After the Corporate Insolvency and Governance Bill was published on 20 May 2020, it raced through the House of Commons and the House of Lords, coming into force in under six weeks as the Corporate Insolvency and Governance Act 2020, with some of the temporary measures taking effect from 1 March 2020. Although the new tools are entirely untested, the sooner they become an integrated part of the UK restructuring landscape, the better.
The Corporate Insolvency and Governance Bill was recently laid before Parliament. The bill contemplates a temporary ban on statutory demands presented from 1 March 2020 as a ground for presenting a winding-up petition and on winding-up petitions presented from 27 April 2020 unless the petitioning creditor has reasonable grounds for believing that COVID-19 has not had a financial effect on the debtor company or that it would have been insolvent even if COVID-19 had not had a financial effect on it.
The much-anticipated Corporate Insolvency and Governance Bill was published on 20 May 2020. The proposed legislation is split into two broad categories: temporary provisions brought about as a result of COVID-19 and permanent provisions which will result in fundamental changes to UK insolvency law. The proposals, both temporary and permanent, reflect a shift towards a more debtor-friendly regime.
Generally speaking, the purpose of adjudication is to speed up cash flow and allow the speedy resolution of disputes, while the purpose of liquidation is to resolve the final accounting position between two parties in respect of all of their dealings. As a result, there are often incompatibilities between the two regimes. A recent Technology and Construction Court decision provides the latest judicial guidance on the ability of a company in liquidation to refer a dispute to adjudication.
High-profile use of company voluntary arrangements (CVAs) has led to widespread media coverage and controversies. Household names such as Jamie's Italian, Prezzo, Toys R Us, Mothercare, Gourmet Burger Kitchen and more recently Debenhams are among the growing list of companies that have followed this well-trodden path, with varying degrees of success. This article briefly covers the CVA process, analyses Debenhams' recent High Court appeal and discusses the impact of CVAs on lenders.
In a recent ruling, the Court of Appeal confirmed that administrators owe a duty to all creditors and cannot be held personally liable for the economic loss of a creditor where no special relationship exists. In coming to its decision, the court showed a willingness to look at the commercial realities of the decisions that administrators must make on a daily basis.
The government recently announced that it will legislate to update the restructuring and insolvency systems, with the aim of the United Kingdom retaining the gold-standard regime. The reforms are a response to international developments (with countries such as Spain and the Netherlands recently introducing updated insolvency systems) and some domestic corporate collapses which have put the UK system under stress.
The United Kingdom's corporate governance regime has been stress tested in the past decade and in many respects it has done well. However, in response to certain high-profile corporate collapses which have caused heavy losses for creditors – in particular, individuals and suppliers with little opportunity to protect themselves against losses – and in the spirit of continual improvement, the government recently launched its Insolvency and Corporate Governance consultation.
A liquidator recently pursued a claim that the transfer of a company's trading inventory in satisfaction of money owed to the company's former director was a transaction at an undervalue and preference. The judge agreed, holding that the inventory transfer had been entered into with the intention of putting the former director in a better position than she would have been in on the company's liquidation.
The High Court recently struck out a claim by a liquidator who had already brought a claim arising from the same facts against the same defendants. The court relied on the fact that the economic benefit of pursuing the claim would accrue only to the liquidator and held that the second claim constituted an abuse of process, as monies recovered would simply be paid back to the respondents as creditors, less the liquidators fees and costs.
A liquidator recently applied for permission to amend his claim for fraudulent trading. The claim related to purported defrauding of Her Majesty's Revenue and Customs (HMRC) for non-payment of value added tax. Among other things, the judge held that whilst the costs order constituted loss to HMRC as a creditor, no valid claim in respect of costs was pleaded against the respondents and therefore there was no reasonably arguable case on the point.
Investors may, for reasons outside of their control, find themselves with a financially distressed company in their portfolio and possibly in unfamiliar territory. For any distressed situation, being mindful of early warning signs and initiating contingency planning options sooner rather than later will assist in navigating what can sometimes seem like a minefield of issues which arise on an insolvency.
A plaintiff recently applied for a bankrupt's committal to prison for contempt of court, providing certification that the bankrupt's conduct had breached the Insolvency Act 1986 without reasonable excuse. The court's decision appears to be the first to clarify the procedure for applying for a committal order on the basis of breaches of the Insolvency Act and provides helpful guidance to practitioners on this issue.
The Court of Appeal recently held that there is a complete statutory code for interest recovery on proved debts in administrations and liquidations. Further, the court stated that statutory interest represents compensation for dividends paid after the administration, and does not depend on any right to interest under the underlying claim.
A recent Court of Appeal case has clarified that where the underlying liability on which a bankruptcy order is made is subsequently set aside, the correct remedy is rescission under Section 375(1) of the Insolvency Act. Further, annulment under Section 282(1)(a) is the appropriate remedy when, on grounds existing at the time of making the bankruptcy order, the order ought not to have been made.
In between the presentation of a winding-up petition and the making of a winding-up order, a company entered into a settlement agreement with its founder. The judge concluded that the intended claims by the company's liquidators were not barred by the agreement. The judge also held that the release of contractual rights constituted a disposition, as did a promise not to sue. The provisions of the settlement agreement were therefore void.
The administrators of Lehman Brothers Europe Ltd recently brought an application for directions on whether to make a substantial distribution of surplus to the company's sole shareholder while the company was in administration and the administrators' role in that distribution. To navigate around the Insolvency Act, the administrators devised a nifty strategy whereby the distribution would be made using the residual powers still vested in the directors and shareholders of the company pursuant to the Companies Act.
A court recently confirmed that legal professional privilege does not automatically vest in the trustee in bankruptcy. Legal professional privilege is a fundamental human right such that express statutory powers would be necessary to deprive the bankrupt of that right. Therefore, the bankrupt would need to waive privilege or consent to the use of privileged documents.