Monthly Update - February 2014

Welcome to the Restructuring & Insolvency team's round-up of recent case law, legislation, news and opinions for February 2014.

As spring finally arrives and we say goodbye to the rain (we hope), February suddenly seemed like a busy month in the insolvency world. There were a number of judgments handed down during the month, including a well received decision from the Court of Appeal in the Game administration which will inevitably spawn hundreds of articles.  Read our practical guide to what the Game appeal means for administrators and landlords. Meanwhile, insolvency practitioners were concerned by the new consultation on regulation and fees: could this spell the end of charging by the hour? And just what has the European Parliament been proposing on the EC regulation on Insolvency that has caused such concern? Find out more below.

Cases

Below is a round-up of some of the key cases reported in February.

Game appeal - the result is in (Pillar Denton Ltd v Jervis) [2014] EWCA Civ 180, [2014] All ER (D) 212 (Feb)

The Court of Appeal returned to the 'pay for what you use' principle in its decision in the Game appeal handed down on 24 February 2014. In a leading judgment by Lord Justice Lewison, the Court of Appeal decided that an officeholder (be it an administrator or liquidator) must make payments at the rate of the rent for the duration of any period during which he retains possession of the demised property for the benefit of the administration or liquidation (as the case may be). The rent is to be treated as accruing from day-to-day and is payable as an expense of the administration or liquidation.

The decision, which overruled both Goldacre (Offices) Ltd v Nortel Networks UK Ltd (in administration)  [2009] EWHC 3389, [2010] All ER (D) 54 (Jan) and Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd (in admin) [2012] EWHC 951 (Ch), [2012] All ER (D) 165 (May), applied the salvage principle (an equitable principle), which deems that a liability incurred before liquidation or administration to pay rent under a lease relates to the period of use for the purposes of administration as if it were a debt incurred by the administrators or liquidators and thus is payable as an expense. Accordingly, the inability at common law to apportion rent that is payable in advance does not apply.

For further in-depth analysis, see our interview with Joe Bannister, restructuring partner and Mathew Ditchburn, real estate disputes partner with Hogan Lovells: Landlords can rejoice following the Game administration decision.  http://lexisnexis.blogs.local.com/randi/landlords-can-rejoice-following-the-game-administration-decision/

Lehmans waterfall decision (In the matter of Lehman Brothers International (Europe) (in administration) and Lehman Brothers Limited (in administration) and LB Holdings Intermediate 2 Limited (in administration))

On 21 February 2014, Mr Justice David Richards issued a statement of conclusions in the Lehman waterfall application, addressing a number of issues arising from the likelihood of a surplus in the estate of Lehman Brothers International (Europe) after payment of all proved debts. In this statement of conclusions, Mr Justice Richards addresses a number of issues including whether the equitable rule in Cherry v Boultbee (1839) 41 ER 171 applies in administration (his conclusion was no, it only applies in liquidation) and whether creditors who suffered losses due to currency movements can claim for this.

For information on the statement of conclusions, see analysis: Lehmans waterfall decision. The full judgment is expected to be available in late March. http://lexisnexis.blogs.local.com/randi/lehmans-waterfall-decision/

Does the Lugano Convention permit a stay of English proceedings for relief under a derivative agreement? (Fondazione Enasarco v Lehman Brothers Finance SA) -  Fondazione Enasarco v Lehman Brothers Finance SA [2014] EWHC 34 (Ch)

Lehman Brothers Finance SA's (LBF) application for a stay of English proceedings in respect of a claim brought by the claimant (Enasarco) for relief under a derivative agreement was refused where there were strong grounds for such refusal and where the English court was the natural court to consider the issues raised because they raised contractual questions governed by English law.

For further guidance, see analysis: Does the Lugano Convention permit a stay of English proceedings for relief under a derivative agreement?  http://lexisnexis.blogs.local.com/randi/does-the-lugano-convention-permit-a-stay-of-english-proceedings-for-relief-under-a-derivative-agreement-2/

Just and equitable petitions--deadlock in small family business (Re Brand & Harding Ltd)  [2014] EWHC 247 (Ch), [2014] All ER (D) 136 (Feb).

The company subject to the winding-up petition was owned by sisters (the shareholders). The petition was issued on the basis that the shareholders had reached a deadlock in that they contended that they could not agree on the management of the company. In addition, there had been cross-accusations of misconduct, which had led to bitter acrimony and they could not agree on any matter relating to the future governance of the company. Therefore, a winding-up petition was issued by the shareholders seeking an order to wind-up the company, pursuant to Insolvency Act 1986, s 122(1)(g), on the grounds that it was just and equitable that the company be wound-up; the court granted the order.

For the full article, see analysis: Just and equitable petitions--deadlock in small family business. http://lexisnexis.blogs.local.com/randi/just-and-equitable-petitions-deadlock-in-small-family-business/

Does the EC Regulation on Insolvency apply to antecedent transactions even if the third party beneficiary is not resident in a member state? (Schmid v Hertel)  C-328/12 [2014] All ER (D) 221 (Jan)

The Court of Justice of the European Union (CJEU) made a preliminary ruling concerning the interpretation of Council Regulation (EC) 1346/2000, art 3(1) on insolvency proceedings (the EC Regulation on Insolvency). The request had been made in the context of a dispute between Mr Schmid, acting as liquidator of the assets of Ms Zimmermann and Ms Hertel, who was resident in Switzerland, concerning an action to set aside a transaction. The CJEU decided that:

the application of the EC Regulation on Insolvency, art 3(1) does not depend on the existence of a cross-border link involving another member state

  • the courts of the member state where insolvency proceedings have been opened (here, Germany) have jurisdiction to hear and to determine an action to set aside a transaction brought against a person whose place of residence is not within a member state (here, Switzerland)

For further guidance, see analysis: Does the EC Regulation on Insolvency apply to antecedent transactions even if the third party beneficiary is not resident in a member state? http://lexisnexis.blogs.local.com/randi/does-the-ec-regulation-on-insolvency-apply-to-antecedent-transactions-even-if-the-third-party-beneficiary-is-not-resident-in-a-member-state/

Court of Appeal decision on dissolution and remedies where a partnership under the Partnership Act 1980 has broken down irreparably (Golstein v Bishop)  [2014] All ER (D) 53 (Feb), [2014] EWCA Civ 10

The Court of Appeal's judgment in first instance decision in Golstein v Bishop contains useful guidance for partnership lawyers advising clients in connection with dissolution and remedies where the partnership relationship has irreparably broken down.

Amanda Eilledge of 11 Stone Buildings looks at this Court of Appeal case: Do contractual principles apply to s 35(d) of the Partnership Act 1890? Court of Appeal sets the record straight (Golstein v Bishop): http://lexisnexis.blogs.local.com/randi/do-contractual-principles-apply-to-s-35d-of-the-partnership-act-1890-court-of-appeal-sets-the-record-straight-golstein-v-bishop/

Fraudulent breach of trust and the limits of the Limitation Act 1980 (Williams v Central Bank of Nigeria) [2014] UKSC 10, [2014] All ER (D) 172 (Feb)

The Supreme Court decided that a stranger to a trust who was liable to account on the grounds of dishonest assistance in a breach of trust or knowing receipt of trust assets was not a trustee for the purposes of the Limitation Act 1980, s 21(1)(a). The court further decided that an action in respect of any fraud or fraudulent breach of trust to which the trustee was a party or was privy did not include an action against a party which was not itself a trustee.

For further guidance, see case analysis: Fraudulent breach of trust and the limits of the Limitation Act 1980. http://lexisnexis.blogs.local.com/randi/fraudulent-breach-of-trust-and-the-limits-of-the-limitation-act-1980/

Extensions of time for witness statements post Mitchell and Lloyd--don't be caught out (M A Lloyd & Sons v PPC International)  [2014] All ER (D) 130 (Jan), [2014] EWHC 41 (QB)

Following the recent decision in M A Lloyd & Sons v PPC International, parties who agree to extend time for service of witness statements must also apply to the court for an order by consent. In the post-Mitchell and post-Lloyd world, parties are increasingly unlikely to agree extensions of time. Tom Shepherd of 11 Stone Buildings considers the Lloyd judgment, highlighting some practical pointers for parties to consider and explains why this decision leaves us with a few unresolved questions in this 'Insider' bulletin.

For the full article, see bulletin: Extensions of time for witness statements post Mitchell and Lloyd--don't be caught out. http://lexisnexis.blogs.local.com/randi/extensions-of-time-for-witness-statements-post-mitchell-and-lloyd-dont-be-caught-out/

News analysis

European Parliament proposes significant changes to reform the EC Regulation on Insolvency:  Council Regulation (EC) 1346/2000, art 3(1)

The European Commission originally proposed amending the EC Regulation on Insolvency back in December 2012 and the amendments were largely welcomed by UK practitioners. For a summary of these proposals, see Practice Note: Reforms to EC Regulation on Insolvency 1346/2000.

