Lexis®PSL Restructuring and Insolvency monthly highlights—June 2016

June 2016 highlights from the Lexis®PSL Restructuring and Insolvency team. This month’s highlights include: initial reactions to the Brexit vote, a look at the key dates under the Recast Regulation 848/2015, Linklaters’ views on the pre-pack recommendations, key changes proposed under the government’s recent consultation to reform the corporate insolvency framework, our latest On the Edge guide to matrimonial law plus a round up of other interesting cases and developments.

 Brexit—initial views on some likely impacts for R&I professionals

On 23 June 2016, the UK voted to leave the EU, sending shock waves across the markets and economies worldwide. While it will be several months before the full implications can begin to be understood, we look at some of the likely impacts on R&I lawyers and professionals.
For further details on the likely impact on R&I lawyers, see News Analyses:

Brexit—initial views on some likely impacts for R&I professionals
Brexit—implications for the UK restructuring and insolvency market

Lexis®PSL are reviewing our content on the basis of information available and will keep it under regular review throughout the withdrawal period. In the meantime, for background reading, links to related guidance and policy documents and the latest analysis on any potential effects on our content, please refer to our EU referendum subtopic and Brexit guide.

Keeping pre-packs afloat

Paul Sidle, Rebecca Jarvis, Richard Bussell, Richard Hodgson and Mandip Englund of Linklaters discuss Teresa Graham's six recommendations on how to improve confidence and transparency in ‘connected party’ pre-packs—broadly, where the former directors or owners are the buyers.
For further details, see News Analysis: Keeping pre-packs afloat.

Review of the corporate insolvency framework

The Insolvency Service is consulting on four proposals which would significantly change the options available to a company in financial distress. The proposals are:

  • the introduction of an automatic and standalone moratorium
  • continuance of 'essential contracts'
  • a flexible restructuring plan including cram down
  • rescue finance

For further details on these proposals, including what the consequences of the new cram down procedure and the rescue finance proposal might be, see News Analysis: Review of the corporate insolvency frame-work.

Headlines (News updates & analysis)

Recast Regulation—key dates

The majority of the provisions of the Recast Regulation 848/2015 are not effective until 26 June 2017—this is to allow Member States to familiarise themselves with the new provisions. The original EC Regulation on Insolvency 1346/2000 will continue to apply to proceedings opened before the Recast Regulation comes into force, although the continued effect of each for the UK in light of the Brexit vote is now unclear. The exceptions are:

  • 26 June 2016—the description of national insolvency law and procedures to be provided by each Member State
  • 26 June 2018—the establishment of national insolvency registers
  • 26 June 2019—the interconnection of national registers

For further details, see News Analysis: Recast Regulation—key dates.

Dealing with the deliberate dissipation of assets

Bataillon and another v Shone and another [2016] EWHC 1174 (QB), [2016] All ER (D) 199 (May)

The recent case of Bataillon and another v Shone and another is a significant recent example of a case confirming that, for determined claimants using the right litigation tools, it is possible to achieve significant results and recoveries notwithstanding the deliberate dissipation of assets by defendants. Daniel Saoul, barrister at 4 New Square, who acted for the claimants in this case, articulates the importance of the judgment.

Insolvency law v arbitration

Insolvency law contains summary processes for dealing with claims and protections against certain pro-ceedings commencing or continuing. There has been some debate, and recent case law, concerning the primacy of these rules over agreements to arbitrate. Stewart Perry, partner in Clyde & Co’s insolvency and reorganisation team and member of the Lexis®PSL Restructuring and Insolvency Consulting Editorial board, looks at what the current position is under English law and beyond.

Director not insulated from liability on insolvency

Re Cosy Seal Insulation Ltd (in administration); Ross v Gaffney [2016] EWHC 1255 (Ch), [2016] All ER (D) 29 (Jun)

Oberon Kwok, barrister at St Philips Chambers, outlines that while the decision in Re Cosy Seal Insulation grants some practical knowledge to lawyers, there are legal issues, namely relating to carbon credits and the nature of ‘transaction’, that remain ambiguous. For further details, see News Analysis: Director not insulated from liability on insolvency.

New Official Receiver bank details

On the 30 June 2016, the Official Receiver’s Lloyds bank account will close. The Insolvency Service has published on its website the details of the Government Banking Services which are now being used by the Official Receiver. This will apply to monies paid in to bankruptcies and compulsory liquidations.

