Archive for the ‘insolvency’ Category

Insolvency set-off - building societies

February 27, 2008

The Financial Markets Law Committee have published their December 2007 paper proposing that the mandatory insolvency set-off rule should be applied to building societies and incorporated friendly societies.   Insolvency Rule 4.90 doesn’t apply to them at present.  This leads to uncertainty in the financial markets when such entities are counter-parties because participants can’t provide clean legal opinions on transactions not being able accurately to analyse the credit risk. 

Delay on new Insolvency Rules

February 26, 2008

The Insolvency Service have said the timetable for introducing new Insolvency Rules that update the 1986 ones has slipped back to 1 October 2009.  The details are here

Empty property rates relief for companies in administration

January 10, 2008

The Government (the Department for Communities and Local Government) have announced a permanent exemption from empty property rates for companies in admininstration that redresses the anomaly shown up by the Trident case, that companies in liquidation, but not administration, have such an exemption.  It has also been decided that empty listed buildings like shops, offices and visitor attractions should continue to qualify for tax concessions because of the extra work required to bring them back into beneficial use. It is aimed to bring these new provisions into effect on 1 April 2008.

Insolvency reform

September 26, 2007

The Insolvency Service has issued a consultation paper setting out its proposals to modernise and streamline the law governing insolvency procedure.   The broad aims are to bring insolvency law up to date with our current ability to communicate electronically, to move some decision-making process to insolvency practitioners and to remove some unnecessary burdens from insolvency practitioners.  Replies to the consultation must be with the Insolvency Service by 10 December 2007.

Chapter 15 rejected for hedge funds

September 14, 2007

There has been a surprise decision in the US, reported here, involving Bear Stearns’ hedge funds.  The court refused an application by the Cayman-based distressed hedge funds who were seeking to reorganise for Chapter 15 protection.  It is estimated that about 80% of the total number of hedge funds in the world are registered in the Cayman Islands.  Unless the case is appealed, which is possible, it means that such hedge funds must file for either Chapter 11 or Chapter 7 in the US to gain protection from American creditors. 

Corporate insolvency law

September 5, 2007

For a review of the important insolvency cases in the last twelve months, try to get hold of an excellent article in Sweet & Maxwell’s Company Law Newsletter this month (August 2007) by Prof. David Milman of the University of Lancaster.  David draws together themes, puts the case-law in context and suggests how things might move forward next year.

Administration expense - empty rates?

July 13, 2007

Trident cast a chill by suggesting that business rates incurred on empty properties should be an administration expense.  Given that the Department of Communities of Local Government (DCLG - is Banklawblogger alone in having trouble remembering the names and acronyms of all these shiny new Departments?) is to review the business rates structure including the potential abolition of empty rate exemption, except for liquidation, this may become a real problem for administrators - and floating charge holders. 

The Rating (Empty Properties) Bill  can be seen here.  If the government manage to push this through, the changes to the business-rate relief for empty properties would come into effect in April 2008.

First Pensions Act “Financial Support Direction”

July 4, 2007

The parent company of a subsidiary whose pension was falling short has been ordered by the Pensions Regulator to pay into the pension to reduce the liabilities.  The Reasons of the Determination Panel can be seen here.  The Reasons provide useful insight into the Regulator’s interpretation of its “moral hazard” powers. 

Banklawblogger’s pensions law colleagues were inspired to write a little on this case. 

Retention of title

July 3, 2007

Mixing goods which are subject to a “retention of title” clause with other goods does not lead to loss of title.  This was re-affirmed in re Music Zone Services Ltd, an unreported case that this month’s issue of Sweet & Maxwell’s Insolvency Bulletin has flagged up. 

Mark Phillips QC says in a useful article in Insolvency Intelligence  that arrived by the same post (vol 20 no 6 July 2007 page 81-4),  it is an “urban myth” that a seller who cannot identify his own goods has lost his title to those goods.  The position is more complex.  You would need to look at whether the seller had agreed the goods could be stored together with other goods to decide how much the seller is entitled to in claiming the value of the goods.  If the goods had wrongfully been mixed with other goods, then the seller should be entitled to recover the value of the goods.  If the seller had agreed to the mixing, he shares the proceeds as tenant in common with the merchant.  If the goods had been consumed, or incorporated into other goods, then the seller would lose his title. 

In passing, I would mention that at some stage during the proposed reforms of English security law last year, it was suggested that “ROT” claims be awarded a more formal status and a registration process as “Quasi-security”.  That proposal was an early casualty of the doomed proposals, which this time have come to nothing.  Would the reforms have led to a simpler, clearer status for ROT goods - or just more paperwork?

Guarantees - no need to demand before statutory demand

June 29, 2007

The court looked last week at whether a guarantee was a secondary or a primary obligation to pay and concluded that the wording of the guarantee in question was quite clear that the guarantors were liable “as primary obligors”.  An argument had arisen as to whether the guarantors had to pay up under the guarantee when they were served with statutory demands, even though no demand under the guarantee had been served first.  On appeal from the district judge who had agreed with the guarantors that the statutory demands could not be relied on for the purpose of establishing the guarantors were unable to pay their debts under the Insolvency Act 1986, the court held  that the guarantor’s liability under the guarantee was immediately payable by them without need for a demand.

In a way it is odd that this case got this far, as it has long been recognised that you need to write into a guarantee a provision that the guarantor is liable as primary as well as secondary obligor.  This has been done for years to get over exactly the sort of time-wasting, defensive tactics adopted by the guarantors in this case.  It is helpful to know that the primary obligor clause has been upheld (though I might have been holding my breath if I had seen a report of the case at first instance in front of the district judge).  What does it mean in practice?  My view is that if you stop to think about enforcement of a guarantee, and if you are not up against time, it doesn’t hurt to serve a demand under the guarantee in the usual way just so that everybody is clear about your intentions.

Case: TS & S Global Ltd v Fithian-Franks and others [2007] EWHC 1401 (Ch) 18 June 2007