Archived: This Practice Note is archived and is no longer maintained. The Insolvency Service investigates companies which have entered into formal insolvency proceedings, administration, administrative receivership and voluntary liquidation in England, Wales and Scotland. Who may the Insolvency Service investigate? The Insolvency Service can investigate the people who have controlled a company, whether or not they are described as being a director. In addition to company directors and people acting as company directors without being legally appointed, the Insolvency Service can investigate the conduct of shadow directors and others who have instructed a director, who is subsequently disqualified, to act in an unfit manner. With respect to a company, shadow director means, ‘a person in accordance with whose directions or instructions the directors of the company are accustomed to act’. The Company Directors Disqualification Act 1986 (CDDA 1986) applies both to individuals and corporate entities that act as directors of other companies. The official receiver The office of official receiver was created by the Bankruptcy Act 1883. The objective was to impose greater

The Foreign Judgments (Reciprocal Enforcement) Act 1933 (FJ(RE)A 1933) facilitates the enforcement of foreign money judgments in England. In New Cap Reinsurance Corp v Grant, the Supreme Court held that a preference judgment obtained in Australian liquidation proceedings could be registered and enforced under FJ(RE)A 1933 against persons resident in England. This was the first time FJ(RE)A 1933 had been applied to insolvency proceedings. This Practice Note will consider FJ(RE)A 1933, its application in New Cap Re and to foreign insolvency judgments generally, and how FJ(RE)A 1933 interacts with other ways the English courts can assist in cross-border insolvencies. FJ(RE)A 1933 enables civil and commercial foreign money judgments to be registered and then enforced in England. FJ(RE)A 1933 applies to these jurisdictions: France, Belgium, Pakistan, India, Germany, Norway, Austria, the Netherlands, Israel, Guernsey, Isle of Man, Jersey, Italy, Tonga, Suriname, Canada and Australia. For a list of the relevant orders for each country, see FJ(RE)A 1933, s 1, the notes—subordinate legislation. Note: when dealing with Norway FJ(RE)A

What are the issues for a tenant if the freeholder landlord becomes insolvent? This Practice Note covers who the rent will become payable to and the position of the rent deposit, what happens when the landlord breaches covenants in the lease, and the position in respect of lease renewals and rent reviews. Rent payment Depending on the procedure being followed, rent will be payable to the: • liquidator • administrator • company voluntary arrangement (CVA) supervisor (depending on the terms of the CVA), or • fixed charge/LPA receiver Rent deposit Rent deposits are commonly structured so that: • the landlord holds the money on behalf of the tenant who charges it in favour of the landlord, or • the landlord holds the money on trust for the tenant If the deposit is by way of charge, the money remains the property of the tenant but is handed over to the landlord to hold in a separate account. The tenant then grants a fixed equitable charge over the money in the landlord’s

Background The regime for administration of general partnerships is very similar to the administration of insolvent companies (for companies, see Administration—overview). The administration procedure permits an administrator to be appointed to a partnership either by the court or out of court. The procedure requires adaptation to take account of a number of factors including the fact that a partnership is not a separate legal personality to its members and that it cannot give a floating charge, except for an agricultural floating charge in the context of a farming partnership. General partnerships, unlike limited liability partnerships (LLPs) have no separate legal personality, therefore the partners remain jointly and severally liable for the partnership debts. If there is no written partnership agreement the standard agreement provisions of the Partnership Act 1890 apply. Limited partnerships under the Limited Partnership Act 1907 (LPA 1907) also have no separate legal personality but may be registered at Companies House. With limited partnerships, the general partner(s) manage the business with unlimited liability while the limited partner(s) have limited liability. Both

Applicable law The pre-Insolvency Act 1986 (IA 1986) common law adopted a rule of convenience that in administering the estates of an insolvent partnership and its members, the debts of the firm ought to be paid out of the assets of the firm and the private debts of a member or members ought to be paid out of the assets of the member or members. In the event of a deficiency in either estate then it would be made good by any surplus in the other estate or estates (see Re Rudd & Son). This Practice Note addresses the rules applicable to cases falling within the scope of the Insolvent Partnerships Order 1994 (IPO 1994), SI 1994/2421. For a discussion of what constitutes the assets of a general partnership, see Practice Note: The nature of a general partnership and its legal framework and News Analysis: Court finds property only an asset of partnership where agreed by partners (Wild v Wild and Others) . The provisions in IA 1986,

Applicable legislation Insolvency laws, generally, make special provisions for insurance companies because of the regulated status of the industry and the importance of insurance to the economy. The Financial Services and Markets Act 2023 (FSMA 2023) has amended the UK’s insolvency arrangements for insurers in order to clarify certain elements, and to expand the protections available to an insurer and its policyholders undergoing insolvency or write-down procedures—the government consulted on these amendments in 2021, and published a response in April 2022 (see News Analysis: Financial Services Markets Bill sets out post-Brexit framework for UK financial services, HM Treasury publishes response to consultation on insolvency arrangements for insurers—LNB News 07/04/2022 78 and Practice Note: The Financial Services and Markets Act 2023—essentials). The Prudential Regulation Authority (PRA) published consultation paper CP3/23, Dealing with insurers in financial difficulties, setting out its proposed rules and policy in respect of the changes introduced by FSMA 2023 (see: LNB News 08/02/2023 70). The rules came into effect in September 2023. HM Treasury has published the results of its consultation

