Legal News

In this issue: Key R& I law developments Corporate insolvency processes Creditors' participation Personal insolvency Restructuring Directors and insolvency Financial institutions Key dates for R& I professionals Daily and weekly news alerts Key R& I law developments Companies House to roll out changes from March 2024 following ECCTA 2023: Louise Smyth, Chief Executive and Registrar, has outlined a series of updates due from March 2024, following the October 2023 implementation of the Economic Crime and Corporate Transparency Act. The measures aim to strengthen Companies House’s intelligence capability and deliver enhanced support for people affected by fraud. See: LNB News 05/01/2024 34. DBT refreshes guidance on Russia-related sanctions compliance: The Department for Business and Trade, alongside the Export Control Joint Unit, has released updated guidance titled ‘ Complying with professional and business services sanctions related to Russia’. The revisions add new sections on the aims of the prohibitions, as well as on scope and...

Re Hall Media Group Ltd [2023] EWHC 3110 ( Ch), [2023] All ER ( D) 58 ( Dec) What are the practical implications of this case? When resisting a debt, the court must be given sufficient detail to show any challenge is real and weighty. As explained at [33], where the respondent cannot quantify the claim relied on for set-off or cross-claim, the disputed sum may not evidence an inability to meet debts as they fall due. The figure is indeterminate and must be assessed before any net balance is payable, and that stance may then require other proof about solvency or capacity to pay. What was the background? Hall Media Group ( HMG) agreed to pay the British Film Institute a £200,000 sponsorship fee plus £40,000 VAT under an agreement labelled ‘ Partnership Agreement’, which in substance was only a one‑year sponsorship...

Consult Practice Note: Part 26A restructuring plan deal debrief— Atento. For an overview of restructuring plans, visit: Restructuring plan—overview......

See Practice Note: Third party litigation funding process for insolvency practitioners For a summary of funding for insolvency litigation and investigations, see: Funding of insolvency litigation and investigations—overview......

The Insolvency Service confirmed that Lee William Connor, 40, the sole director of Regal Coinage Ltd, was handed an 11 year ban for failing to deliver the rare coins which a customer had purchased. Connor was disqualified as a director on 30 August 2023 for 11 years, which stops him from becoming involved further......

Re The Sustainable Bathroom Company Ltd [2023] EWHC 2065 ( Ch), [2023] All ER ( D) 60 ( Aug) What are the practical implications of this case? This ruling reassures appointing creditors, their professional representatives and the insurers behind them. Although the judge accepted that the director’s complaints about the creditors’ behaviour had merit, the court still held the administration appointment to be effective. Running through the judgment is the principle that debentures exist to secure indebtedness in favour of creditors, and that this substantive reality ought to trump technical imperfections of form—save, perhaps, where adherence to substance would visit serious injustice on the debtor. What was the background? The applicant was the founding director of a modest enterprise manufacturing electric bamboo toothbrushes supplied to Aldi. To finance the procurement of stock from China, the company entered into a funding arrangement with a financier, agreeing in return to share its...

Galapagos Bidco Sarl v Kebekus [2023] EWHC 1931 ( Ch) What are the practical implications of this case? This decision offers useful clarification on the interpretation of familiar provisions and expressions found in the ‘distressed disposals’ clause of English law intercreditor agreements. The court scrutinised the distressed disposal mechanics in an English law-governed intercreditor to decide whether the restructuring had been properly implemented. A central question was whether the sale of the insolvent group could be treated as being ‘for cash’, notwithstanding that creditors of the insolvent group subscribed for notes in the newly reorganised group and set off the subscription monies against their entitlements under the payment waterfall. The court also considered whether that investment meant the relevant creditors’ claims had not been unconditionally released at the same time as the sale, as the intercreditor required. The court concluded that the...

Time GB Group Ltd v Yarwell Mill Country Park Ltd [2023] EWHC 1887 ( Ch) What are the practical implications of this case? This judgment underscores the necessity for solid evidence to support any application seeking to restrain the advertisement of a petition, and showcases the court’s firm response to assertions that are not borne out by the material before it. It also provides a useful restatement of: the core principles that inform an application to restrain advertisement; the characteristics of a promissory note; and the circumstances in which a term of good faith will be implied into an agreement. The court drew upon leading authorities on when advertisement should be restrained, including Coilcolour v Camtrex [2015] EWHC 3202 ( Ch) ( Mr Justice Hildyard). It additionally referenced Lady Justice Arden’s decision in James Dolman & Co v Pedley [2004] BCC 504 (not...

