Corporate insolvency

A company becomes insolvent if it does not have enough assets to cover its debts and/or it cannot pay its debts on the due dates. It is the directors’ responsibility to know whether or not the company is trading while insolvent and they can be held legally responsible for continuing to trade in that situation. The decision to appoint receivers, liquidators and administrators is the responsibility of the appropriate funding bodies (ie banks and lending institutions), creditors, the courts or the company itself, depending on the procedure.

General

Insolvency in the UK is:

  1. governed by Insolvency Act 1986 (IA 1986) and Insolvency (England and Wales) Rules 2016 (IR 2016), SI 2016/1024

  2. subject to the jurisdiction of the High Court and designated County Courts

Companies in financial difficulty may be subject to various insolvency procedures, including:

  1. company voluntary arrangements (CVAs)

  2. administration

  3. administrative receivership

  4. voluntary winding-up (by creditors or members)

  5. compulsory winding-up (by the court)

Spurred on by the coronavirus (COVID-19) pandemic and a desire to mitigate the effect on businesses of the government-imposed lockdown, the government expedited new insolvency legislation, resulting in CIGA

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All in? Court confirms when a settlement is 'made' for the purposes of excluded property (Accuro Trust (Switzerland) SA v The Commissioners for HMRC)

Private Client analysis: This case considered the meaning of 'relevant property' under the settlements regime of the Inheritance Tax Act 1984 (IHTA 1984) and, in particular, the time at which this definition is to be tested. The question arose as to whether the trustees of an offshore trust established by a non-UK domiciled settlor were subject to the UK settlements regime in respect of property added to the trust after the settlor became deemed domiciled in the UK, or whether they were exempt from such charges as the trust consisted solely of excluded property. The First-tier Tribunal (FTT) held that whether trust property is excluded property is based on the status of the trust at the time that it was established, not at the time that the property in question was added to the settlement. As a result, the trust in this case did consist solely of excluded property and no inheritance tax (IHT) charges arose as a result of either the ten-year anniversary or capital distributions. The FTT was also asked to consider whether their jurisdiction was appellate, or supervisory only. The FTT held that, while their jurisdiction was supervisory, the questions raised by the trustees were relevant in establishing whether HMRC had acted reasonably and that the outcome (ie that the paid IHT should be refunded and that no further IHT was due) would be the same in either case. Written by Katherine Willmott, senior associate solicitor at Foot Anstey LLP.

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