Lexis®PSL Restructuring and Insolvency monthly highlights—March 2016

01 Apr 2016

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This month’s highlights include the launch of the Annotated Guide to the New Insolvency Rules, analysis of the latest wrongful trading case (Re Balls Builders), and consideration of the impact of Brexit on the UK restructuring market, together with other news and recent cases affecting the day-to-day work of restructuring and insolvency professionals.

Headlines

Annotated Guide to the New Insolvency Rules

In the single-biggest change to insolvency law in a generation, the Insolvency Rules 1986, SI 1986/1925 (IR 1986) are set to be replaced in their entirety in 2016. In a process which has been ongoing since 2006, the new insolvency rules will not simply be a renumbering exercise—a number of new rules and procedure will take effect which practitioners will need to get to grips with. At LexisNexis® UK, we have published the Annotated Guide to the New Insolvency Rules, an online-only resource accessible through Lexis®Library. Written by Dr John Tribe and Susan Morgan, the Annotated Guide to the New Insolvency Rules compares, on a rule-by-rule basis, the IR 1986 and the new draft insolvency rules, as they were published in July 2015. The Annotated Guide to the New Insolvency Rules will be updated once the new insolvency rules are passed.

We have published a series of briefings to give you insight into four hot topics:

Actual loss must be shown for a successful wrongful trading claim

Re Ralls Builders Ltd (in liquidation); Grant and another (Joint Liquidators of Ralls Builders Ltd) v Ralls and others [2016] EWHC 243 (Ch), [2016] All ER (D) 142 (Feb)

If a company trades while in financial difficulties, at what point does liability arise where the directors know or ought to know that there is no reasonable prospect of avoiding insolvent liquidation? Mark Mullen, barrister at Radcliffe Chambers considers the case of Re Ralls Builders Ltd which considered the wrongful trading provisions under section 214 of the Insolvency Act 1986 (IA 1986)—see News Analysis: Actual loss must be shown for a successful wrongful trading claim.

Brexit—implications for the UK restructuring and insolvency market

A referendum on whether the UK should leave (Brexit) or remain within the EU will now take place on 23 June 2016. As the ‘leave’ and ‘remain’ campaigns gear up and media coverage hits fever pitch, Victoria Procter and Chris Birch from the Restructuring team at Eversheds LLP, consider how Brexit might complicate cross-border restructuring and insolvency proceedings in the UK and, thereby, damage the UK’s international reputation as a leading restructuring jurisdiction—see News Analysis: Brexit—implications for the UK re-structuring and insolvency market.

Filling the void—the court’s approach to validation orders

Wilson & anor v SMC Properties Ltd and anor [2016] EWHC 444 (Ch), [2016] All ER (D) 246 (Jan)

Hugh Sims QC and Christopher Brockman, barristers at Guildhall Chambers, say the decision in Wilson v SMC Properties Ltd emphasises that while good faith alone is not enough, it is a powerful factor in favour of the exercise of the court’s discretion to validate an otherwise void disposition—see News Analysis: Filling the void—the court’s approach to validation orders.

Administrators’ right to outstanding remuneration

Walker and another v National Westminster Bank plc and another [2016] EWHC 315 (Ch), [2016] All ER (D) 268 (Feb)

Simon Passfield of Guildhall Chambers discusses the case of Walker and another v National Westminster Bank plc which raised the question of whether administrators had a proprietary interest in redress monies which survived a company dissolution—see News Analysis: Administrators’ right to outstanding remuneration.

The Insolvency Act moratorium

Cook v Mortgage Debenture Ltd [2016] EWCA Civ 103, [2016] All ER (D) 247 (Feb)

In the recent case of Cook v Mortgage Debenture Limited, the Court of Appeal discussed the scope of moratorium provisions in IA 1986, Sch B1. Sebastian Clegg, barrister at Deans Court Chambers, who represented the respondent in this appeal, considers the issues before the court and how this decision informs our understanding of the IA 1986 moratorium.—see News Analysis: The Insolvency Act moratorium.

