When an individual files a Chapter 7 bankruptcy case, the debtor’s non-exempt assets become property of the estate that is used to pay creditors. “Property of the estate” is a defined term under the Bankruptcy Code, so a disputed question in many cases is: What assets are, in fact, available to creditors?

Executive summary

On a UK company’s insolvency, the UK tax authority (HMRC) will become a preferential creditor in respect of certain unpaid taxes (Crown Preference) with effect from 1 December 2020. Despite lobbying against the move (including in light of the COVID-19 pandemic), the UK government has persisted with the change, perhaps in an attempt to shore up its tax take.

The reform in context

EXECUTIVE SUMMARY

Executive Summary

The United Kingdom Department for Business, Energy and Industrial Strategy has announced that certain temporary measures put in place under the Corporate Insolvency and Governance Act 2020 (CIGA), which became law on 26 June 2020, will be extended.

Statutory Demands and Winding-Up Petitions

Once a Chapter 7 debtor receives a discharge of personal debts, creditors are enjoined from taking action to collect, recover, or offset such debts. However, unlike personal debts, liens held by secured creditors “ride through” bankruptcy. The underlying debt secured by the lien may be extinguished, but as long as the lien is valid it survives the bankruptcy.

A Chapter 13 bankruptcy plan requires a debtor to satisfy unsecured debts by paying all “projected disposable income” to unsecured creditors over a five-year period. In a recent case before the U.S.

Executive Summary

• New legislation will introduce permanent and temporary reforms to the UK restructuring and insolvency regime
• Permanent reforms: company moratoriums; restructuring plans; the prohibition of insolvency termination clauses in supply contracts
• Temporary reforms: suspension of the director wrongful trading offence; restriction on the service of statutory demands and winding up petitions

Overview

One of the objectives of the Bankruptcy Code is to ensure that each class of creditors is treated equally. And one of the ways that is accomplished is to allow the debtor’s estate to claw back certain pre-petition payments made to creditors. Accordingly, creditors of a debtor who files for bankruptcy are often unpleasantly surprised to learn that they may be forced to relinquish “preferential” payments they received before the bankruptcy filing.

The UK Government announced on Saturday 28 March 2020 that it intends to amend UK insolvency law to suspend the offence of wrongful trading by directors of UK companies and to give UK companies the breathing space to allow them to keep trading while they explore options for rescue.

Background

Current insolvency rules stipulate that directors of limited liability companies can become personally liable for business debts if they continue to trade when uncertain about whether their businesses can continue to meet their debts. These rules will be suspended.