Re Stanford International Bank Limited and others [2009] EWHC 1441 (Ch) provides answers to key questions on the UNCITRAL Model Law on cross-border insolvency. What will courts recognise as a “foreign proceeding”? What types of insolvency practitioners will qualify as “foreign representatives”? Is a company’s “centre of main interests” (COMI) always in the country of its registered office? Linda Ralli considers the practical implications for banks which have lent to foreign companies where they are looking to enforce in England.

Facts

On 17 September the DWP published a consultation paper (attaching draft regulations) in which it proposes that certain corporate restructurings will not trigger an employer debt under section 75 of the Pensions Act 1995. Following on from amendments introduced by regulations in 2008, the draft regulations also make some technical amendments to the employer debt regime, which are intended to ease its operation in practice.

Section 75: a reminder

Where the Courts Service failed to notify the Land Registry of a bankruptcy petition with the effect that property was disposed of without a pending action having been registered, the trustee in bankruptcy had a right to claim damages.

The Scottish Court of Session Decisions has nixed a scheme of arrangement under the UK Companies Act of 2006, stating it could not be judicially sanctioned without the assent of all creditors. A scheme of arrangement is a reorganization device in which, with the approval of at least three-quarters of a company’s creditors, the company may compromise the claims of all its creditors. A somewhat analogous device might be a “cram-down” under U.S. bankruptcy law, with the important distinction that a scheme of arrangement may be used even by a solvent company.

When a company becomes insolvent (as many have in the last year or so) one effect is that its shares will normally have nil or negligible value and the holder of the shares will therefore normally show a ‘book loss’ on them. Such losses can be relieved against taxable gains in certain circumstances.

The High Court in England has made an interesting decision in the case of ED Games Limited. A director of that company procured that it did not pay VAT for a period prior to its liquidation and in that period, the net deficit on the company's balance sheet increased. The High Court has held that the director could be held personally liable for the increase in such net deficit.

Structured finance transactions frequently subordinate a swap counterparty’s rights to termination payments upon termination of a swap by reason of counterparty default. Such a provision has recently been upheld by an English court. As the case concerns the insolvency of Lehman Brothers however, the US courts must also make a decision on the same provision.  

In August 2009, an English court sanctioned the use of a scheme of arrangement to restructure the debt of IMO Car Wash Group, a highly leveraged UK based car wash company. This decision follows the similar use of schemes of arrangements in other restructurings. For example earlier this year an English court sanctioned the use of a scheme in the debt restructuring of McCarthy & Stone. In both of these restructurings, the subordinated creditors were left with no value for their debt claims.

In August 2009, an English court sanctioned the use of a scheme of arrangement to restructure the debt of IMO Car Wash Group, a highly leveraged UK based car wash company. This decision follows the similar use of schemes of arrangements in other restructurings. For example earlier this year an English court sanctioned the use of a scheme in the debt restructuring of McCarthy & Stone. In both of these restructurings, the subordinated creditors were left with no value for their debt claims.

Summary and implications

Now, more than at any other time of this economic cycle, landlords are faced with the prospect of dealing with tenants who have entered one of the various stages of insolvency and require straightforward solutions to bring their tenancy to an end. Often landlords wish to;