Court considers income payments orders and pensions

Hinton (trustee in bankruptcy of Wotherspoon) v Wotherspoon [2016] EWHC 621 (Ch), [2016] All ER (D) 43 (Jun)

Can a bankrupt’s pension income which is the subject of a drawdown arrangement be taken into account when a trustee in bankruptcy applies for an income payments order? Peter Shaw, of 9 Stone Buildings, ex-plains the Chancery Division’s answer in Hinton v Wotherspoon. For further details, see News Analysis: Court considers income payments orders and pensions.

Lifting a stay to pursue arbitration

Gardner v Lemma Europe Insurance Company Ltd (in liquidation) [2016] EWCA Civ 484, [2016] All ER (D) 175 (May)

In what circumstances would it be appropriate for a court to lift an automatic stay to allow a party to pursue arbitration? Charlotte Cooke, barrister at South Square, considers how the Court of Appeal decision in Gardner v Lemma Europe Insurance Company informs our understanding of the court’s discretion. For further details, see News Analysis: Lifting a stay to pursue arbitration.

High Court ends Puerto Rico's restructuring law

In an article for Law360, Jonathan Randles looks at the US Supreme Court’s recent decision dealing a heavy blow to Puerto Rico’s restructuring laws. Puerto Rico, which is facing $70bn in public debt, passed a law in 2014 that would have restructured the debt of its financially struggling public utilities. For further details, see News Analysis: High Court ends Puerto Rico's restructuring law.

Revisiting fees agreed by administrators

Hosking (as joint liquidators of Hellas Telecommunications (Luxembourg) II SCA) v Slaughter and May [2016] EWCA Civ 474, [2016] All ER (D) 173 (May)

Can liquidators seek a detailed assessment of solicitors’ fees previously agreed by administrators? Hilary Stonefrost, barrister at South Square, explains the Court of Appeal’s decision in Hosking v Slaughter and May. The court held that on the construction of rule 7.34 of the Insolvency Rules 1986, SI 1986/1925 (IR 1986) that was in force at the time, the liquidators had no jurisdiction to ask the court to direct a detailed assessment of fees agreed and paid by administrators. It decided that IR 1986, SI 1986/1925, r 7.34(1) (a) did not apply to administrations because there could be no reference to 'administration' in that rule unless words were added. For further details, see News Analysis: Revisiting fees agreed by administrators.

Changes for IFRS 16 incorporated into LMA documentation

IFRS 16, a new accounting standard relating to the accounting treatment of leases, takes effect from 1 January 2019 and introduces a single lessee accounting model. The Loan Market Association (LMA) has incorporated changes for IFRS 16 into LMA facility documentation.

Trustees in bankruptcy and privilege—a spanner in the works?

Shlosberg v Avonwick Holdings Ltd and others [2016] EWHC 1001 (Ch), [2016] All ER (D) 76 (May)

Does a trustee in bankruptcy (TIB) acquire the benefit of the bankrupt’s legal professional privilege? And if not, what impact might that have on a TIB's investigations? Marcia Shekerdemian QC of Wilberforce Chambers considers the decision in Shlosberg v Avonwick Holidings Ltd. For further details, see News Analysis: Trustees in bankruptcy and privilege—a spanner in the works?

Transfer schemes—breaking new ground?

Re The Copenhagen Reinsurance Company (UK) Ltd and another [2016] EWHC 944 (Ch), [2016] All ER (D) 25 (May)

According to Joe Bannister, partner at Hogan Lovells, the major lesson from Copenhagen Re is the im-portance the courts continue to place upon the quality of supporting evidence and levels of disclosure when considering both transfer schemes (also known as part VII schemes or insurance business transfer schemes) and schemes of arrangement under Part 26 of the Companies Act 2006. For further details, see News Analysis: Transfer schemes—breaking new ground?

Bold petitioning creditors beware

Re A Company [2016] EWHC 1046 (Ch), [2016] All ER (D) 103 (May)

Is a winding-up petition bound to be struck out where there is a clash of evidence, and notwithstanding a challenge to the credibility of the company’s evidence? Elaine Palser of 9 Stone Buildings considers the recent decision of Gabriel Moss QC (sitting as a deputy judge of the High Court) in Re A Company. For further details, see News Analysis: Bold petitioning creditors beware.

Pinpointing the de facto director

Re Sports Management Group Ltd (in Liquidation); Green (as liquidator of Sports Management Group Ltd) v Marston and another [2016] Lexis Citation 55, [2016] All ER (D) 208 (May)

What are the difficulties when identifying the de facto director after a company has gone into liquidation? Gemma Witherington, barrister at Hardwicke, explores the issues faced by Registrar Derrett when trying to determine the de facto director of the Sports Management Group Ltd and highlights the lessons that can be learnt from the judgment. For further details, see News Analysis: Pinpointing the de facto director.

