It’s autumn and time to put that box-set viewing on pause and perhaps instead review the likely direction of travel of the “zombie” army of distressed businesses. How do you avoid contagion?

Unless you hibernated during the various lockdowns you will not have failed to notice that the impact of Brexit, the Covid-19 pandemic, and lockdown measures took their toll on spending, incomes and jobs, tipping the UK economy into recession after negative growth in the first two quarters of 2020.

Shareholders in FTSE 250 company TI Fluid Systems yesterday voted down the company’s proposal to pay a £27 million dividend. In a highly unusual move, 57 per cent of shareholders in the motor part manufacturer used their votes to block the dividend payment which had been recommended by the board just four days earlier. It followed critical media coverage of the proposal, which centred on the fact that the company was making the payment while furloughing staff and cutting workers’ pay and would have resulted in a payment of almost £15 million to US private equity firm Bain Capital.

On 28 March 2020, business secretary Alok Sharma announced plans to reform insolvency law to add new restructuring tools, including:

The Chancellor has committed to doing “whatever it takes” to save businesses and workers and, as part of a raft of measures, has pledged to pay 80% of staff kept on by employers.

A misfeasance claim under section 212 of the Insolvency Act 1986 (IA) is often a race against time to gather evidence and bring a claim before the limitation period expires. Not only can the breach pre-date the liquidation by years, but the difficulty is even greater where there is a maze of group companies and intra-group transfers. It takes time to properly work out whether a simple transfer of assets between group companies is actually a corporate shield hiding misappropriated assets.

(Bankr. S.D. Ind. Dec. 4, 2017)

The bankruptcy court grants the motion to dismiss, finding the defendant’s security interest in the debtor’s assets, including its inventory, has priority over the plaintiff’s reclamation rights. The plaintiff sold goods to the debtor up to the petition date and sought either return of the goods delivered within the reclamation period or recovery of the proceeds from the sale of such goods. Pursuant to 11 U.S.C. § 546(c), the Court finds the reclamation rights are subordinate and the complaint should be dismissed. Opinion below.

(Bankr. E.D. Ky. Nov. 22, 2017)

(B.A.P. 6th Cir. Nov. 28, 2017)

The Sixth Circuit B.A.P. affirms the bankruptcy court’s dismissal of the Chapter 12 bankruptcy case. The court finds that the bankruptcy court failed to give the debtor proper notice and opportunity to be heard prior to the dismissal. However, the violation of due process was harmless error. The delay in filing a confirmable plan and continuing loss to the estate warranted the dismissal. Opinion below.

Judge: Preston

Attorney for Appellant: Heather McKeever

(6th Cir. Nov. 14, 2017)

(Bankr. W.D. Ky. Nov. 1, 2017)

The bankruptcy court grants the creditor’s motion for stay relief to proceed with a state court foreclosure action. The creditor had obtained an order granting stay relief in a prior bankruptcy filed by the debtor’s son, the owner of the property. The debtor’s life estate interest in the property does not prevent the foreclosure action from proceeding. Opinion below.

Judge: Lloyd

Attorney for Debtor: Mark H. Flener

Attorney for Creditor: Bradley S. Salyer