existing rules.

A range of views were subsequently expressed by stakeholders, both in terms of their preferred option and in relation to several questions of detail posed, such as whether or not we should continue to prescribe forms. I am very grateful to those who submitted responses.

I am now writing to inform you that, having considered those responses, Ministers have decided that work on a full new set of rules should continue, although those rules will not now come into force before October 2013. This will take into account some concerns expressed about the introduction of the new rules so soon after the changes introduced in April 2010.

We plan to publish a full working draft of the new rules in the near future for the purpose of inviting feedback on the structure, content and detailed drafting. That will be the final open invitation stakeholders will have to help shape these new rules so I really would welcome as much feedback as you are able to provide.

You might also be aware of the work we are undertaking to review the administration expense rules, particularly in light of the impact of Mr Justice Briggs’ decision at the end of last year about the costs of complying with a Financial Support Direction issued by the Pensions Regulator. Again we are grateful for the helpful suggestions and information that stakeholders have provided. If Ministers are persuaded that legislative changes are required, I would expect those changes to be implemented well before the new rules..."

Danish insolvency and set-off: Larsen & Anor (Foreign Representatives of Atlas Bulk Shipping AS) & Anor v Navios International Inc [2011] EWHC 878 (Ch) (13 April 2011)

2011-04-20T07:25:00.030+01:00

Mr Justice Norris has handed down his judgment in Larsen & Anor (Foreign Representatives of Atlas Bulk Shipping AS) & Anor v Navios International Inc [2011] EWHC 878 (Ch) (13 April 2011). The case makes for interesting reading, particularly for those who are interested in Foreign insolvency proceedings, as the case involves a Danish (countryside pictured) insolvency and issues on set-off. The question before the court was, "...whether, by virtue of the jurisdiction clause in the standard form FFA, a party to an FFA can exercise or acquire commercial rights that would not be available to it under the insolvency law governing the bankruptcy of the relevant party to the FFA whose bankruptcy created the relevant liabilities, or under the insolvency law of the jurisdiction in which the claims are to be enforced under the terms of the FFA. Recognising that there was a mismatch between the insolvency jurisdiction and law and the enforcement jurisdiction and law the trustees of Atlas Bulk seek to interrelate the two."

In relation to the facts of the case, Mr Justice Norris notes:

"On 17 December 2008 Atlas Bulk filed a bankruptcy petition with the Danish court under the Danish Bankruptcy Act 1997. On 18 December 2008 the Danish court made a bankruptcy order and appointed Lisa Bo Larsen and Michael Ziegler to be the company's bankruptcy trustees. The effect of the order was to commence bankruptcy proceedings. It also constituted an event of default under the ISDA 1992 Master Agreement incorporated into each of the FFAs. This meant that under the FFABA 2007 terms the FFAs became subject to automatic early termination. Upon automatic termination the gain or loss in connection with the transaction fell to be calculated according to the machinery incorporated into each of the FFAs. Doing these calculations established that Navios had made a loss of $4,230,742 on two of the Bulk FFAs, and a gain of $2,092,121 on the third. Setting the gains and losses off against one another left a balance due from Navios to Atlas Bulk in the sum of $2,138,621. Doing the calculation in relation to the Shipping FFA showed that Atlas Shipping owed Navios $1,516,994."

The learned judge goes on to say, "I agree with Counsel for Navios that this is not the occasion upon which to examine the merits of the non-mutual set-off arguments." There is however some discussion around insolvency law which is of note. For example the learned judge notes:

"Under the insolvency law of Denmark neither the non-mutual set-off argument nor the post-insolvency assignment argument could succeed. Under the Danish Bankruptcy Act 2007 only bilateral set-off is permitted; and, apart from insolvency law, the same principle is embodied in the "close-out netting" rules applicable under the Danish Securities Trading Act 2010...Under English insolvency law neither the non-mutual set-off argument nor the post-insolvency assignment argument could succeed. The law to be applied would be that deriving from British Eagle v Air France [1975] 1 WLR 758 and that contained in Rule 4.90 of the Insolvency Rules 1986 ("IR 1986"). This provides only for bilateral set-off and excludes any right of set-off in respect of claims acquired by assignment after the commencement of the winding up. But the arguments are being deployed by way of defence to proceedings brought in the English Commercial Court and there is no English insolvency."

