The Supreme Court has been given its first opportunity to “address the existence, scope and engagement of an alleged duty of company directors to consider, or to act in accordance with, the interests of the company’s creditors when the company becomes insolvent, or when it approaches, or is at real risk of, insolvency”. The corporate restructuring and insolvency community has been waiting for this “momentous” judgment with anticipation for the last 17 months.
The facts of the case:
Imagine that IPs have been appointed as administrators of an aerospace engineering company that operates around the world. The company was financially stressed before the COVID-19 pandemic and then sales dried up. With no reasonable prospect in sight, the directors filed for administration and questions have since been raised about how the directors conducted the company’s affairs shortly before it entered administration.
Introduction and points for consideration by trustees
The Key Provisions
After much delay, the Third Parties (Rights Against Insurers) Act 2010 (the “Act”) will come into force on 1 August 2016. The essential purpose of the act is to aid claimants in procuring recoveries from the insurers of insolvent defendants.The Key Provisions
This will be of particular use to businesses that frequently find themselves in litigation with financially weak defendants. However, insolvency practitioners should also take note of the Act as it places new obligations on them.
The Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act) will finally come into force from 1 August 2016.
The Act improves the rights of claimants who have a claim against an insolvent company or individual to directly claim against the insolvent party’s insurer.
In particular, the 2010 Act brings about the following important changes:
The Supreme Court has confirmed in Jetivia v Bilta that where a company brings a claim against its directors for losses caused by their wrongdoing, the directors cannot escape the claim by arguing that their actions are attributed to the company itself.
The Supreme Court also held that s.213 of the Insolvency Act, (which permits the Court to take action against those who have conducted the business of a company in order to defraud creditors) was not jurisdictionally confined and applied to people and companies resident outside the UK.
Heads of Terms’ or ‘Memoranda of Agreement’ (“MoA”) are commonly agreed by parties as a precursor to entering into more substantial agreements.
MoA are often intended by the parties to be broad statement of commercial intent to enter into a contract, rather than having contractual force themselves. Accordingly, MoA are often drafted with a more relaxed attitude towards their contents
However, no matter what the parties may have intended, a MoA can easily amount to a contract depending on its drafting, exposing the parties to unintended liabilities.