Cohen and others v O’ Leary (a bankrupt) and others [2023] EWHC 1939 ( Ch) What are the practical implications of this case? Applicants pursuing Bacci v Green relief will generally need comprehensive details of a debtor’s pension before the court is willing to grant it. That includes, for example, the debtor’s rights and benefits under the scheme, the type and features of the scheme, and the identity and particulars of the pension provider. Where such information cannot be obtained readily, applications may need to proceed in two stages, initially seeking an order for further information together with interim protective measures to stop the debtor diminishing those assets. The ruling also offers reassurance to creditors when time is critical. Although permission to commence proceedings against a bankrupt under IA 1986, s 285(3) is usually—and...

Stephen John Hunt v Jagtar Singh [2023] EWHC 1784 ( Ch) What are the practical implications of this case? This ruling is valuable for liquidators, as it sets out a clearer pathway for certain claims alleging breach of the duty to consider creditors’ interests. While actions against directors where a company was nearing, or tottering on the brink of, insolvency remain somewhat unsettled after BTI 2014 LLC v Sequana SA [2022] UKSC 25, [2022] 3 WLR 709, a different position applies where the company was, in reality, significantly insolvent unless a liability could be successfully contested. In that circumstance, the liquidator can proceed with greater assurance. The emphasis is not on calculating the precise probability of insolvency; rather, if there was a real prospect that the challenge to the liability might fail, the duty is engaged. The decision also offers a clear warning to...

Williams and another (as the Joint Administrators of Signature Living Residential Ltd) v Alter Domus Trustees ( UK) Ltd (formerly Cortland Trustees Ltd) [2023] EWHC 1820 ( Ch), [2023] All ER ( D) 94 ( Jul) What are the practical implications of this case? This decision offers a clear demonstration of how a purchaser’s equitable lien over property can sit alongside, and potentially compete with, other forms of security. The court explores key aspects of equitable liens in the setting of buyers of off-plan apartments, including whether each purchaser’s lien is geographically confined to the specific footprint of the relevant flat. These points are worked through by reference to the different purchasers involved, providing practical guidance on scope and priority issues. The judgment also examines, from para 38, what counts as a ‘signature’ for the purposes of LP( MP) A 1989, s 2. Recent...

Re Avanti Communications Ltd (in administration) [2023] EWHC 940 ( Ch) What are the practical implications of this case? Avanti is poised to carry three major consequences for restructuring lawyers, insolvency litigators, and finance lawyers. First, the ruling lowers the bar for taking fixed security, notably over fixed assets. It confirms that the Spectrum analysis is nuanced, and that absolute control is not a prerequisite for a fixed charge. The assets in Avanti were ‘fixed’ income‑producing capital assets rather than receivables or stock‑in‑trade, leaving charges over such property, in particular, less susceptible to recharacterisation. Second, although the facility documentation was intricate, it drew on Loan Market Association ( LMA) templates. Those contracts included permissions for the debtor to dispose of assets where (among other conditions) proceeds were paid through a creditor ‘waterfall’, or where assets had become obsolete. Avanti confirms that these...

Lexham Securities Ltd and another v Earlsfort Capital Partners Ltd and others [2023] EWHC 909 ( Ch) What are the practical implications of this case? This decision confirms that a mortgagor may still exercise the equity of redemption even after a receiver has concluded a contract on their behalf. Historically, it has been accepted that the equity of redemption is, for a period, put on hold between the making of a sale contract by the mortgagee and the subsequent completion of that contract (see Property and Bloodstock Ltd v Emerton [1968] Ch. 94). The situation is, in practice, different where the sale contract is made by a receiver. Although the receiver is appointed by the mortgagee, the receiver acts as the owner/mortgagor’s agent, not the mortgagee’s. That almost invariably follows from the provisions of the original loan agreement; agreed at the outset, at a time when the...

Snoozebox Ltd v Health and Safety Executive and another [2023] EWHC 851 ( Ch) What are the practical implications of this case? The immediate takeaway is that, where uncertainty exists, creditors should lodge a proof in a CVA upon receiving notice, or at the very least engage with the CVA nominees ahead of the vote. The central difficulty for the Crown— HSE being treated as its emanation—was its non-participation in the CVA. As its inquiries had not concluded at that stage, it is unsurprising the HSE did not regard the contingent liability as sufficiently concrete to justify taking part. Indeed, attempting to quantify a prospective fine before any inquest would appear counter-intuitive to most prosecutors. Set against that, the judgment underscores the expansive modern scope of provable contingent debts, particularly following Re Nortel Gmb H [2013] UKSC 52. The more...

