Administrators of Arena Television are reportedly investigating an alleged fraud involving millions of pandemic loans, where government-backed loans were offered to businesses to help them deal with the pandemic, and are suing two of the directors for breach of fiduciary duty. More companies may be in a similar position as, according to the National Audit Office, it is likely that the level of fraud in the bounce back loan scheme ranges from £3.5bn to £4.9bn. Who can claim these ill-gotten gains?

Directors’ duties

Recent analysis by Begbies Traynor shows that more than half of UK businesses are carrying “toxic debt” that they might struggle to repay over the next 12 months. What if the company you are thinking of suing, or that is suing you, is one of them?

New restrictions contained in the Corporate Governance & Insolvency Act 2020 now in force severely impact the steps creditors can take to get payment of an undisputed debt owed by a company.

Creditors cannot now use statutory demands to threaten that a company will be wound up if it does not pay what is owed. This is because any statutory demand made between 1 March 2020 and 30 September 2020 will be void.

The recent successful appeal in Brooks and another (Joint Liquidators of Robin Hood Centre plc in liquidation) v Armstrong and another [2016] EWHC 2893 (Ch), [2016] All ER (D) 117 (Nov) has clarified and highlighted the complexities of bringing a wrongful trading claim and the importance of correctly quantifying losses for which directors can be made personally liable under section 214 and/or 246Z of the Insolvency Act 1986 (“the Act”).

The High Court has recently demonstrated its right to exercise discretion as to whether an administration order should be made in relation to a company. In Rowntree Ventures v Oak Property Partners Limited, even though the companies were unable to pay their debts and where the statutory purpose of administration was likely to be achieved, the Court exercised its commercial judgment in determining that it was premature to make an administration order.

Background

Unless you have been hiding in an igloo in Antarctica for the last year you could not possibly have missed the media furore over the huge pension liabilities of eminent companies that have become insolvent. BHS, a venerable British retailer, is the most high profile after recently entering administration with an estimated pensions deficit of £571m.

The interest rate mis-selling scandal took another twist recently when a landmark legal case was dismissed by the High Court. Had the case been successful it would have challenged the banks’ £2.1bn compensation scheme set-up to settle inappropriate interest rate swaps – however the decision only brings temporary relief for the banks.

Background

During the previous UK government’s tenure, in March 2015 a call for evidence was launched to understand better the employee consultation process when an employer faces insolvency, restructure or other form of company rescue (Call for Evidence on Collective Redundancy Consultation for Employers facing Insolvency).

The call for evidence sought views on the following areas:

Further to the review of pre-pack administration sales (“pre-packs”) by Teresa Graham CBE last year (the findings of which were published in the “Graham Report” and discussed in one of our earlier blogs,Change in Sight for UK Pre-pack Administration Regulation), the key recommendations have now been implemented in order to improve fairness and transparency especially where a pre-pack sale occurs to a connected party.

New guidance from the Pension Protection Fund (PPF) regarding pre-packaged administrations (pre-packs) outlines their approach to pre-packs when the same insolvency practitioner (IP) proposes to continue as office holder in any subsequent liquidation or company voluntary arrangement (CVA).