In this three part blog we highlight three recent court decisions concerning landlord rights and insolvency, which provide cautionary warnings and surprising twists. The questions we consider are:
- Does a company voluntary arrangement (“CVA”) permanently vary the terms of a lease?
- Can a landlord be forced to accept a surrender of a lease?
- What are the consequences of taking money from a rent deposit if the tenant company is in administration?
In part 1 we consider the first question.
Dealing with pensions in insolvency can be challenging for insolvency practitioners (“IPs”) and the Pension Scheme Bill (“Bill”) presents another.
Whilst a prudent insolvent practitioner should not be unduly alarmed, s114 of the Bill inserts a new section 80B into the Pensions Act 2004 which gives the Pensions Regulator (tPR) power to issue insolvency practitioners with a fine of up to £1 million.
A significant amount, and payable personally!
Can a CVA bind a landlord in respect of future rents? Is the landlord a creditor in respect of future rent? What about the right to forfeit; can a CVA modify that right? Is compromising rent under a CVA automatically unfair to landlords when other trade creditors are paid in full?
These were some of the points considered by the Court in determining whether the Debenhams’ CVA (which had been challenged by landlords) should fail.
One point of particular interest is whether reducing rents below market value in a CVA is automatically unfair to landlords?
Today the Government published draft provisions for inclusion in the Finance Bill which will amend the Insolvency Act 1986 and grant HMRC preferential status on insolvency. A status that was removed in 2003 but which will be re-instated (in part) from 6 April 2020.
Despite huge concern from the lending market, voiced in responses to the Government’s consultation on this measure, the only material change we can see is confirmation that preferential status will not apply to insolvency proceedings commenced before 6 April 2020.
In Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ___ (2019), the Supreme Court held that a debtor’s rejection of a trademark license does not eliminate the licensee’s right to use the trademark through the completion of the contract, settling a split in the Circuits. The Supreme Court also ruled that the case was not moot, despite the bankruptcy estate’s distribution of all of its assets, which may have important implications for the developing jurisprudence on mootness in bankruptcy cases.
The proposal to reinstate Crown preference in insolvency has met resistance from all angles; the insolvency profession, turnaround experts, accountants, lawyers and funders. But despite HMRC’s bold statement in its consultation paper that the re-introduction of Crown preference will have little impact on funders, it is clear following a discussion with lenders that it may well have a far wider impact on existing and new business, business rescue and the economy in general than HMRC believes.
In In re 1141 Realty Owner LLC, et al., No. 18-12341 (SMB), 2019 WL 1270818 (Bankr. S.D.N.Y. March 18, 2019), Bankruptcy Judge Stuart M. Bernstein of the U.S. Bankruptcy Court of the Southern District of New York recently reaffirmed that upon sufficient contractual language, "make whole" prepayment premiums are enforceable under New York law even after loan acceleration. The court emphasized that the language of the contract provided for such a result and that this was an enforceable liquidated damages clause under New York law.
In a unanimous 25 February panel decision, the Second Circuit Court of Appeals held that the trustee liquidating Bernard L. Madoff’s investment firm can claw back billions in Ponzi scheme proceeds from investors who received the proceeds indirectly through non-U.S. “feeder funds” (funds that aggregate investor capital to invest in funds such as Madoff’s).
In a recent decision, EMA GARP Fund v. Banro Corporation, No. 18 CIV. 1986 (KPF), 2019 WL 773988 (S.D.N.Y. 21 February 2019), District Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York enforced a foreign reorganization plan in the United States on the basis of international comity, notwithstanding that no application for recognition and enforcement had been made under Chapter 15 of the U.S. Bankruptcy Code. Banro Corp.
In a unanimous 25 February panel decision, the Second Circuit Court of Appeals held that the trustee liquidating Bernard L. Madoff's investment firm can claw back billions in Ponzi scheme proceeds from investors who received the proceeds indirectly through non-U.S. "feeder funds" (funds that aggregate investor capital to invest in funds such as Madoff's).