Lexis®PSL Restructuring and Insolvency monthly highlights—November 2016

November 2016 highlights from the Lexis®PSL Restructuring and Insolvency team. This month’s highlights include an article on the new EU rules to harmonise restructuring processes across member states, analyses of cases Goldstein v Bishop and Avonwick Holdings Ltd v Shlosberg, together with a round up of other restructuring and insolvency news and cases.

These November Monthly Highlights are a shortened version of the monthly highlights that first appeared on LexisPSL Restructuring and Insolvency. Not a subscriber? Find out more about how LexisPSL can help you and click here for a free trial of LexisPSL Restructuring and Insolvency

Headlines (News updates & analysis)

New EU rules for ‘more effective and efficient insolvency procedures’

The European Commission is to introduce rules on business insolvency designed to increase opportunities for companies in financial difficulties to restructure early to prevent bankruptcy and avoid dismissing staff. They are further designed to ensure entrepreneurs have the opportunity to do business post-bankruptcy. We look at the new proposed EU Directive and how it will harmonise restructuring, insolvency and discharge procedures across all member states, including its potential effect on the UK—see News Analysis: Draft EU Directive proposed harmonising restructuring and insolvency.

IVAs and the importance of disclosure

Golstein v Bishop [2016] EWHC 2804 (Ch)

Richard Ascroft, barrister at Guildhall Chambers, says that Golstein v Bishop underlines the importance of ensuring disclosure of all matters potentially relevant to an assessment by creditors of proposals for an individual voluntary arrangement—see News Analysis: IVAs and the importance of disclosure (Golstein v Bishop).

Preserving a bankrupt’s rights of privilege

Avonwick Holdings Ltd and others v Shlosberg [2016] EWCA Civ 1138, [2016] All ER (D) 141 (Nov)

Does legal professional privilege attaching to information and documents of a bankrupt devolve to his trustee in bankruptcy? James Mather, Barrister at Serle Court, examines the Court of Appeal’s answer to this question in Avonwick Holdings v Shlosberg—see News Analysis: Preserving a bankrupt’s rights of privilege (Avonwick Holdings Ltd v Shlosberg).

Insolvency, ATE insurance and paying an adverse costs order

Premier Motorauctions Ltd (in liquidation) and another v PricewaterhouseCoopers LLP and another [2016] EWHC 2610 (Ch), [2016] All ER (D) 154 (Oct)

The Chancery Division (Snowden J), in dismissing the defendants’ application for security of costs in respect of proceedings brought by the claimant insolvent companies, held that where there was an after-the-event (ATE) insurance policy in place, the question, under CPR 25.13, was simply whether there was reason to believe that the insurer would not pay under the policy when called upon to do so. In the present case, the claimants had obtained ATE insurance policies and the defendants had failed to satisfy the court that there was reason to believe that they would be unable to pay the defendants’ costs already incurred and of the initial stages of the proceedings if ordered to do so. Accordingly, the jurisdictional threshold under CPR 25.13 had not been crossed.

Matthew Weaver, a barrister at St Philips Stone Chambers, analyses the case and outlines lessons it provides for practitioners in News Analysis: Insolvency, ATE insurance and paying an adverse costs order (Premier Motorauctions Ltd (in liquidation) v PricewaterhouseCoopers LLP).

Marshalling, subrogation and Agricultural Credits Act security

McLean and another (as Joint Administrators of Dent Company (a partnership) (in administration)) v Berry and others [2016] EWHC 2650 (Ch), [2016] All ER (D) 18 (Nov)

The Chancery Division held, among other things, that a junior creditor, who had loaned money to a partnership (which subsequently entered administration), was entitled to claim the proceeds of assets subject to an agricultural charge by the application of the principle of ‘marshalling’ and to prove as an unsecured creditor in the administration for any shortfall, in circumstances where a bank had the right to resort to two securities in support of its lending to the partnership and where the junior creditor had a right to resort to one security in support of her lending to the partnership, a company connected to the partners and to the partners personally. The court further held that the trustees in bankruptcy of the partners did not have a claim based on unjust enrichment and were not entitled to claim in the administration of the partnership by operation of the doctrine of subrogation.

Louis Doyle, Barrister at Kings Chambers, explains the background to the case of McLean v Berry and considers the implications of the judgment for insolvency practitioners. See News Analysis: Marshalling, subrogation and Agricultural Credits Act security (McLean v Berry).