What are the issues for a tenant if an intermediate landlord becomes insolvent? This Practice Note covers who the rent may become payable to, and disclaimer, forfeiture and surrender of the superior lease. Rent payment The insolvent landlord may fail to pay rent to its superior landlord. The Commercial Rent Arrears Recovery (CRAR) procedure enables a superior landlord to serve notice requiring an undertenant to pay rent directly to the superior landlord if their immediate tenant is in arrears, until those arrears have been cleared. If the undertenant then fails to pay, the superior landlord can exercise CRAR against the undertenant. In order to achieve fairness, if the tenant pays any amount pursuant to a notice served by a superior landlord, the undertenant can deduct that amount from the rent payable to its immediate landlord, even if the amount has already been wholly or partly paid by another party or the notice has been replaced by one served on another undertenant (subject to specific exceptions set out in section 82 of the Tribunals,

What is an employee benefit trust scheme? An employee benefit trust (EBT) is used by many companies as a type of tax avoidance scheme, by which a company pays remuneration to its employees through certain types of employees’ remuneration trusts. Although those employees’ remuneration trusts can take many different forms, some examples of which are set out below, the most common example of an employees’ remuneration trust, is an EBT. There are other purposes of using an EBT other than tax avoidance. For further reading on EBTs, see: • Disguised remuneration and EBTs—overview • Practice Note: What is an employee benefit trust? One of the main purposes of an EBT, in the employer paying remuneration to the employee via an EBT, is to maximize the sum received by the employee by enabling the employer and employee to avoid any liability as to income tax and Class 1 National Insurance contributions (NICs). It should be noted, however, that EBTs are also commonly used by

A person is not qualified to act as an insolvency practitioner (IP) in relation to another at any time unless: • security is in force for the proper performance of their functions, and • that security meets the prescribed requirements with respect to them acting in relation to that other person This is designed to protect creditors and other interested persons who suffer loss caused by the IP’s fraud or dishonesty or the fraud or dishonesty of another committed with the connivance of the IP. The cost of this security is an expense of the insolvency proceedings. Security requirements Terms of the bond The security takes the form of a bond approved by the Secretary of State which must: • be in writing or electronic form • contain provision whereby a surety undertakes to be jointly and severally liable for losses in relation to the insolvent debtor caused by the fraud or dishonesty of: ◦ the IP whether acting alone or in collusion with others, or ◦ any person committed with the connivance of the

Restructuring & Insolvency analysis: A valuable weapon has been added to the armoury of an insolvency practitioner (IP) who takes over as office-holder of a company and who is concerned that their predecessor caused the company loss through fraud or dishonesty. The court held that recognised professional bodies (RPBs) hold insolvency practitioner bonds on bare trust for insolvent estates, and that RPBs are not performing public functions amenable to judicial review, in accepting, holding and exercising claim rights under the bonds. As a result, a new office-holder can require the RPB to transfer the right to claim on the predecessor’s bond to them, giving the insolvent estate a further potential source of recoveries. In addition, the judgment is also of interest in finding that section 234(2) of the Insolvency Act 1986 (IA 1986) extends to intangible property and that accordingly a person holding claim rights on trust for an insolvent company can be compelled to transfer them to an office-holder. Written by Ben Strong KC, One Essex Court.

Under the Environmental Permitting (England and Wales) Regulations 2016, the operator of any regulated facility must obtain and comply with the conditions of its environmental permit. The appointment of an administrator or liquidator has no effect on the operator and the operator must still comply with its permit and any conditions attached to it or risk committing an offence. The insolvency practitioner (IP) is bound by the conditions of the permit to the same extent as the directors and company officers. The precise role and relationship of the IP with the company depends on the insolvency procedure being followed. A lender or other holder of a fixed charge over property may, once that charge has become exercisable, appoint a receiver under Law of Property Act 1925 (LPA 1925). The LPA receiver's principal function is to demand and recover for the lender income from the mortgagor's (ie the borrower's) business. The LPA receiver is deemed to be the agent of the mortgagor and the mortgagor is solely responsible for the LPA receiver's acts or defaults unless the

This Practice Note considers the ability of persons to act as insolvency practitioners (IPs) in relation to a company, individual or insolvent partnership and court sanction of IPs in public interest cases. It does not apply to anything done by the official receiver who is not required to be a qualified IP. Restrictions on unqualified persons acting A person acts as an IP in relation to a company (being either a company registered under the Companies Act 2006 or an unregistered company that may be wound up under Part V of the Insolvency Act 1986 (IA 1986)) by acting: • as its liquidator, provisional liquidator, administrator, administrative receiver or monitor, or • where a voluntary arrangement in relation to a company is proposed or approved, as nominee or supervisor A person acts as an IP in relation to an individual by acting: • as their trustee in bankruptcy or interim receiver of their property, or • where a voluntary arrangement in relation to an individual is proposed or approved, as nominee or supervisor, or • as