Legal Practice Notes

This Practice Note provides an overview of the legal position relating to de facto and shadow directors of a company, pursuant to the Companies Act 2006 ( CA 2006) as well as the common law. Definition of 'director' CA 2006 provides a broad, inclusive description of a director as 'any person occupying the position of director, by whatever name called'. On that footing, and within that definition, the courts have recognised two classes of director: de jure directors, namely those directors properly and validly appointed in line with the company’s articles of association and CA 2006; and de facto directors A further category, described as 'shadow directors', is separately defined in CA 2006. A single individual may simultaneously fall into both shadow and de facto categories, for example where they perform a director’s role in one area of the business whilst directing the board in respect of...

In a compulsory liquidation, the court can remove a liquidator from office. In a voluntary liquidation, the court may, where good cause is proved, remove the liquidator and name a replacement in their stead. Although section 172(2) of the Insolvency Act 1986 ( IA 1986) (governing compulsory liquidations) and IA 1986, s 108 (governing voluntary liquidations) are differently phrased, the same test applies: in substance, an order for removal requires good cause to be established. IA 1986, ss 108 and 172(2) do not specify who may seek removal. The court will decide whether an applicant has a sufficient interest to bring the application before the court. The applicant must duly show that they are entitled to apply and are a proper person to do so, in the circumstances, in that they possess a legitimate interest in the relief pursued. A creditor will...

Conditions for making a bankruptcy order When the court considers a bankruptcy petition and whether to make an order, it must be satisfied that the conditions in section 271(1) of the Insolvency Act 1986 ( IA 1986) are fulfilled. The essentials are: an unsecured debt forming the basis of the petition is owed to the creditor; and the debtor has no reasonable prospect of paying that debt. In Day v Refulgent (an appeal from the making of a bankruptcy order), it was decided that the fact a creditor has obtained a freezing order against the debtor does not render the debt secured, and therefore does not prevent that creditor from seeking a bankruptcy order. For further reading on Day v Refulgent, see News Analysis: Seeking adjournments at bankruptcy hearings......

Where an application seeking recognition of foreign proceedings is made under the Cross- Border Insolvency Regulations 2006 ( CBIR 2006), SI 2006/1030 as either (i) foreign main proceedings or (ii) foreign non-main proceedings (see Practice Note: When does UNCITRAL (implemented by the Cross- Border Insolvency Regulations) apply and what are the effects?), a range of relief is available: (for foreign main proceedings) automatically, under CBIR 2006, SI 2006/1030, Sch 1 (art 20) (for foreign main or non-main proceedings) at the court’s discretion, under CBIR 2006, SI 2006/1030, Sch 1 (art 21) Automatic relief following recognition under art 20 Once the English court recognises foreign proceedings as foreign main proceedings under CBIR 2006, SI 2006/1030, certain consequences flow automatically. In particular, CBIR 2006, SI 2006/1030, Sch 1 (art 20(1)) stipulates that: the initiation or continuation of individual actions or proceedings concerning the debtor’s assets, rights,...

Introduction The strand of domestic law that originally arose from EU obligations and was captured by the European Union ( Withdrawal) Act 2018 ( EU( W) A 2018) as retained EU law ( REUL) is, from 2024, referred to as ‘assimilated law’. This change follows the Retained EU Law ( Revocation and Reform) Act 2023 ( REUL( RR) A 2023). The new label signals notable shifts in the domestic standing and handling of assimilated law. Its objective is to advance the process of bringing former EU rules into the UK’s legal system and to support their reform... Reminder: what was retained EU law ( REUL)? To understand the move from REUL to assimilated law, it is useful to revisit REUL, which was established by EU( W) A 2018. For background on EU( W) A 2018, see Practice Note: Brexit—key legislation explained. After the Brexit...

Extension of time to serve the claim form This Practice Note offers guidance on applying to extend the deadline for serving the claim form. It addresses party agreement to an extension of time, pre‑application considerations, and the steps for pursuing an application under CPR 7.6. The Practice Note sets out the rules and authorities relevant to any application to extend time for service of the claim form, and also considers the defendant’s right to have the order set aside. The guidance provided is specific to the claim form. As set out by the Supreme Court in Barton v Wright Hassall (2018), the purpose of serving the claim form on the defendant is to bring the contents of the claim form to the defendant’s attention so that they know the case against them. To ensure the defendant receives timely notice of the case against them, the CPR...