Should I stay or should I go?

Kean v Lucas (as liquidator of J&R Builders (Norwich) Ltd) [2016] EWHC 2684 (Ch), [2016] All ER (D) 50 (Nov)

Mrs Kean had requested the liquidator of J&R Builders (Norwich) Limited (the company) to convene a meeting of creditors under IA 1986, s 177 to consider his removal as liquidator. She had made the request in her capacity as ‘a significant creditor and former director and shareholder’ of the company. The liquidator refused to requisition the meeting on the ground that the request was not supported by 25% in value of the company’s creditors, as required by Rule 4.114 of the Insolvency Rules 1986, SI 1986/1925 (IR 1986), and required ‘strict proof’ of the claim. Mrs Kean applied to Mr Registrar Briggs for a declaration that the liquidator had wrongfully refused to call the meeting and for a direction that he do so.

How should a liquidator handle a request for his removal under IA 1986, s 177 and IR 1986? Warren Bank of St Philips Stone Chambers reports, in the light of recent High Court ruling—see News Analysis: Should I stay or should I go? (Kean v Lucas (as liquidator of J&R Builders (Norwich) Ltd)).

Robin Hood’s men—merry again

Brooks and another (Joint Liquidators of Robin Hood Centre plc in liquidation) v Armstrong and another [2016] EWHC 2893 (Ch), [2016] All ER (D) 117 (Nov)

The Chancery Division allowed, in part, a cross-appeal by the directors of a company in creditors' voluntary liquidation against an order that they were jointly and severally liable to pay compensation of £35,000 for wrongful trading. The directors had argued that the process by which the registrar had calculated the compensation payable by them had been unfair. The court held that the liquidators had failed, in the earlier proceedings, to advance and establish a properly formulated case that there had been any increase in net deficiency of the company during the period of wrongful trading, and that, on the approach adopted and facts found by the registrar, there had been no such increase. Accordingly, it held that the registrar should not have ordered any payment by the directors to the liquidators, under IA 1986, s 214(a).

How important is it for an insolvency office-holder to quantify the increase in the net deficiency to creditors in support of a wrongful trading claim? Chloe Poskitt and Emma Taylor, both associates at Browne Jacobson, review this appeal decision in News Analysis: Robin Hood’s men—merry again (Brooks v Armstrong).

Lifting a stay under Cross-Border Insolvency Regs

Ronelp Marine Ltd and other companies v STX Offshore & Shipbuilding Co Ltd [2016] EWHC 2228 (Ch), [2016] All ER (D) 77 (Oct)

The Chancery Division granted the claimant Liberian companies, which were buyers under shipbuilding contracts, permission to continue an action brought by them against the first defendant Korean shipbuilding company (STX), under a guarantee. STX had entered into a Chinese insolvency process and Korean rehabilitation proceedings concerning STX had been recognised in the English court as the 'foreign main proceeding', under the Cross-Border Insolvency Regulations 2006, SI 2006/1030 (CBIR 2006). The court held that granting permission for the continuation of the Commercial Court action would not impede the achievement of the rehabilitation plan.

Barristers Stephen Atherton QC and Charlotte Tan of 20 Essex Street review this case in which the High Court considers whether, and the circumstances where, it should lift a stay made under CBIR 2006 to allow litigation proceedings to be continued in England by a creditor with an unsecured monetary claim. See News Analysis: Lifting a stay under Cross-Border Insolvency Regs (Ronelp Marine v STX Offshore & Shipbuilding).

Exploring the issues of bankruptcy

Re Opti-Medix Ltd (in liquidation) and another matter [2016] SGHC 108

The case of Re Opti-Medix Ltd (in liquidation), a decision from the courts of Singapore, concerned companies that were incorporated in the BVI and whose main business was factoring receivables from medical institutions in Japan. The notes were governed by Singapore law, with a Singapore address for service of notices, but were marketed in Japan by Japanese brokers. Bankruptcy proceedings were commenced against the companies in Japan and the bankruptcy trustee who had been appointed by the Tokyo District Court sought to exercise his powers under the Japanese bankruptcy orders to ascertain, administer and dispose of the companies’ assets. However, the exercise of the power was complicated by the fact that no insolvency proceedings had been brought in the BVI (where the companies were incorporated and registered) and the existing legislation in Singapore did not provide for a specific process to obtain recognition of such a foreign liquidation order.

