Savers who become bankrupt but have not yet drawn their pensions will not have to hand them to creditors after a ruling of the Court of Appeal put an end to fears that pension pots were at risk.

The Court of Appeal upheld the High Court’s ruling on Horton v Henry, originally heard in 2014, settling legal difficulties arising from a conflicting judgment of Raithatha v Williamson (2012); and the introduction of the pension freedoms.

In our previous bulletin we discussed the ‘safe harbour’ model in the Government’s suggested reforms to the current insolvency laws.

This bulletin considers another of the focus questions in the Proposal Paper: the voiding of ipso facto clauses relating to insolvency events.

Background

On 29 April 2016, the Federal Government released a Proposals Paper titled ‘Improving bankruptcy and insolvency laws’.

The Government is proposing these reforms to encourage entrepreneurship and investment. It hopes to reduce the stigma and detriment around failed business ventures, while still balancing the need to protect creditors.

The senior board members (other than Sir Philip Green) are next to face the committees comprising Lord Grabiner, non-executive chairman of Traveta Investments Limited and Traveta Investments (No 2) Limited; Ian Grabiner, CEO of Arcadia; Paul Budge, FD of Arcadia and former BHS board member; Gillian Hague, group financial controller of Arcadia; and Chris Harris, group property director for Arcadia. This group of individuals (other than Lord Grabiner and Ian Grabiner) together with Sir Philip Green comprised the Traveta board’s sub-group responsible for negotiating the sale of BHS.

The adviser group 2 session on Monday 23 May comprised Owen Clay, corporate lawyer for Arcadia and Traveta (Linklaters); Steve Denison, auditor of Traveta and its subsidiaries, including BHS (PwC); and Anthony Gutman, ‘informal’ adviser to the Arcadia Group (Goldman Sachs).

The questioning focused on the solvency position of BHS at the time of the acquisition, the level of due diligence undertaken on the eventual acquirer (Retail Acquisitions Ltd) and the recognition of the pensions deficit in the deal negotiation.

Monday 23 May saw the turn of the advisers. This update concentrates on what we will call “adviser group 1” comprising Emma King, the trustees pension lawyer (Eversheds); David Clarke, covenants adviser to the trustees (KPMG); Tony Clare, restructuring pensions adviser to Taveta Investments Limited, the previous owner of BHS (Deloitte); Ian Greenstreet, pension lawyer to Taveta Investments Limited (Nabarro); and Richard Cousins, the independent actuary to the Taveta group (PWC).

Where a court has ordered the winding-up of a company, a shareholder may be able to have the winding up terminated under section 482 of the Corporations Act 2001.

Relevant factors

The power of the court to terminate a winding-up is discretionary. Relevant factors to be considered, which are not exhaustive, include the following:

Help is at hand for insolvency practitioners (IPs) who need clarification on the Regulator’s views on scheme trustee appointments and statutory notices. The Pensions Regulator recently released a statement intended to assist IPs to understand these two areas which are of particular relevance to them.

TRUSTEES

The statement deals with scheme trustee appointments in four areas:

If a director can exercise a right of set-off against a company in liquidation for a debt owed to the director or for a liability of the company to the director (which may be unascertained in amount or contingent), it may help to cancel out or significantly reduce the director’s liability to the company for insolvent trading.

In Allco Funds Management Limited v Trust Co (Re Services) Ltd [2014] NSWSC 1251, an inter-company loan transaction was challenged by a receiver appointed by the secured creditor to one of the companies. Common directors were involved in the transaction. The issue was whether the directors breached their fiduciary duties entitling the company via the receiver to have the transaction set aside.

The background to the case