FSA has published guidance on cooperation between recognised bodies and insolvency practitioners. The guidance looks at how the exchanges and clearing houses can work with insolvency practitioners to manage member defaults. (Source: Cooperation Guidance on Member Defaults)
Where lenders rely on floating charge security to make recoveries from companies in administration, some recent cases have massively increased the potential for administration expenses to swallow up those recoveries. The more well-known cases could just be the start. So, what are the potential risks? What can lenders do in the face of the law as it currently stands? What is going to happen next?
The Nortel decisions
Where lenders are lending to and taking security from companies that may become subject to special administration regimes, the value of the security may be affected and enforcement options restricted. More companies are subject to these procedures than you might think. So, how do you identify whether your borrower is subject to one of these regimes? Should you place a lower value on your security? What are your enforcement rights? Might your borrower become affected after grant of the security?
Special administration regimes
There has been an upturn in the frequency of trade finance workouts, restructurings and formal insolvencies. Susan Moore and Luci Mitchell-Fry look at some key issues that banks face when trade finance lending passes to "bad bank".
The bank's decisions at every stage of a trade finance transaction are critical: at origination; when following a workout/restructuring; and once a formal insolvency process becomes a reality.
Origination
Treasury has published the 12 responses it received to its consultation on a special administration regime for investment firms resolution and draft legislation that takes into account its views on the responses. One Order clarifies that the definition of “client assets” includes money, but not money held in respect of insurance mediation. The other sets out the new regime. Respondents broadly supported the proposals and favoured an approach that would require the return of all client money and assets, not just segregated ones.
On 26 July 2010, the Insolvency Service issued proposals for a new type of short-term restructuring moratorium. The moratorium would be available through a court-based process to companies with a viable business and the general support of creditors. The proposed moratorium could have the potential to encourage more companies to view the UK as an attractive jurisdiction for restructuring.
What are the proposals?
The main features are:
The Determinations Panel gave its reasons for imposing financial support directions (FSDs) on six Lehman Brothers companies on 29 September 2009. SNR Denton represented 22 of the 44 companies targeted for FSDs. The Determinations Panel accepted our submission that it would not be reasonable to impose an FSD on any of the companies we represented because of the Pensions Regulator's failure to particularise its case against them.
Background
Treasury makes banking insolvency rules: Treasury has made insolvency and administration rules covering building societies in England and Scotland and amended the English rules on banks in insolvency and administration and the Scottish rules on banking insolvencies. The English rules, among other changes, provide for the statement of proposals to be sent to FSA and FSCS and for the disapplication of set-off for protected deposits up to FSCS's statutory limit. The Scottish instruments apply to insolvencies of banks and building societies under the Banking Act 2009.
Following proposals Treasury made at the end of 2009, it has now published for consultation draft regulations setting up a special resolution regime for investment banks. The regime will apply to firms that meet all of the following three conditions:
Treasury has announced the next stage of withdrawal of government support for Northern Rock. It will end its guarantee on wholesale liabilities in three months' time, earlier than planned.