What Happened
As 2024 gets underway, 2023 will be remembered as the year that King Charles III’s coronation captured our attention with its many (and occasionally bizarre) storied traditions and customs and, of course, for the passing of the Irish singer and poet Shane MacGowan.1 Turmoil in the European banking sector early in the year set the tone for a challenging year, while across the Atlantic, a number of regional US banks had their
Darty Holdings SAS v Carton-Kelly(as additional liquidator of CGL Realisations Limited) [2023] EWCA Civ 1135
Overview
What Happened
Summary
A real, as opposed to remote, risk of insolvency is not necessarily enough for the duties of a board of directors to switch from being owed to its shareholders to being owed to its creditors.
To a layperson this may came as a surprise. But, to those familiar with the secondary loan market, it is confirmation of existing law.
A “vulture fund”– including a newly incorporated company with a share capital of only £1 that has not traded and has been established for the purpose of acquiring a defaulted loan with a view to realising more by enforcing than had been expended on acquiring the debt can be a “financial institution” for the purposes of the transfer provisions of a loan agreement.
Administrators can be validly appointed to a company by the holder of a floating charge which was given by the company in breach of a negative pledge in favour of an existing secured creditor and even if, both at the time of the purported creation of that floating charge and on the day of the purported appointment of administrators, the company had no assets which were the subject of the floating charge.
In recent years, several foreign companies have used the English law scheme of arrangement as a flexible restructuring method to compromise creditor claims. The decision of the High Court in the latest of these cases, that of the German company Rodenstock GmbH, clarifies that an English court will accept jurisdiction where the only connection to England is that the company’s finance documents were governed by English law.
One of the many issues which arose from the collapse of Lehman Brothers was whether “flip provisions”, which reverse a swap counterparty’s priority in the order of payment on insolvency, were invalid on the basis that they contravened the anti-deprivation principle. This is a long-established common law principle which seeks to prevent an insolvent party from arranging its affairs to frustrate the legitimate claims of creditors.