Smitha Menon, partner at Wong Partnership, and Stephanie Yeo, associate at the firm, explain the recent case of and another, and consider the effect of the judgment on the principle of universalism in News Analysis: Exploring the issues of bankruptcy (Re Opti-Medix Ltd (in liquidation) and another matter).

Court of Justice considers German in rem claim

SCI Senior Home v Gemeinde Wedemark C-195/15:

The Court of Justice of the European Union considered a request for a preliminary ruling on the interpretation of Article 5 of Council Regulation (EC) 1346/2000of 29 May 2000 on insolvency proceedings. The request was made in proceedings between SCI Senior Home, in administration, represented by Mr Pierre Mulhaupt, acting as court appointed administrator, and Gemeinde Wedemark (Wedemark local authority, Germany) and Hannoversche Volksbank eG, concerning the compulsory sale of a property owned by Senior Home.

Can a charge against immovable property in Germany to ensure payment of real property tax constitutes an in rem claim exempt under Article 5 of the EC Regulation on Insolvency? The Court of Justice of the European Union decision is considered in News Analysis: Court of Justice considers German in rem claim.

New Insolvency Rules table of destinations published

A table indicating the destination of the provisions in the IR 1986 has been published by the Insolvency Service—see here. While the Insolvency (England and Wales) Rules 2016 (IR 2016) broadly derive from the IR 1986, there are few exact matches, as the structure of IR 2016 is different, the language has been modernised and there have been significant changes.

Consultation response on developing an insolvency regime for further education and sixth form colleges

Diane Gilhooley and David O’Hara at Eversheds look at the government’s response to the consultation on developing an insolvency regime for further education and sixth form colleges. The proposed regime would include a Special Administration Regime, aimed at protecting learners from disruption to their courses, helping the rehabilitation of the college where this is possible or providing an orderly wind-up procedure. See News Analysis: Consultation response on developing an insolvency regime for further education and sixth form colleges.

New SIP 13 effective from 1 December 2016

A revised Statement of Insolvency Practice (SIP) 13 relating to the disposal of assets to connected parties in an insolvency process has been issued. The revised SIP 13 comes into effect on 1 December 2016 and applies UK-wide. For a link to the revised SIP 13, see here.

South Square Digest—November 2016

The South Square Digest—November 2016 edition is now available. This edition features articles by Richard Fisher looking at the recent High Court decision in BTI v Sequana, David Allison QC and Adam Al-Attar reviewing the latest judgment in the Lehman Waterfall litigation, and Alexander Riddiford looking at the Nortel Group settlement.

Cases

Sands (as trustee in bankruptcy of the estate of Layne (a bankrupt)) v Layne and another [2016] EWCA Civ 1159

Abstract:

The Court of Appeal, Civil Division, allowed in part an appeal by a trustee in bankruptcy where a bankruptcy order had been discharged pursuant to a consent order entered into between the bankrupt and the petitioning creditor (in settlement of the bankrupt's appeal of the bankruptcy order), but without provision being made in respect of the trustee's costs and expenses. The Court of Appeal held that, under IA 1986, s 375, a court is permitted to review an order made by a court of the same level, whether sitting on appeal or at first instance and, further, that the trustee should have been joined as a party to the appeal of the bankruptcy order so that provision could be made for his costs and expenses. However, the Court of Appeal held that the trustee did not have standing to oppose the appeal of a bankruptcy order on the ground that other creditors would have been prejudiced by the discharge of the bankruptcy order.

Re Nortel Networks UK Ltd and other companies [2016] EWHC 2769 (Ch), [2016] All ER (D) 205 (Jun)

Abstract:

The Companies Court allowed an application by the administrators of companies in the Nortel group to allow them to implement a global settlement of disputes arising in relation to the collapse of the group. The global settlement was in the best interest of each of the EMEA companies for which they were responsible, together with their respective creditors.

Guardians of New Zealand Superannuation Fund (as Manager and Administrator of the New Zealand Superannuation Fund) and others v Novo Banco SA; Goldman Sachs International v Novo Banco SA [2016] EWCA Civ 1092, [2016] All ER (D) 63 (Nov)

Abstract:

The Court of Appeal dismissed an appeal by a Portuguese bank, Novo Banco, against rulings holding that claims arising out of the collapse of a substantial Portuguese bank should be decided other than by the English court. Novo Banco had not been party to an agreement that the claims should be determined by the English court. News analysis to follow on this case.