Picture Credit: http://www.novalynx.ca/NLDenmark/photographs/Himmelbjerget_Mountain_24.jpg

Statutory Demands in the Court of Appeal: Macpherson v Wise [2011] EWCA Civ 399 (12 April 2011)

2011-04-19T07:20:00.000+01:00

Lord Justice Patten has handed down his judgment in Macpherson v Wise [2011] EWCA Civ 399 (12 April 2011). The case concerns an application for permission to bring a second appeal against the Court's refusal to set aside a statutory demand dated 1st April 2010. The statutory demand related to a figure of £338,500. There is no new discussion of insolvency law in the case, but the facts make for interesting reading in relation to the use of statutory demands and the bankruptcy jurisdiction. As Patten, LJ notes at paragraph 7: "The application to set aside included various technical challenges to the statutory demand based on the way it was served but these are no longer pursued. The sole ground for the application is that the debt is disputed on substantial grounds. If this is right then the Court has power to, and will, as a matter of established practice, set aside the statutory demand leaving it to the parties to resolve that dispute in ordinary court proceedings: see Insolvency Rules r. 6.5(4)(b)."

Picture Credit: http://news.bbc.co.uk/media/images/38134000/jpg/_38134333_wig150.jpg

Section 213(1) of the Insolvency Act 1986 and “or creditors of any other person”

2011-04-18T07:03:00.038+01:00

Fraudulent trading can be traced to section 275 Companies Act 1929. The latest incarnation is contained in section 213(1) of the Insolvency Act 1986 (IA86). The section contains an interesting turn of phrase for consideration. The section states:

"213 Fraudulent trading

(1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the following has effect."

It is the bold and underlined element of the above section that is of note, namely, the element which states “or creditors of any other person.” The point at issue is this - what is the point of proving that the company or individuals were trading to defraud someone else when the section is limited to applications by the liquidator to make contributions only to the company? This point arises because subsection (2) notes:

"(2) The court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned are to be liable to make such contributions (if any) to the company's assets as the court thinks proper."

If the indivduals carried on a business that defrauded only those who were not its creditors then what would be the remedy? If the company causes or conspires with others to cause a loss then the victims become creditors. It could be argued that the section is drafted so as to capture victims who are not ordinary creditors. But this raises the question - what are non-ordinary creditors?

There is very little case law on this conundrum. The secondary sources (i.e. Halsbury's Law of England, Sealy & Milman) are also quiet on the issue. However, Totty & Moss on Insolvency may offer some help. They note at B1-37: "The paramount purpose of the section is to compensate those who have suffered the loss as a result of the fraudulent trading (Bank of India v Morris [2005] 2 B.C.L.C. 328 CA)." Perhaps this wider policy rationale can account for the inclusion of "creditors of any other person."

In Bank of India v. Morris (ibid) Lord Justice Mummery discusses the scope of civil and criminal liability for fraudulent trading from paragraph 98 onwards. He notes:

"The predecessor provisions of s.213 were s.275 of the Companies Act 1929 and s.332 of the Companies Act 1948 . Those sections combined both compensatory and penal provisions. They were naturally regarded as penal legislation and, as such, were strictly construed so as to give the person charged the benefit of the doubt: Re Maidstone Building Provisions Ltd [1971] 1 W.L.R. 1085 .

The position is different under the 1986 Act. Section 213 is not a penal provision. It only covers civil liability to pay compensation in cases where the company which traded fraudulently is being wound up. A “collective” action can be brought by the liquidator of the fraudulent company for contribution to be made to the assets of that company for the benefit of its creditors...Compensation of those who have suffered loss as a result of the fraudulent trading is the paramount purpose of the provisions imposing civil liability to contribute to the loss suffered."

Picture Credit: http://yesteryearsnews.files.wordpress.com/2009/03/cucking_stool.png