In both jurisdictions the general consensus was that where a company is insolvent, the fiduciary duty of its directors to act in the interest of the company (Irish law), or in the way they consider, in good faith, would be most likely to promote the success of the company in the interests of its members as a whole (English law), altered such that directors were required to treat creditors' interests in priority to shareholders' interests. Directors must consider the interests of creditors as a whole, and not just the interests of any individual creditor or class of creditors.

Summary

The Supreme Court held that when directors know, or ought to know, that the company is insolvent or bordering on insolvency, or that an insolvent liquidation or administration is probable, they must consider the interests of creditors, balancing them against the interests of shareholders where they may conflict. The greater the company’s financial difficulties, the more the directors should prioritise the interests of creditors.

Background

The director of an insolvent company appealed a restriction order made against him. The order prevented the appellant from acting as a company director or secretary for a 5-year period under section 819 of the Companies Act 2014 (the “2014 Act”). The Court of Appeal dismissed the appeal as the appellant failed to satisfy the court that he acted responsibly in the conduct of the company’s affairs.

The EU Directive on Preventive Restructuring Frameworks (the“Directive”) precipitated a pan-European review by Member States of their corporate restructuring statutes. Several Member States (including Germany and the Netherlands), as well as the United Kingdom, made sweeping changes to their insolvency processes, in some cases introducing entirely new restructuring mechanisms. By contrast, Ireland preserved its examinership regime, introduced over 30 years ago.

On 22 July 2022 and after the judge ordered a delay for more evidence, the English court sanctioned the restructuring plan proposed by Houst Limited (Houst). Houst is an SME that is concerned with the provision of property management services for short-term/holiday lets. Its business was badly affected by the Covid-19 pandemic, meaning it was both cash flow and balance sheet insolvent when proposing the plan.

Cryptoassets continue to be in the spotlight with prices no longer heading ‘to the moon’, the recent high-profile failure of an algorithmic stablecoin and the difficulties experienced by various service providers. This all forms the backdrop to the UK Government’s publication of proposals with respect to managing the failure of systemic digital settlement asset firms.

Overview

On 18 March 2021, the UK Government published its white paper on restoring trust in audit and corporate governance. On 31 May 2022, the Government published its response to the consultation.

On 30 March 2022, the English court sanctioned the most recent restructuring plan proposed by Smile Telecoms Holdings Limited (Smile).

Pandemic related restrictions on winding up companies come to an end.

On 25 January 2022, the Financial Conduct Authority (FCA) published draft guidance on how it will approach ‘compromises’ by regulated firms. The guidance is expressed to cover restructuring plans, schemes of arrangement and CVAs.