There has always been a tension between protecting the interests of defined benefit pension schemes and insolvency given on the one hand The Pensions Regulator (TPR) seeks to protect the interests of pension scheme members and the Pension Protection Fund and on the other, the insolvency regime seeks to protect the interests of creditors as a whole.

This week’s TGIF considers a recent decision of the Federal Court where a special purpose liquidator was appointed to investigate suspected illegal phoenix activity.

WHAT HAPPENED?

The company formerly known as Intelara Pty Ltd (Intelara) was wholly owned by and had common directors with Intelara Holdings Pty Ltd (Holdings). The directors of both companies were also the shareholders of Holdings.

We are yet to see the true impact of Christmas trading in the retail industry although HMV is already a victim of the tough conditions for retailers. Additionally, Boots has announced a fall in sales and the launch of a “transformational costs management program” to save more than $1 billion and Next has confirmed that profits in store have fallen and although online sales are up, the uncertainty about the UK economy after Brexit makes forecasting difficult. Only one thing is clear – consumers remain at risk in the event of a retail business entering administration.

This week’s TGIF considers Re Broens Pty Limited (in liq) [2018] NSWSC 1747, in which a liquidator was held to be justified in making distributions to creditors in spite of several claims by employees for long service leave entitlements.

What happened?

On 19 December 2016, voluntary administrators were appointed to Broens Pty Limited (the Company). The Company supplied machinery & services to manufacturers in aerospace, rail, defence and mining industries.

This week’s TGIF considers Australian Worldwide Pty Ltd v AW Exports Pty Ltd where the Court awarded security for costs against plaintiff companies in liquidation, despite a litigation funder’s indemnity against adverse costs.

Background

Following the Enterprise Act 2002, the preferential status which HMRC had enjoyed in an insolvency was abolished, rendering HMRC the same as any other unsecured creditor. The effect of this was to swell the pot of assets available to be applied to all unsecured creditor claims.

Philip Hammond announced in Monday’s budget that HMRC’s preferential status is to be restored. What does this mean for HMRC and unsecured creditors?

The Budget provided that:

On 26 August, the Government announced that it will be making changes to UK insolvency legislation. The changes are intended to support distressed companies and address issues highlighted by major company failures and include:

The Ministry of Justice is seeking feedback from key stakeholders on the impact of Part 2 of the LAPSO reforms, which abolished the recoverability of success fees under CFAs and after the event insurance premiums.

Until April 2015 insolvency claims were exempt, enabling insolvency practitioners to pursue claims and if successful recover any success fee and more importantly after the event insurance premiums. There was concern at the time, that by abolishing the ability to recover the premium that insolvency claims would be stifled.

The Department for Work and Pensions has issued a consultation paper which seeks to strengthen the powers of TPR in connection with defined benefit pension plans, coming in response to recent corporate failures which had pension plans with significant deficits.

The proposals introduce four new “notifiable events” in addition to those that already exist, the introduction of hefty (potentially unlimited) fines, through the introduction of new civil and criminal penalties and widening the net of those potentially liable for an offence, to include directors.

The revised Insolvency Practice Direction has been published and approved with effect from 4 July. This replaces the PD published in April this year. The revisions (primarily dealing with the distribution of specialised insolvency work) widen the scope of work which can be undertaken in local courts, whilst also giving the ability to transfer insolvency cases back to the local hearing centres if there is sufficient expertise to deal with the matter.