Following our 2016 article, the Court of Appeal has upheld the decision of the High Court that dividends are liable to challenge as transactions defrauding creditors under section 423 of the Insolvency Act 1986 (the “IA”).

The Land and Conveyancing Law Reform (Amendment) Bill 2019 (the “Bill”) proposes to broaden the factors that the courts can consider in refusing orders for possession sought by lenders.

The Bill has its roots in the Keeping People in their Homes Bill, 2018, introduced by Kevin “Boxer” Moran T.D., as a private member’s bill. However, the Bill does not go as far as Mr Moran’s bill and, for instance, does not require disclosure of the price paid by a purchaser of the loan.

Background

Overall 2018 has produced a number of positive judgments from the perspective of lenders and insolvency practitioners.

In particular, the courts delivered many useful judgments disposing of numerous challenges to the enforceability of loans and security and, also, restricting abuse of the courts’ processes.

Contemptuous McKenzie Friends

HM Revenue & Customs (“HMRC”) has issued a consultation entitled “Tax Abuse and Insolvency: A Discussion Document” on how it proposes to confront those who misuse insolvency law as a means of avoiding or evading their tax liabilities.

In the recent case of Cash Generator Limited v Fortune and others [2018] EWHC 674 (Ch), the Court determined that non-compliance with the deemed consent procedure for nominating liquidators did not invalidate their appointment. The case provides a useful summary on the relatively new provisions governing the deemed consent procedure and welcome relief to Insolvency Practitioners (“IPs”) that a failure to fully comply with such provisions will not necessarily invalidate their appointment.

Brief facts and arguments

A recent decision of the High Court (Goel and another v Grant and another [2017] EWHC 2688 (Ch)) has provided a useful reminder that care must be taken when administrators enter into pre-contract negotiations and the risk of inadvertently entering into a binding contract before terms are finalised. It also deals with the risks of disposing of assets, even those that are difficult to value, without due process.

The Facts

Remuneration schemes involving Employee Benefit Trusts (EBTs) have become more prevalent over the last 20 years, often as a way of seeking to remunerate key employees without making pay as you earn or national insurance contributions. Given the developments highlighted below, insolvency practitioners are advised to investigate such schemes in matters coming across their desks to see whether funds can be clawed back for the benefit of creditors.

HM Revenue and Customs’ opinion on EBT schemes

The Court of Appeal has helpfully confirmed that a judgment creditor can seek an order appointing a receiver by way of equitable execution where:

• the debtor holds a legal or equitable interest in property; and
• execution against the property is not available at law by one of the usual methods, for instance via the sheriff or by a garnishee order.

There was previously doubt as to whether such a receiver could be appointed where the debtor held a legal, as opposed to an equitable interest, in property.

The High Court has recently expressed concern that distressed borrowers are being duped into paying money to the anonymous promoters of schemes, which purport to protect them from enforcement by lenders but are actually ‘utterly misguided and spurious’.

There are a number of schemes being promoted at the moment that supposedly protect borrowers in arrears from enforcement by their lender.

Simple retention of title clauses are commonplace and generally effective in contracts for the sale of goods. However, extending their effect to the proceeds of sale of such goods requires careful drafting.

The Court of Appeal has provided some further clarity around the creation and effects of fiduciary obligations in relation to such clauses.[1]

Proceeds of sale clauses