Secretary of State for Business, Energy and Industrial Strategy v Rosenblatt [2016] EWHC 2821 (Ch), [2016] All ER (D) 81 (Nov)

Abstract:

The Chancery Division held that the defendant would be disqualified from acting as a company director for 13 years, on account of his connections with a number of transactions that had involved the fraudulent evasion of VAT. At the very least, the defendant had willfully shut his eyes to the fact that all 43 of the transactions on which the claimant Secretary of State for Business, Innovation and Skills relied had been connected to the fraudulent evasion of VAT. News analysis to follow on this case.

Re Caledonian Commodities Ltd; Re Caledonian Ltd [2016] EWHC 2854 (Ch), [2016] All ER (D) 89 (Nov)

Abstract:

The Companies Court made an order for the winding-up of one company and an order restoring another company to the register of companies and for its winding-up, where the affairs of the companies had been intertwined. The business of the companies had been conducted in a way that did not meet accepted minimum standards of commercial behaviour. It would be appropriate to wind up the companies as a matter of punishment for past behaviour and to mark the court's disapproval of that misbehaviour. News analysis to follow on this case.

Re Ellison (A Bankrupt); Hicken (as Trustee in Bankruptcy of Ellison) v Ellison [2016] EWHC 2791 (Ch), [2016] All ER (D) 76 (Nov)

Abstract:

The Chancery Division granted the trustee in bankruptcy's application for the committal of the respondent bankrupt for breach of financial disclosure orders. The court held that, on the facts, it could take the exceptional step of hearing the application in the respondent's absence, and that the allegations of contempt had been established to the extent indicated. The application in respect of sentence was adjourned.

Cosmur Construction (London) Ltd v St Lewis Design Ltd [2016] EWHC 2678 (Ch), [2016] All ER (D) 64 (Nov)

Abstract:

The Companies Court granted the claimant company an injunction restraining the defendant company from presenting a winding-up petition against it where there was a bona fide and substantial dispute as to the petition debt.

ENEFI Energiahatékonysági Nyrt v Directia Generala Regionala a Finantelor Publice Brasov (DGRFP) C-212/15, [2016] All ER (D) 110 (Nov)

Abstract:

The Court of Justice of the European Union gave a preliminary ruling, deciding that Article 4 of Council Regulation (EC) 1346/2000 had to be interpreted as meaning that provisions of domestic law of the state of the opening of insolvency proceedings which provided, in relation to a creditor who had not taken part in the insolvency proceedings, for the forfeiture of its right to pursue its claim or for the suspension of the enforcement of such a claim in another member state, came within its scope of application. Further, the fiscal nature of the claim pursued by means of enforcement in a member state other than the state of the opening of proceedings had no bearing on the Court's answer.