Effect of administration on LPA receivership The appointment of an administrator triggers a moratorium. During this period, a mortgagee is barred from enforcing its security—such as by appointing a receiver—unless the court grants leave or the administrator agrees. For further detail on the administration moratorium, see Practice Notes: The moratorium in administration and Lifting the administration moratorium—appointment of fixed charge receiver. Where a receiver is already in post and the company subsequently enters administration, a receiver over part of the company’s property must leave office if directed by the administrator. Promontoria ( Chestnut) Limited v Craig explored the basis on which administrators may require receivers to stand down; for more, see News Analysis: Administrators’ decision to remove receivers was unreasonable ( Promontoria ( Chestnut) Ltd v Craig and another). The decision in Carvill- Biggs v Reading concerned a lender that had appointed LPA receivers over a...

What is a special manager? Origin of the role of the special manager Prior to the Insolvency Act 1986 ( IA 1986) taking effect, the official receiver ( OR) could, under section 556 of the Companies Act 1985 (then in force), ask the court to appoint a special manager over a company’s undertaking or assets. The route was used where the OR believed that, owing to a distinctive aspect of the company’s operations or property, creditors’ interests would be best served by installing someone with particular know‑how to take charge of the business or property. IA 1986 widened the ambit of this appointment power considerably. An application may now be brought in both corporate and personal insolvencies. The court process was invoked to secure specialist control when necessary. Special managers under IA 1986 In essence, a special manager is a person with specialist abilities or...

Applications for leave to act as a director, and the possible conditions attached to leave Once a director has been disqualified under the CDDA 1986, they may ask the court for leave to act as a director of a specified company or companies. Whether leave is allowed lies wholly within the court’s discretion. The court will look to the Secretary of State ( So S) for guidance, yet the determination ultimately remains the court’s. The dominant consideration when deciding whether to grant leave is protecting the public, with an emphasis on preventing any future misconduct. The court must assess the level of risk posed to the public, and balance that against the necessity for the director to continue in office at a particular company or companies. In applying its discretion, the court weighs these matters carefully in the round, where...

The gap in the insolvency legislation There is a notable omission in the drafting of the insolvency regime: it does not expressly state the impact of a bankruptcy order on an individual voluntary arrangement ( IVA). Consequently, the courts have had to determine the resulting effects. The core position is this: once a bankruptcy order is made—whether on a petition by the supervisor or by a creditor bound by the IVA—the IVA terminates. Although not spelt out in the statute, this is inferred from section 276(2) of the Insolvency Act 1986 ( IA 1986), which provides that expenses properly incurred in administering the IVA are to be treated as a first charge on the bankrupt’s estate. The courts have acknowledged and applied this implication. This stands in contrast to circumstances where the petition is issued by a creditor who is not bound by the IVA......

The purpose of this Practice Note is to: succinctly outline section 216 of the Insolvency Act 1986 ( IA 1986) explore the key exceptions to that section and their practical use What is the prohibited name rule? Section 216 of the IA 1986 applies to an individual when a company has entered insolvent liquidation (the liquidating company) and that person acted as a director, or as a shadow director, of the liquidating company at any time within the 12 months ending on the day immediately before the company went into liquidation......

The application process Insolvency practitioners ( IPs) may approach insurers themselves, although brokers frequently assist, canvassing the market to make sure the IP secures the most favourable terms available. In most cases, IPs ask their solicitors to arrange After-the- Event ( ATE) insurance on their behalf. The solicitor may either contact insurers directly or operate via a broker. The procedure entails completing a proposal form and supplying supporting material. Although each broker or insurer tends to have its own proposal document, for submissions to several insurers a single form should generally suffice, as insurers will accept equivalent versions. Central to any papers sent to insurers is ensuring underwriters can clearly follow the claim being advanced and the defences likely to be raised. They will also expect legal analysis—most often a counsel’s opinion—setting out the strength of the case. Where a formal counsel’s opinion is not...

When a company or an individual is in financial distress, a mortgagee will often move to realise its security by appointing a receiver, provided the security instrument allows it. This Practice Note addresses the position where the mortgagee is slow to act and, by the time enforcement and a sale of the charged asset are contemplated, the company that granted the security is already in administration or liquidation (or, if the security was granted by an individual, that person is already the subject of bankruptcy proceedings). Before any receiver is appointed, carry out suitable insolvency searches to confirm whether the corporate or individual mortgagor is already within an insolvency process. For more detail, see the following Practice Notes: Insolvency searches for companies at the Central Registry What do insolvency searches at Companies House reveal? What do insolvency searches at The Gazette...

