From 1 December 2020 onwards, HMRC will be treated as a preferential creditor of companies for certain taxes including PAYE, VAT, employee NICs and Construction Industry Scheme deductions. In the event that a company enters administration or liquidation, HMRC's claim for these taxes will rank ahead of any floating charge holder.
This reflects recent changes made to the Finance Act 2020.
The impact on floating charge holders
On 13 January 2021, the English High Court sanctioned three interconditional Part 26A restructuring plans for the subsidiaries of DeepOcean Group Holding BV.
The plans for two of the companies were approved by the required 75% majority. While the third plan received 100% approval by secured creditors, only 64.6% of unsecured creditors voted in favour.
Consequently, at the sanction hearing the court was required to consider whether the cross-class cram down mechanism in the restructuring plan should be engaged for the first time in the UK.
On 11 February 2021, the English High Court confirmed in gategroup Guarantee Limited that restructuring plans are insolvency proceedings so are not covered by the Lugano Convention.
One of the debt instruments subject to the gategroup restructuring plan contains an exclusive Swiss court jurisdiction clause. Under the Lugano Convention, proceedings relating to "civil and commercial matters" must generally be brought in the jurisdiction benefitting from the exclusive jurisdiction clause.
In Uralkali v Rowley and another [2020] EWHC 3442 (Ch) – a UK High Court case relating to the administration of a Formula 1 racing team – an unsuccessful bidder for the company's business and assets sued the administrators, arguing that the bid process had been negligently misrepresented and conducted.
The court found that the administrators did not owe a duty of care to the disappointed bidder. It rejected the claimant's criticisms of the company’s sale process and determined that the administrators had conducted it "fairly and properly" and were not, in fact, negligent.
In Uralkali v Rowley and another [2020] EWHC 3442 (Ch) – a UK High Court case relating to the administration of a Formula 1 racing team – an unsuccessful bidder for the company's business and assets sued the administrators, arguing that the bid process had been negligently misrepresented and conducted.
The court found that the administrators did not owe a duty of care to the disappointed bidder. It rejected the claimant's criticisms of the company’s sale process and determined that the administrators had conducted it "fairly and properly" and were not, in fact, negligent.
The Court of Appeal’s decision in the case of Heis v MF Global highlights the importance of documenting just who has responsibility for contributing to a defined benefit pension scheme.
EIS AND OTHERS V MF GLOBAL UK SERVICES LTD (IN ADMINISTRATION) [2016] EWCA CIV 569, [2016] ALL ER (D) 125 (JUN)
In April 2015, the Supreme Court dismissed an appeal bought by The Trustees of the Olympic Airlines SA Pension and Life Assurance Scheme ("the Scheme") and held that Olympic Airlines SA ("Olympic Airlines") did not have an "establishment" in the UK when the Trustees presented a winding up petition in England on 20 July 2010.
The significance of the decision is that without a "qualifying insolvency event", the Scheme would not enter the Pension Protection Fund ("PPF") and is of significance for any defined benefit pension scheme of a UK branch office of an overseas company.
The Supreme Court has ruled that Financial Support Directions issued by the Pensions Regulator against insolvent companies can be claimed as provable debts in the insolvency process. The previous decisions of the High Court and Court of Appeal that they were to be paid as insolvency expenses have been overruled.
The decision was handed down in the Court’s judgment on the latest appeal in the long-running Nortel and Lehman saga, which arose out of a grey area in the elaborate statutory system for the funding of defined benefit pension schemes.