Appeal Tracker

Case name Court and citation Subject Current status
Okon v London Borough of Lewisham [2016] EWHC 864 (Ch), [2016] All ER (D) 123 (Apr) In the previous judgment, the Chancery Division held that, providing the claimant gave certain undertakings, it would grant permission to appeal and allow an appeal and set aside a bankruptcy order made in respect of the claimant on the petition of a local authority. The petition had been based on council tax liability orders, which the claimant disputed. The court held that the judge ought to have adjourned the bankruptcy petition in order to await the outcome of the claimant's appeal to the Valuation Tribunal in respect of the liability orders. Hearing of appeal in the Court of Appeal commences on 20 or 21 June 2017
NRAM Plc v Evans and another [2015] EWHC 1543 (Ch), [2015] All ER (D) 13 (Jun) In the previous judgment, the proceedings concerned a dispute as to whether or not a loan advanced by the claimant’s predecessor (the bank) to the defendants in 2005 was secured on their property (the property). The issue was whether a charge, securing a previous loan to the defendants, who were made bankrupt, was effective to secure the 2005 loan. The Chancery Division held that the charge, on its terms, was so effective to secure the 2005 loan on the property. The terms of the mortgage conditions, which applied to the charge, were sufficiently wide and clear to include the 2005 loan. On the defendants’ bankruptcy, their estate vested in the Official Receiver as trustee, subject to the bank’s charge. It was further held that the bank had made a distinct mistake in issuing form e-DS1 to the Land Registry, acknowledging that the property was no longer charged, in circumstances where the 2004 loan had been redeemed. Accordingly, it was entitled to be re-registered as proprietor of the charge which secured the 2005 loan. Hearing of appeal in the Court of Appeal to commence on 9 or 10 May 2017
Re Lehman Brothers International (Europe) (in administration); subnom Joint Administrators of LB Holdings Intermediate 2 Ltd (in administration) and others v Lomas and others [2015] EWCA Civ 485, [2015] All ER (D) 139 (May) In the previous judgment (the 'Lehman Waterfall I' decision), in the course of proceedings concerning the administration of companies connected to the Lehman Brothers group, the Companies Court made a number of rulings to determine the claims that might be made against a surplus of assets before any return to the creditors. The Court of Appeal, Civil Division, in allowing the appeal against two of those rulings and upholding the remainder, considered, inter alia, the ranking in the administration of unsubordinated debt, whether currency conversion claims were non-provable liabilities, whether accrued rights to statutory interest under rule 2.88(7) of the Insolvency Rules 1986, SI 1986/1925 survived the transition from administration to liquidation and whether the obligation of contributories, under section 74(1) of the Insolvency Act 1986, extended to statutory interest and non-provable liabilities. Appeal hearing concluded but judgment reserved by Supreme Court on 20 October 2016
Hunt v Withinshaw (Former trustee in bankruptcy of Steven James Hunt) and another [2015] EWHC 3072 (Ch), [2015] All ER (D) 253 (Oct) In the previous judgment, the present case concerned a pier, the freehold of which was owned by H until he was made bankrupt and the freehold vested in his trustee in bankruptcy. Among other things, the Chancery Division dismissed H's application for a vesting order, holding that it would not be appropriate in all the circumstances to make an order vesting in H the pier or any part of it. Appeal hearing concluded but judgment reserved by Court of Appeal on 2 November 2016
Re Ahmed (A Debtor) Ingram and another v Ahmed and others [2016] EWHC 1536 (Ch), [2016] All ER (D) 11 (Jul) In the previous judgment, the Chancery Division granted the applicant trustees in the bankruptcy of the first respondent relief under section 284 of the Insolvency Act 1986 after he had transferred his minority shares in a company to the second respondent following the presentation of a bankruptcy petition. The respondents had argued that the monetary relief sought by the trustees was unprecedented where the asset, namely the shares, had been returned and that the trustees had failed to plead or prove actual loss. The court held that the trustees had not been not required to plead actual loss and that the second to the fifth respondents had not acted in god faith and were jointly liable for the loss caused, namely the devaluation of the shares. The court held that the trustees were entitled to relief in the form of a fair value of the shares as at the date of the transfers. Hearing of appeal in the Court of Appeal commences on 4 or 5 July 2017
Rowntree Ventures Ltd and another company v Oak Property Partners Ltd and another company [2016] EWHC 1523 (Ch), [2016] All ER (D) 49 (Jul) In the previous judgment, the Chancery Division dismissed applications for the appointment of administrators regarding two businesses, which had been selling off hotel rooms on long leases. There was no firm evidence of wrongdoing in the case of either business. It would not be appropriate to make the orders sought at the present stage. Hearing of appeal in the Court of Appeal commences on 27 or 28 June 2017

Dates for your diary

Date Subjects covered
1 December 2016 New SIP 13 becomes effective relating to the disposal of assets to connected parties in an insolvency process
5 or 6 December 2016 Appeal hearing (Court of Appeal): Oraki and another v Bramston and another

Decision being appealed: [2015] EWHC 2046 (Ch), [2014] All ER (D) 175 (Jul).

5 to 8 December 2016 Appeal hearing (Supreme Court): R (on the application of Miller & Dos Santos) v Secretary of State for Exiting the European Union. All eleven Justices will sit on the panel chaired by Lord Neuberger, President of the Supreme Court

Decision being appealed: [2016] EWHC 2768 (Admin), [2016] All ER (D) 19 (Nov).

14 or 15 December 2016 Appeal hearing (Court of Appeal): Harvey v Dunbar Assets plc (No 2)

Decision being appealed: [2015] EWHC 3355 (Ch), [2015] All ER (D) 02 (Dec).

16 December 2016 Consultation and call for evidence on bonding arrangements for insolvency practitioners ends

 

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