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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Rent repayment orders and ‘person managing’ (Global 100 v Ross and others)

Local Government analysis: This was an appeal to the Upper Tribunal (Lands Chamber) by Global 100 (G100) against a decision of the First- Tier Tribunal (FTT) granting the respondent property guardian’s application for rent repayment orders (RROs) under section 43 of the Housing and Planning Act 2016 (HPA 2016). The London Borough of Haringey entered into an agreement with the company GGM in respect of a property it owned for live-in property guardianship services. GGM then granted permission for Global 100 (G100), a related company, to grant licences for live-in guardians, including the respondents to the appeal. The Local Authority did not receive any payment from the respondents but only a monthly consideration from GGM. The respondents applied to the FTT for RROs asserting G100 had committed an offence under section 72(1) of the Housing Act 2004 (HA 2004) by being in control or managing an HMO which ought to have been licensed. G100 tried to argue that Haringey was the ‘person managing’ under HA 2004, s 263(3)(b). The FTT accepted the agreement between Haringey and GGM was a licence and not a lease and that G100 was not the owner or the property and that but for this agreement Haringey would have received payments from the respondents. However, FTT held that the arrangement was not one ‘by virtue of which’ GGM received the payments and as it was G100, the FTT determined that the Haringey was not the ‘person managing’. The Upper Tribunal dismissed Global 100’s appeal and held that the FTT had not erred in law in concluding that Haringey was not the ‘person managing’ a property for the purposes of HA 2004, s 263(3)(b) and HA 2004, Sch 14, para 2. Haringey had entered into an agreement with GGM which permitted it to use the property for live-in guardianship services in exchange for monthly consideration. GGM then permitted a connected Global 100 to grant licences to property guardians in exchange for a fee. The Upper Tribunal held the FTT has not erred as there was no evidential basis for concluding that Haringey received any moneys from the occupiers ‘by virtue of’ the arrangement. Written by Tim Baldwin, barrister, Garden Court Chambers.

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