UK Government introduces a temporary increase to minimum debt level required for a winding up petition
Restrictions have been in place since the start of the pandemic to prevent creditors taking steps to wind up debtor companies. Those restrictions are due to expire on September 30, 2021. To lessen the risk of October seeing a mass rush by creditors seeking to wind up their debtors, the UK Government has introduced a further temporary measure in connection with liquidation petitions.
Insolvency practitioners and buyers of distressed assets beware: although the National Security and Investment Act 2021 (NSI Act) will come into effect in the UK on 4 January 2022, it has retrospective power to examine transactions from 12 November 2020.
Mandatory notification
Insolvency practitioners and buyers of distressed assets beware: although the National Security and Investment Act 2021 (NSI Act) will come into effect in the UK on 4 January 2022, it has retrospective power to examine transactions from 12 November 2020.
Mandatory notification
In this two part article we highlight for directors some of the main ways in which the general protection of limited liability does not apply or can be lost.
Part one of this article discusses those exceptions to the principle of limited liability that arise in insolvency or distress situations. Part two deals with the provisions that have more general applicability.
Breach of duties
Limited liability is one of the fundamental concepts in our understanding of company law. Even people who know very little about the working of limited companies may know that directors and shareholders are not liable for the debts of their companies. For the last 160 years, the protection of limited liability has been a key factor in economic growth and commercial activity as it has allowed entrepreneurs to speculate and take risks that they might not have been willing to do if the risk of personal liability overshadowed their decision-making.
One of the main differences in insolvency law between Scotland and England & Wales relates to the challengeable transactions regime under the Insolvency Act 1986.
In both jurisdictions, transactions that are entered into before a formal insolvency process begins can be attacked if they are detrimental to the creditors of the insolvent company. However, although both systems use similar language and address similar concerns, the law in the two jurisdictions is different, most notably with different time periods and defences to a challenge.
The pandemic has created a chaotic business environment in which it is has at times been practically impossible to make any definitive plans. Lockdown measures have changed regularly, legislation has been introduced and extended and the rules for conducting business (when it is even possible to trade) have varied across the UK and have at times been criticised by those most harshly effected as being arbitrary and unscientific. All of this has often happened at very short notice.
As a result of temporary provisions that have been in place since March 2020*, during the Covid period directors have been broadly protected from the risk of personal liability for wrongful trading. Those temporary provisions are due to end on 30 June, 2021 and as a result, the law on wrongful trading again becomes highly relevant.
We are hopefully now beginning to move out of the various lockdowns and restrictions that have been put in place to deal with the pandemic.
As things begin to return to some form of "normality", businesses might begin to feel some sort of relief. However, the inevitable consequence of normality returning is that some of the temporary rules that have been put in place to assist businesses through these difficulties will fall away.
On 23 March 2021, the 2011 sale of the One Blackfriars development site in London by administrators was cleared of misfeasance by the High Court, in Re One Blackfriars Ltd [2021] EWHC 684 (Ch).
In a £250 million claim, the company's liquidators had alleged that the former administrators had breached their duties by failing to act independently of the banking syndicate which appointed them, failing to properly assess the value of the site, and selling the site at an undervalue.
Here, we recap the facts of the case and outline the key takeaways to consider.