On 20 December 2013, European Parliament rapporteur, Klaus-Heiner Lehne, produced a report on the Commission's proposals suggesting significant amendments and on 5 February 2014, the European Parliament adopted most of his changes at its first reading. These changes include adding a requirement to look at COMI at least three months prior to the opening of proceedings (currently, the relevant time is when proceedings are opened) and prescribing where proceedings in respect of group companies should be opened.

For a summary of the notable changes, see news analysis: European Parliament proposes significant changes to reform the EC Regulation on Insolvency. http://lexisnexis.blogs.local.com/randi/european-parliament-proposes-significant-changes-to-reform-the-ec-regulation-on-insolvency/

We also spoke to Chris Laughton, a licensed insolvency practitioner and partner at Mercer Hole on the effect of the vote by the European Parliament, see news analysis: An insolvency practitioner's view on the European Parliament's vote on the EC Regulation on Insolvency reforms.  http://lexisnexis.blogs.local.com/randi/an-insolvency-practitioners-view-on-the-european-parliaments-vote-on-the-ec-regulation-on-insolvency-reforms/

New consultation--strengthening the regulatory regime and fee structure for insolvency practitioners

Insolvency practitioners will have limits placed on charging for their work by the hour and may instead have to base their fee on a percentage of property dealt with or realised or as a fixed fee under new proposals from the government's Insolvency Service. The changes, part of a package of measures in a six-week consultation, give the Insolvency Service stronger powers to effectively monitor and regulate practitioners and industry regulators. The consultation will run until 28 March 2014.

For more detail on the consultation, see news analysis: New consultation--strengthening the regulatory regime and fee structure for insolvency practitioners.  http://lexisnexis.blogs.local.com/randi/new-consultation-strengthening-the-regulatory-regime-and-fee-structure-for-insolvency-practitioners/

Law firm wound-up for offering dubious personal COMI shift advice

A legal firm in Hull, Lovell Hill & Co LLP (LHC), was wound-up by the High Court following an investigation by the Insolvency Service. The investigation showed that Lovell Hill & Co had been offering relocation services to Germans seeking to take advantage of the shorter bankruptcy discharge periods in the UK. Parts of the services provided were unlawful in that they sought to give the false impression that the German citizen's COMI was in the UK, when in fact it was in Germany.

For further information, see news analysis: Law firm wound-up for offering dubious personal COMI shift advice. http://lexisnexis.blogs.local.com/randi/law-firm-wound-up-for-offering-dubious-personal-comi-shift-advice/

Red Tape Challenge--how successful have the measures been so far?

The Red Tape Challenge is a government programme to scrap and reform ineffective regulation. Insolvency was the focus of this programme for five weeks between August and September 2012. A press release by the Insolvency Service in January 2014 set out details of the resulting measures designed to reduce the costs of insolvency procedures and benefit creditors by £30 million a year including:

  • allowing IPs to communicate with creditors electronically
  • removing the need for IPs to obtain court orders for certain actions
  • reducing costs by removing the requirement to pay out small dividends and instead use the money for the wider benefit of creditors

Some measures will require changes to primary legislation and others will be changed through secondary legislation as part of the rewrite of the Insolvency Rules (not expected until 2015/2016).

With the insolvency changes still some way off, we spoke to the Department for Business, Innovation and Skills on how this project was progressing generally, see news analysis: Red Tape Challenge--how successful have the measures been so far?  http://lexisnexis.blogs.local.com/randi/red-tape-challenge-how-successful-have-the-measures-been-so-far/

Other news

R&I webinars with R3

This month saw the fourth joint LexisNexis/R3 webinar on 'Antecedent Transactions' featuring Christopher Brockman, a barrister at Guildhall Chambers and Neil Symth, a partner at Taylor Wessing as guest speakers, with Graham McPhie, partner at Moon Beever chairing.

To subscribe and access the webinar programme, see: R&I/R3 Webinar programme. http://www.conferencesandtraining.com/en/Browse-Events/Law-conferences/Webinars-Subscription-R-and-I/?displayControl=overview

 

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