The Department for Business, Energy & Industrial Strategy (BEIS) has recently issued a press release regarding proposed changes in the law to better protect consumers in the event that a company, and in particular a retailer, becomes insolvent.
Under existing law, if a company becomes insolvent but goods prepaid for are still in its possession, they may be considered as assets belonging to the business and can be used by administrators to pay off the company’s debts.
As we discussed in our July newsletter, the Corporate Insolvency and Governance Act 2020 (CIGA 2020) has introduced a new Restructuring Plan, which is similar to existing Schemes of Arrangement. In essence a Court can sanction a restructuring plan which binds a dissenting class of creditors, if that class would be in no worse a position than the most likely alternative.
The long running question of whether a contractual dispute relating to a breach of a construction contract can be the subject of Adjudication, if one of the parties is in Liquidation, and there are cross claims for insolvency set off was settled by The Supreme Court. Needless to say the two parties both claimed breach of contract and damages. The contract allowed for a dispute to be resolved by Arbitration which the sub-contractor Bresco wished to pursue. This was opposed on the basis of incompatibility between insolvency set-off, and an argument that the adjudicator lacked jurisdiction.
In this case the court was asked to allow the convening of a meeting of creditors to consider and approve a scheme of arrangement by telephone and video conference in view of the Covid-19 pandemic. The meeting was proposed to take place on 20 July 2020 when there was likely to be an easing of the lockdown measure. The court approved the application and made the necessary order.
A similar order was made in a more recent case: Re ColourOz Investment 2 LLC and other companies.
The court held in this case that a costs order in favour of the debtor, in respect of a discontinued bankruptcy petition for the same debt, due to the petitioner, could be set off against the sums due in respect of a second bankruptcy petition brought against the debtor by the same petitioner. The debtor had argued that the petition should be stayed until the previous costs order had been paid.
The case concerned an insolvency practice which had been placed into compulsory liquidation. The Applicants had been appointed liquidators. However, between the presentation of the petition and the winding up order, the assets of the insolvency practice were transferred to another practice, resulting in a claim under section 127 IA86 to declare the transfer void. In addition, the liquidators sought to have transferred to themselves the insolvency cases of the two practitioners of the former practice. The application was by way of the block transfer procedure.
A bankruptcy petition was dismissed on the application of the debtor, who claimed that a guarantee document was not a valid deed, the transaction which was purported to be guaranteed was a sham and that the debtor’s signature had been forged. Whilst the court accepted that there was a substantial dispute as regards the transaction (payment of fees of US$500 billion!) and that the form of guarantee was invalid, as no evidence had been called to show that the debtor’s signature had been forged, the bankruptcy petition hearing was not the right forum to decide the matter.
In this case the court considered a debtor’s application to set aside a bankruptcy order made in her absence (due to self-isolation in accordance with Covid-19 guidelines). It was held that the fact that the debtor was bankrupt meant she had no standing to apply to set the order aside. The court accepted that the debtor had a good reason not to attend court, and had acted promptly to set the order aside, however legal precedent going back to the 1990’s meant that only a trustee in bankruptcy could challenge the liability orders.
This case was heard before CIGA came into force but the provisions of the CIG Bill were known. Statutory demands were served on 27 March 2020 on the company in respect of debts due under loan agreements and a winding up petition had been presented. The company applied for an injunction to restrain the advertisement of the petition, claiming that although it was insolvent it had been prevented from obtaining funding, to enable it to propose a scheme of arrangement to its unsecured creditors, as a result of the pandemic.
The joint liquidators of a company, which had been compulsorily wound up in England and Wales, sought orders under section 236 of the Insolvency Act 1986 (“IA86”) for production of documents and an account of dealings with the company, in respect of companies in Italy. The question for the Court was whether s236 IA86 had extraterritorial effect. The problem for the court was that there was competing first instance decisions both for and against.