Analysis and Commentary on the Insolvency Statistics Q2 2023
The quarterly insolvency statistics for April to June 2023 show that corporate insolvencies across the UK1 are at a 14-year high.
Increased insolvencies appear to be continuing with the monthly statistics for both August and September 2023, showing corporate insolvency numbers were higher than the same month last year. July’s figures showed a slight decrease year on year.
Deciding the parameters of directors' personal liability for actions, or omissions, when a company continues to trade while it is or near insolvent requires a balance to be struck between allowing directors latitude to try to rescue the company and protecting the company's creditors.
Protecting your business from exposure to supplier and customer insolvency
As we move through Q1 of 2023, significant shifts are occurring in the Global financial and economic landscape which are of significant consequence for business. The marked upward shift in the cost (and reduced availability) of finance, largely unseen for over a decade, combined with high energy and natural resource/raw material costs and challenges and currency fluctuations has the potential to sharply to expose financial distress in businesses in many countries and global supply chains.
What is the so-called "creditor duty"?
This is the duty, introduced into English common law by the leading case of West Mercia Safetywear v Dodd1 in 1988, of company directors to consider, or act in accordance with, the interests of the company's creditors when the company becomes insolvent, or when it approaches, or is at real risk of insolvency.
Background
On 22 July 2022, the English High Court sanctioned Houst Limited’s (“Houst” or the “Company”) restructuring plan (the “Restructuring Plan”), which significantly, is the first time a Restructuring Plan has been used to cram down HM Revenue & Customs (“HMRC”) as preferential creditor.1
Background
On 12 January 2022, the English High Court granted Smile Telecoms Holdings Limited’s (“Smile” or the “Company”) application to convene a single meeting of plan creditors (the super senior creditors) to vote on the Company’s proposed restructuring plan (the “Restructuring Plan”). It is the first plan to use section 901C(4) of the Companies Act 2006 (“CA 2006”) to exclude other classes of creditors and shareholders from voting on the Restructuring Plan on the basis that they have no genuine economic interest in the Company.
Background
On the 19th of August 2021, the English High Court sanctioned a Part 26A restructuring plan proposed by the administrators of Amicus Finance plc (in administration) (“Amicus”) for the company’s solvent exit from administration, enabling the company to be rescued as a going concern (the “Restructuring Plan”).
On 29 September 2021, the English High Court rejected a challenge in respect of Caff Nero's company voluntary arrangement ("CVA"), brought by a landlord on the grounds of material irregularity and unfair prejudice. The single disgruntled landlord, with the backing of the EG Group ("EG") (who were interested in acquiring Caff Nero), argued that the directors of the company and the CVA nominees breached their respective duties in refusing to adjourn or postpone the electronic voting process to vote on the CVA, after EG had submitted an eleventh-hour offer for Caff Nero.
Key Takeaways