This practice note discusses the ability for a disqualified director to apply for permission to act as a director despite disqualification, using s 17 of the Company Directors Disqualification Act 1986 ( CDDA 1986). It outlines the legal context in brief, and then focuses on the considerations the court may weigh when deciding whether to grant leave. For guidance on the procedural steps to seek leave, see Practice Note: Applications for leave to act as a director under section 17 of the Company Directors Disqualification Act 1986—jurisdiction, parties and the application procedure. For information on potential terms the court may attach to any permission, see Practice Note: Applications for leave to act as a director under section 17 of the Company Directors Disqualification Act 1986—possible conditions attached to leave. Directors may face disqualification under various statutory routes. For the purposes of these permission notes, the focus is on...

Introduction to the airline industry The purpose of this Practice Note is to present an overview of certain key features of airline insolvencies in England and Wales, and to highlight legal and practical considerations that can shape strategies and outcomes when an airline enters insolvency proceedings. This Practice Note forms part of a wider suite on airline insolvency. For further information, see the following Practice Notes: Guide to airline insolvency—insolvency proceedings, receivership, restructuring plans and schemes of arrangement Guide to airline insolvency—international considerations and implications for office-holders There are particular aspects of the airline industry that set airline insolvencies apart from those of companies in many other sectors. In particular: the financing structures for the manufacture and acquisition of aircraft, together with the related ownership and leasing frameworks, are often highly complex and can differ significantly from one case to another the...

Why restore an LLP to the register? If a limited liability partnership ( LLP) has been removed from the register, an application can often be made to the Registrar of Companies to reinstate it through the administrative restoration process. Typical reasons for seeking administrative restoration are: the LLP was still trading or in operation when the Registrar struck it off, and the LLP still owned property at strike-off and dissolution, which has since vested as bona vacantia. Application of CA 2006 to LLPs An LLP is a corporate entity created under the Limited Liability Partnerships Act 2000 ( LLPA). In practice, most rules governing LLPs derive from modified company law rather than partnership law (see Practice Note: The nature of a limited liability partnership and its legal framework). The Limited Liability Partnerships ( Application of Companies Act 2006) Regulations 2009 set out which provisions of the...

The Insolvency ( England and Wales) Rules 2016 ( IR 2016), SI 2016/1024 lay down the framework for decision-making across all insolvency procedures. The detailed rules governing such decisions appear in IR 2016, SI 2016/1024, Pt 15. Since the Enterprise Act 2002 reforms, the ambit of administrative receivership has been sharply reduced. A receiver of that type can no longer be appointed under a qualifying floating charge, as set out in Schedule B1 to the Insolvency Act 1986 ( IA 1986), created on or after 15 September 2003, save in a narrow range of cases of minimal general practical significance. In practice, a debenture holder will almost invariably opt to appoint an administrator rather than seeking the appointment of an administrative receiver. Relationship between the administrative receiver and creditors IA 1986, s 47(3) places a duty on the following persons to prepare and deliver a...

ARCHIVED: This Practice Note has been archived and is not maintained. This Practice Note lists the key dates for restructuring and insolvency professionals in 2024, covering appeal court hearings, consultation deadlines, events as well as the coming into force of insolvency-related legislation. January 2024 Date Event 1 January 2024 The Retained EU Law ( Revocation and Reform) Act 2023 ( Commencement No 1) Regulations 2023, SI 2023/1363 come into force and are the first commencement regulations made under the Retained EU Law ( Revocation and Reform) Act 2023 ( REUL( RR) A 2023)......

January 2021 Date Event 1 January 2021 – The Hague Convention of 30 June 2005 on Choice of Court Agreements took effect for the UK. The UK had been covered via EU membership until Brexit ended that route. The UK’s instrument of accession keeps it bound after the transition. See: LNB News 29/09/2020 49. 1 January 2021 – The Dutch restructuring scheme under the Act on the Confirmation of Private Plans ( Wet Homologatie Onderhands Akoord, ‘ WHOA’) became operative. See News Analysis: The new Dutch scheme and Practice Note: Restructuring and insolvency— Netherlands— Q& A guide. 1 January 2021 – Germany’s new regime under the Act on the Stabilisation and Restructuring Framework for Companies ( Gesetz über den Stabilisierungs-und Restrukturierungsrahmen für Unternehmen) ( Sta RUG) came into effect. See Practice Note: Restructuring and insolvency— Germany— Q& A guide. 1...

2019: Key Restructuring & Insolvency cases [ Archived] This Practice Note remains archived and is no longer updated...