Personal liability of liquidators for charges under CFA (Stevensdrake v Hunt)

Stevensdrake Ltd (trading as stevensdrake solicitors) v Hunt and another [2016] EWHC 342 (Ch), [2016] All ER (D) 258 (Feb)

Nick Oliver, a director and head of the insolvency & business turnaround team at Verisona Law, examines the decision in Stevensdrake Ltd v Hunt where it was held that the defendant liquidator was not liable to the claimant firm of solicitors for its charges, basic costs and uplift or for interest on unpaid or late payment of disbursements in respect of work done pursuant to a conditional fee agreement in respect of the liquidation of a company—see News Analysis: Personal liability of liquidators for charges under CFA (Stevensdrake v Hunt).

Insolvency Express Trials pilot scheme

On 1 April 2016, litigants involved in some insolvency applications will be able to take advantage of a new court pilot scheme. Intended to provide litigants with a streamlined procedure and an early date for trial or disposal of simple applications, the pilot scheme—known as Insolvency Express Trials—will only be available to applications brought in the Bankruptcy and Companies Court of the High Court before the Bankruptcy Registrars—see News Analysis: Insolvency Express Trials pilot scheme, which includes an interview with Chief Registrar Baister.

What is meant by ‘ordinarily resident’ in bankruptcy proceedings?

Re Khan; Reynold Porter Chamberlain LLP v Khan [2016] Lexis Citation 9, [2016] All ER (D) 92 (Feb)

Joseph Wigley, barrister at 4 Stone Buildings, examines the case Re Khan; Reynold Porter Chamberlain LLP v Khan where the court had to determine whether it had jurisdiction to make a bankruptcy order against a Pakistani citizen who contended that he was not ‘ordinarily resident’ in the UK for the purposes of the IA 1986—see News Analysis: What is meant by ‘ordinarily resident’ in bankruptcy proceedings?

Challenging the validity of an IVA

Narandas-Girdhar and another v Bradstock [2016] EWCA Civ 88, [2016] All ER (D) 151 (Feb)

Has the judgment in Narandas-Girdhar and another v Bradstock clarified the position when challenging the approval of a voluntary arrangement by a creditors’ meeting? Katherine Hallett, barrister at 13 Old Square Chambers, explores the decision and the practical implications when seeking to set aside an individual voluntary arrangement—see News Analysis: Challenging the validity of an IVA.

Commission seeks a harmonised approach to EU insolvency

The European Commission has set out options for improving the harmonisation of insolvency procedures, aiming to reduce the differences between national insolvency regimes while strengthening weaker regimes. The Commission has published an impact statement and has launched a public consultation seeking views closing on 14 June 2016.

Reforms to the investment bank special administration regime proposed

HM Treasury (HMT) is consulting on reforms to the investment bank special administration regime (SAR), having largely accepted the recommendations of a 2014 review which aimed to simplify and speed up the SAR process to reduce costs to clients and creditors. HMT now wants to ensure any proposed changes provide legal certainty about the status of client and creditor claims. HMT's consultation ends on 20 April 2016.

Reports of office-holders on conduct of directors of insolvent companies

From 6 April 2016, section 107 of the Small Business, Enterprise and Employment Act 2015 (which is en-acted by The Small Business, Enterprise and Employment Act 2015 (Commencement No 4, Transitional and Savings Provisions) Regulations 2016, SI 2016/321) will require an office-holder to submit a report to the Secretary of State on every director of a company that becomes insolvent. The conduct report must describe any conduct which may assist the Secretary of State in deciding whether it is in the public interest to apply for the making of a disqualification order. The report must be submitted in all cases within three months of the insolvency date (previously it was within six months). This system removes the need for an opinion by the office-holder which was the case prior to 6 April 2016.

Cases

Lehman Brothers Luxembourg Investments SARL v Lehman Brothers UK Holdings Ltd (in administration)

[2016] EWHC 617 (Ch), [2016] All ER (D) 183 (Mar)

Abstract: The Chancery Division made a ruling with regard to the solvency of the defendant company, Lehman Brothers UK Holdings Ltd, which was in administration. The court held that the solvency condition in the standard terms of three loan agreements would be satisfied in the case of the defendant. As a result, the claimant company was entitled to the relief that it claimed as a creditor of the defendant.

Re Indemnity Guarantee Assurance Ltd; Kaplan and others

[2015] EWHC 1493 (Ch), [2015] All ER (D) 366 (Mar)

Abstract: The Companies Court held that Council Regulation (EC) 1346/2000 applied to the administration of a company which was authorised to undertake both insurance and reinsurance business but which, in practice, only undertook the latter type of business.

