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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
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.
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).
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).
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).
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).
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)).
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).
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).
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Decision being appealed: [2015] EWHC 2046 (Ch), [2014] All ER (D) 175 (Jul).
Decision being appealed: [2016] EWHC 2768 (Admin), [2016] All ER (D) 19 (Nov).
Decision being appealed: [2015] EWHC 3355 (Ch), [2015] All ER (D) 02 (Dec).
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