The lender's dilemma
Lenders who take security over shares in an English company have to decide whether to take either:
- a legal mortgage by becoming registered owner of the shares
- an equitable mortgage or charge with the chargor remaining the registered owner.
A legal mortgage gives the lender the right to vote subject to the terms of the mortgage document and prevents the chargor from disposing of legal title to the shares to a third party, as the lender is the registered owner of the shares.
Background
The case concerned royalty payments, which a creditor had a contractual right to receive, arising from iron ore produced at a mine in Sierra Leone.
The parent company of the Sierra Leonean mining company went into administration and administrators from PwC were appointed. The creditor's director called the administrators to stress the importance of bringing the royalty payments to the attention of a third party purchaser.
The administrators subsequently sold the mine, but did not make the purchaser aware of the royalty issue.
A recent judgment has clarified the duty of receivers when selling secured property to a company connected to a creditor.
Background
The claimant alleged that the receivers, appointed on behalf of, and selling to a party connected to the creditor, had acted in bad faith. They had placed themselves in a position of conflict and had engaged in self-dealing. As well as dealing with this issue, the court also assessed where the burden of proof lies when allegations of failing to act in good faith are raised.
Held
This was a Court of Appeal decision which focused on s423 Insolvency Act 1986, as well as the ambit of directors' duties to creditors in a distressed company scenario. The below summary relates to the courts' analysis of the latter issue.
Facts
Appleton Papers Inc (API) was a wholly owned subsidiary of BAT Industries plc (BAT).
The Facts
This was an appeal by liquidators to the Court of Appeal from a decision refusing to grant an order that payments made to the respondent directors totalling nearly £450,000 were preferences.
By the time of the appeal, it was accepted that the payments were made within the relevant time and with the requisite intention to prefer.
Previous Decision
Validation orders under s127 Insolvency Act 1986 will only be made:
- in special circumstances
- where a particular transaction is one that is in the interests of the creditors as a whole; and
- the circumstances warrant the overriding of the pari passu principle
The Facts
Key Points
- Interpretation of EU case law on protection of pension payments on employer insolvency not “entirely free from doubt”
The Facts
The claimant (C) was a member of the T&N defined benefit pension scheme from 1971 to 1998. In 2006, the scheme entered a PPF assessment period and C calculated that his pension under the PPF would, as a result of caps and limitations on indexation, be roughly 67% less than what he had previously expected.
Appointment of receivers in respect of a group entity takes “control” of that entity outside the group for tax purposes, but does this decision have more far reaching consequences?
The First Tier of the Tax Tribunal heard appeals against closure notices issued by HMRC denying claims for group relief by a group of companies, including a company over whose assets a fixed charge receiver (FCR) had been appointed (the Borrower).