Following on from our recent blog on ‘How the UK General Election Might Influence the Recast Insolvency Regulation’ and whether the UK will still be part of the EU in 2017 when it comes into force, we consider the ‘hokey cokey’ of the upcoming EU referendum.

The European Advocate General has today given his opinion in the “Woolworths case” (and two other cases) on the meaning of “establishment” for the purposes of determining when the duty to consult appropriate representatives is triggered under the European Collective Redundancies Directive (the Directive).

In Europe each year there are an estimated 200,000 corporate insolvencies. More than half of the companies set up do not survive their first five years of trading and more than 1.7 million jobs are lost every year as a result. One in five of those companies will have international operations that cross national borders.

The European Union (EU) has sought to introduce an element of harmonization across its Member States, to facilitate the effective operation of cross-border insolvencies.

What happens if one party to a contract fails to perform? Can the innocent party get all of its losses back? What happens if the losses are difficult to prove?

Here, we look at what you can claim and how to protect your position.

The general rule

Damages for breach of contract are usually intended to compensate the injured party for its losses arising naturally from the breach or which were within the parties' contemplation when the contract was made.

Background

The past eighteen months have seen a marked increase in the use of the Company Voluntary Arrangement (“CVA”) by retailers to reduce their lease liabilities and win the release of onerous parent company guarantees, with several high street names going through the process. Although this practice received cautious support from landlords, real concern continues to be voiced over the practice of “guarantee stripping”.

NEW RULES ON PRE-ADMINISTRATION COSTS

Insolvency Practitioners have been eagerly awaiting the implementation on 6 April 2010 of the Insolvency (Amendment) Rules 2010 (“New Rules”). In addition to the many modernising changes made by the New Rules is the long awaited inclusion of what was believed to be a statutory entitlement to recover pre-appointment costs such as in negotiating a pre-pack. as an expense of the administration (New Rule 2.67(1)(h)).

Although service of a statutory demand or winding-up petition on a company is a blunt and unsophisticated debt recovery tool, it will often have the desired effect for a creditor as they are seldom ignored and ignored only at the company's peril. It can often prompt payment of the sum due, or judgment owed, where previously there has been prevarication and empty promises of payment.

Here is a reminder of some important issues a (solvent) company should consider if a statutory demand or petition is served upon it.

Doing nothing is not an option

The threat of insolvency proceedings against a corporate debtor can greatly assist a creditor's primary objective of getting paid, preferably in advance of everyone else. This is particularly so where the debtor is prevaricating but there is no genuine dispute that the sum in question is due and owing. Although the courts decry the use of the winding-up procedure as a means of debt collection, it is often a very effective tool.

Consider the following when faced with a corporate debtor who is refusing, without genuine reason, to settle its debts: