2013 Insolvency case round-up

2013 Insolvency case round-up

2013 was an important year for insolvency case law, Steven Thompson and Rebecca Lloyd of XXIV Old Buildings take a look back at the most important cases of the past year.

During 2013 several insolvency-related cases reached the highest courts of England and Wales, providing practitioners with guidance on matters ranging from the treatment of employees during administration to the rights of contingent creditors in a liquidation. There have been important developments in the area of office holders’ fees and expenses. As practitioners have come to expect, the world of cross-border insolvency has also given rise to some interesting decisions in 2013.

UK insolvency

Applying the solvency tests in the case of long term loans—BNY Corporate Trustee Services Ltd v Eurosail

The Supreme Court considered the fundamental issue of a company’s solvency in BNY Corporate Trustee Services Ltd v Eurosail [2013] UKSC 28, [2013] 3 All ER 271 (Lords Hope, Walker, Mance, Sumption, Carnwath). The case concerned the distinction between the cash-flow test and balance sheet test of solvency in the Insolvency Act 1986, s 123 (IA 1986).

The court noted that the cash-flow test must be concerned with not only presently-due debts but also with debts falling due in the reasonably near future—although what is reasonably near will depend on all the circumstances including importantly the nature of the company’s business. Once the court has to move beyond the reasonably near future, a cash-flow test is entirely speculative and the only sensible test is whether the present assets are less than the present and future liabilities, discounted for contingencies and deferment.

Eurosail had issued notes which were redeemable in 2045, the interest on which was serviced and serviceable from the underlying mortgagors’ payments. There was no doubt that Eurosail was able to service its debts to the noteholders as they fell due. The issue was whether the company’s assets were less than its liabilities. Many of those liabilities were subject to

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