The Pensions Regulator (the “Regulator”) has published a statement setting out its approach to the issuing of financial support directions (“FSDs”) in insolvency situations. The statement is designed to calm fears following the decision in the joined Nortel and Lehman cases that the “super priority” of FSDs could have a negative impact on the corporate rescue and lending industries.

Background

Armed with an adjudicator’s decision and a TCC enforcement judgment, can a party issue a statutory demand for payment, even if the other party has a genuine and substantial cross claim against the sum awarded? No, said Judge Stephen Davies in Shaw v MFP. Neither the Construction Act nor the Scheme was intended to displace the position under the Insolvency Rules, which give the court discretion to set aside a statutory demand if the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the debt in the statutory demand.

Regulated firms using company or insolvency law procedures to manage their liabilities could face action by the FCA if their proposals unfairly benefit them at the expense of their customers. The FCA has put forward draft guidance setting out the new role which it would have when a regulated firm proposes a compromise, what information it expects to be provided and the key factors which the FCA will consider.

Timeline for Government’s extended measures 

In the current period of flux, lenders should review their finance documents regarding protections and/or vulnerabilities; and where exposed to industries particularly affected by the COVID-19 outbreak may consider (i) invoking provisions to demand early repayment and/or to preclude further lending; and (ii) whether there is material benefit in doing so. They should also consider pre-emptive steps with a view to staving off critical defaults.

New Rules for Imposing Personal Liability on Directors of Insolvent Companies

When a company enters into an insolvency process, a director may be made personally liable for an insolvent company’s debts on a few limited bases under the Insolvency Act 1986, the most common of which are:

1. wrongful trading: if the director knew or ought to have known that there was no reasonable prospect of avoiding insolvent liquidation and he did not take every step necessary with a view to minimising the loss to creditors;

A facilitation payment to encourage creditors to vote through the restructuring proposals of creditors’ debts has been held by the High Court not to be an illegal bribe. The court had regard to the fact that the offer of payment was made openly to all relevant creditors, none of whom were prevented from voting on the proposal. As such, where a creditor consented and received the facilitation payment, this was not contrary to the pari passu principle.

The facts

Arbitration proceedings in England are creatures of contract, arising out of the agreement between the parties to refer their disputes to arbitration. However, except in limited circumstances, when one of the parties to an arbitration agreement becomes insolvent, England’s statutory insolvency regime takes precedence over the rules of the arbitration.

The Insolvency Regime in England and Wales

During the course of the pandemic we have seen an unprecedented level of government assistance aiming to aid businesses struggling with the effects of the pandemic. This has resulted in consistently low insolvency levels. This year we will see the lifting of certain of the restrictions and the end to some of the support initiatives that have been in place. We have outlined some of the key changes and what might be in store for 2022.

Credit bidding is a mechanism, enshrined in the US bankruptcy legislation, whereby a secured creditor can ‘bid’ the amount of its secured debt, as consideration for the purchase of the assets over which it holds security. In effect, it allows the secured creditor to offset the secured debt as payment for the assets and to take ownership of those assets without necessarily having to pay any cash for the purchase. Whilst there is no statutory equivalent in the UK, the process has evolved here into an accepted practice.