New guidance on bankruptcy and living abroad

Guidance on issues around bankruptcy when living abroad has been published by the Money Advice Service and the Insolvency Service. The guidance outlines the options for going bankrupt in England and Wales and the consequences of bankruptcy.

Cases

Brown and another, the joint administrators of Loanwell Ltd v Stonegale Ltd

[2016] UKSC 30, [2016] All ER (D) 133 (Jun)

Abstract:
The Supreme Court held in dismissing the appeal that the purpose and effect of the transactions between the group of companies in Scotland prior to administration was to divert assets away from the companies' creditors contrary to section 242 of the Insolvency Act 1986 (IA 1986). There had been no reciprocity be-tween the disposals and the earlier payment made to the bank. That they were gratuitous alienations was plain and obvious.

Re Saad Investments Company (in liquidation); Akers v Hayley

[2016] Lexis Citation 69, [2016] All ER (D) 103 (Jun)

Abstract:
The Companies Court held that it had an unfettered discretion (under IR 1986, SI 1986/1925, r 9.6(4)) to award legal costs to an examinee examined on the application of joint liquidators, under IA 1986, s 236, as part of an inquiry into the dealings of two companies in liquidation. An order was made providing for the reasonable costs of the respondent's representation at the examination. However, given the narrow scope of IR 1986, SI 1986/1925, r 9.6(4), no order was made requiring the joint liquidators to pay the respondent's pre-application costs, save to the extent that they could be said to be of, and incidental to, the examination in the strictest sense.

Trackers

There have been developments on the following cases this month:

Case name Court and citation Subject Current status
Shlosberg v Avonwick Holdings [2016] EWHC 1001 (Ch), [2016] All ER (D) 76 (May) In the previous judgment, the Chancery Division ruled that the claimant's trustees in the bankruptcy had acquired the benefit of his legal professional privilege with respect to one of three categories of documents held by the second defendant solicitors, who were also acting for the claimant's creditor (A). Both A and the claimant had been engaged in hostile litigation. In all the circumstances, no order was granted requiring the solicitors to cease acting for the trustees. However, an injunction was granted requiring the solicitors to cease acting for A. Applying for permission to appeal to the Court of Appeal
 Bailey v Angove's Pty [2014] EWCA Civ 215, [2014] All ER (D) 82 (Mar) In the previous judgment, D&D company acted as the sole agent and distributor of the respondent company, AP. D&D went into administration and AP terminated its agency and distribution agreement (ADA) with D&D. After the ADA had been terminated, third party customers paid D&D the purchase price of goods sold and delivered during D&D ’s agency and distributorship (the sum). The judge ordered that the sum should be paid to AP in its entirety and the appellant liquidators of D&D appealed. Allowing the appeal, the Court of Appeal held that D&D had remained entitled to collect what had been due from customers in respect of goods ordered and delivered prior to termination and the money had therefore been payable under the ADA to the liquidators Appeal hearing concluded but judgment reserved by Supreme Court on 8 June 2016
Hawkes v County Leasing Asset Management [2015] EWCA Civ 1251, [2015] All ER (D) 73 (Dec) In the previous judgment, the Court of Appeal considered the principles applicable when making an order for the restoration to the register of a dissolved company, to order that the running of time for the bringing of claims by the company should be suspended during all or part of the period when the company was dissolved. Applying those principles, it allowed the appellants’ appeal against the making of such a limitation direction Permission to appeal refused by the Supreme Court on 19 May 2016

Dates for your diary

Date Time Subjects covered
26 June 2016 Description of national insolvency law and procedures to be provided by each Member State under the Recast Regulation on Insolvency 848/2015
1 July 2016 eIDAS Regulation (EU Regulation No 910/2014) on virtual execution comes into force
6 July 2016 Consultation on Review of the corporate insolvency framework ends
11 July 2016 15:30 Joint R3/LexisNexis webinar: Sector issues part 2: Charities - Patricia Godfrey (Nabarro LLP) and Elizabeth Jones (Farrer & Co LLP) (subscription required)
1 August 2016 Third Parties (Rights Against Insurers) Act 2010 comes into force

Lexis®PSL Restructuring and Insolvency

This is a shortened version of the Lexis®PSL Restructuring and Insolvency monthly highlights for June 2016 that was first published on Lexis®PSL Restructuring and Insolvency.

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