Accountability is the major theme of the recent government consultation regarding ‘Insolvency and Corporate Governance’, which follows high profile failures such as BHS and Carillion. The consultation contains proposals relating to four main areas as set out below.

Sales of businesses in distress

The proposal represents a significant extension of the current duties owed by directors. Under the proposal, a director of a parent company may be held liable for losses following a sale of a subsidiary if:

98% of the liabilities of Lehman Brothers International (Europe) (in administration) (“LBIE”) were denominated in non-sterling currencies. The fall in sterling after LBIE entered administration resulted in significant paper losses for creditors, which they sought to recover from the LBIE estate. The recent decision of the UK Supreme Court in Waterfall I refused to recognize such claims.*

The European Commission (EC) announced proposals on 22 November 2016, which are intended to harmonise national insolvency laws across the EU through a proposed directive “on preventative restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures” (Directive). The Directive will need to be passed by the European Council and European Parliament. Then, EU Member States would be required to adopt the Directive’s provisions into their respective national laws within two years from the date of its entry into force.

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

The Residential Tenancies (Amendment) Act 2015 has undoubtedly strengthened the position of tenants and increased the responsibilities and challenges facing receivers appointed by secured lenders over residential investment properties. While the added protections for tenants are to be welcomed, certain provisions of the Act result in relatively onerous obligations on receivers who are already faced with practical difficulties when seeking to deal with and realise the secured asset in accordance with their duties.

The High Court has reiterated that cross-examination will not generally be permitted on an interlocutory application, or where there is no conflict of fact on the affidavits.

In McCarthy v Murphy,^[1] the defendant mortgagor was not permitted to cross-examine the plaintiff (a receiver) or a bank employee who swore a supporting affidavit.

Background

Two recent judgments have brought further clarity in relation to the rights acquirers of loan portfolios to enforce against borrowers:

In AIB Mortgage Bank -v- O'Toole & anor [2016] IEHC 368 the High Court determined that a bank was not prevented from relying on a mortgage as security for all sums due by the defendants, despite issuing a redemption statement which omitted this fact.

In order to understand this case, it is necessary to set out the chronology of events:

The European Court of Justice has held that a director of an English company can be liable for breach of German company law where insolvency proceedings are opened in Germany.

In a recent High Court decision, the validity of the appointment of joint receivers by ACC Loan Management Limited by deed under seal was upheld, and an order for possession in favour of those receivers was made.