Re Avanti Communications Ltd [2023] EWHC 940 ( Ch) This marks the first substantial judgment on the divide between fixed and floating charges since the House of Lords’ landmark ruling in Re Spectrum Plus [2005] UKHL 41, which reclassified an apparent fixed charge over book debts as floating because the chargor could freely deploy the charged assets and the security holder therefore lacked the requisite control to constitute a fixed charge. The designation of security as ‘fixed’ or ‘floating’ under English law now carries even greater weight given HMRC (the UK tax authority) ranks as a preferential creditor for certain taxes in insolvency—ie those taxes sit behind fixed charge realisations but ahead of floating charge realisations. That characterisation had a decisive effect on the order of payments in Avanti’s administration: as the charge was properly treated as fixed, the secured creditors recovered in full; had it...

Re The Whitehall Partnership Ltd [2023] EWHC 596 ( Ch), [2023] All ER ( D) 61 ( Mar) What are the practical implications of this case? The decision offers analysis of the court’s overall method when considering whether to make a winding‑up order on just and equitable grounds, together with the additional requirements in IA 1986, s 125(2) applied when deciding a contributory’s petition for such an order. It also addresses the allocation of the burden of proof under that sub‑section. On the broader issue of just and equitable winding up, the judge examined what it means where responsibility for the breakdown of the relationship lies with one or both participants. He stated that the court is unlikely to exercise its discretion in favour of a petitioner who is wholly, or to a large extent, the author of that breakdown. The judge further...

Re Sova Capital Ltd (company number 04621383) (in special administration) [2023] EWHC 452 ( Ch), [2023] All ER ( D) 24 ( Mar) Background to Sova and the Special Administration Sova, authorised by the Financial Conduct Authority ( FCA), operated as an investment brokerage firm. It acted for institutional counterparties, with its trading largely focused on the Russian market. Following the upheaval in markets triggered by Russia’s invasion of Ukraine, the firm encountered acute liquidity pressures, prompting its directors to seek an English Court order placing it into special administration under the Investment Bank Special Administration Regulations 2011, SI 2011/245 (the IBSA Regulations). The business oversaw assets totalling several billions of pounds sterling across its client assets sourcebook ( CASS) structures—covering client money and custody assets—as well as its own house book. The IBSA Regulations were introduced to tailor the insolvency framework for...

Re Mizen Design/ Build Ltd (in company voluntary arrangement); Newlon Housing Trust v Mizen Design/ Build Ltd [2023] EWHC 127 ( Ch) What are the practical implications of this case? In this matter, two creditors from different classes challenged the CVA, with one objection succeeding and the other failing, and they had adopted contrasting positions at the creditors’ meeting. As such, the decision offers a clear demonstration of how various irregularities are assessed, with particular emphasis on materiality. The proposal’s terms are recorded in significant detail, helping future comparisons on similar facts. In addition, paragraphs [15]–[51] of the judgment set out, in depth, the principles applicable to material irregularity and unfair prejudice. What was the background? This dispute concerned a CVA approved at a creditors’ meeting on 19 May 2022. The proposal indicated that, unless adopted, Mizen was highly likely to enter...

Durose & others v Tagco BV & others [2022] EWHC 3000 ( Ch) Summary of the case Judge Bird held that the petitioners had entered a commercial arrangement whose terms were tightly controlled by a comprehensive suite of expertly drafted contracts and documents. On the evidence, he concluded the private equity investor had at all times adhered to the agreed terms. In those circumstances, it was fair and just to hold the petitioners to the legal agreements, and they were not entitled to protest that their treatment was unfair. The parties’ relationship was purely commercial, with all material dealings conducted through solicitors. The judge was satisfied that every signatory to the investment agreements had the opportunity to review the documents, contribute to their content and obtain legal advice on them. He found the petitioners knew this was not a risk‑free endeavour and that an...

Re Lehman Brothers International ( Europe) (in administration) and other companies [2022] EWHC 2995 ( Ch) What are the practical implications of this case? This ruling offers a concise digest of the statutory framework for seeking extensions under paragraph 76 of Schedule B1 to the Insolvency Act 1986 ( IA 1986), and, drawing on recent leading authorities from the Lehman and Nortel Networks administrations, explains the approach the court ought to take when exercising its discretion on such requests. In short, the court’s discretion is unfettered, yet it must be deployed for the benefit of the company’s creditors as a whole. With eight separate companies before the court—each facing distinct concerns, issues and factual backgrounds—the judgment provides rich insight into the factors that carried weight in granting the extensions. The judge’s assessment of the evidence presented serves as a practical roadmap for lawyers and...