Secretary of State for Business, Innovation and Skills v PLT Anti-Marketing Ltd

[2015] EWHC 3981 (Ch), [2015] All ER (D) 260 (Dec)

Abstract: The Chancery Division held that it had jurisdiction to grant a compulsory winding-up order in respect of a company on the company's own application, and where there was an extant winding-up petition, which had previously been presented by the Secretary of State for Business, Innovation and Skills. The company was no longer trading and, notwithstanding that the Secretary of State's petition had been presented on public interest grounds, it had sought the winding up of the company on the just and equitable ground, which was sufficient to found jurisdiction in the court to make a winding-up order on the company's application. There was no requirement that the case be 'thoroughly exceptional' where as in the present case, there was an extant winding-up petition.

Re Property Edge Lettings Ltd Saw (SW) 2010 Ltd and another v Wilson and others

[2015] EWHC 4069 (Ch), [2016] All ER (D) 118 (Mar)

Abstract: The Chancery Division dismissed an application seeking declarations that the appointment of the first three respondents as joint administrators of a company had been a nullity because of an alleged prior floating charge in favour of another company. The court allowed a cross-application by the respondents, the joint administrators and Nationwide Building society, to strike out the substantive application having found that Nationwide's predecessor (Derbyshire), had had a qualifying floating charge for the purposes of IA 1986, s 251, which Nationwide had acquired and that the company had never acquired the hotel in question and its adjoining land otherwise than subject to the terms of Derbyshire's legal charge and debenture. Accordingly, nothing had had the effect of depriving the Derbyshire debenture of its status of a floating charge as created and Nationwide had not been not precluded from making the appointment of the joint administrators.

Godefroy and another v Company Health Ltd and others

[2015] EWHC 3978 (Ch), [2016] All ER (D) 100 (Mar)

Abstract: The Chancery Division, on the application of the joint liquidators of four companies in creditors' voluntary liquidation, granted a declaration that proposed dividends were held on trust by the joint liquidators for the first, second and third respondent companies who, as guarantors of a loan borrowed by the parent company, had repaid the debt in full. The court held that it should adopt an approach which sought to achieve equality of contribution to a parent company guaranteed by each of the companies who had been able to contribute the discharge of the liability of the parent company and that such a declaration would achieve the most equitable outcome as between the creditors of each of the paying subsidiary guarantors in the present case.

Re Longmeade Ltd (In liquidation)

[2016] EWHC 356 (Ch), [2016] All ER (D) 259 (Feb)

Abstract: The Chancery Division considered an application by the joint liquidators of Longmeade Ltd for directions, pursuant to IA 1986, s 168(3) in relation to a potential claim in negligence, which they had identified could be made by the company against the Secretary of State for Business Innovation and Skills. Consideration was given to the principles to be applied to the modified regime concerning the commencement of proceedings by a company in compulsory liquidation post-26 May 2015.

Baker and another v LSREF III Wight Ltd

[2016] Lexis Citation 15, [2016] All ER (D) 254 (Feb)

Abstract: The Bankruptcy High Court allowed the applicants' application to set aside statutory demands made on them following the failure of a venture to develop land. The applicants submitted that their relationship with their bank had been such to suggest the existence of a joint venture, and that there was a possibility of a cross-claim against the valuer of the company that they had formed. The court held that the debts, or their enforceability, were disputed on substantial grounds and/or the applicants appeared to have a cross claim that was likely to equal or exceed the amount claimed in the demands.

Dates for your diary

6 April 2016: Bankruptcy applications regime comes into force. For further information, see News Analysis: New bankruptcy applications regime to come into force

6 April 2016: Section 107 of the Small Business, Enterprise and Employment Act 2015 comes into force

6 April 2016: End of the insolvency exemption to the Legal Aid Sentencing and Punishment of Offenders Act 2012

12 or 13 April 2016: Hearing of appeal in the Court of Appeal in Bank of Tokyo-Mitsubishi UFJ Ltd v Owners of the MV Sanko Mineral [2014] EWHC 3927 (Admlty), [2014] All ER (D) 14 (Dec)

12.30pm, 19 April 2016: LexisNexis/R3 webinar (subscription required)—Matrimonial home with insolvency and divorce

21 or 22 April 2016: Hearing of appeal in the Court of Appeal in Horton v Henry [2014] EWHC 4209 (Ch), [2014] All ER (D) 193 (Dec)