We are again reminded that the clear terms of a written contract—even if they might yield a surprising result—will govern. For those who don’t bother to read the “clickwrap” terms and conditions when, for example, signing up for the new online game or entrusting millions in crypto currency, those controlling terms may surprise. Parties in any transaction cannot just assume that the “boilerplate”—whether a make-whole in a note, a subordination provision in a credit agreement, or terms and conditions in a customer agreement—will be acceptable.

In previous alerts in this series, we have discussed how transformative DAOs can be for corporate formation and tax status. We have discussed how determining a DAO’s classification—whether a DAO is a legal entity and, if so, what type—is vital before any legal proceeding.

Directors resign for many reasons. For example, there may be disagreements among stakeholders about the future course of the company, they may be concerned about the risks associated with financial difficulty/insolvency, or they may just wish to retire.

With priming transactions experiencing a resurgence over the past few years, there have been a number of different routes taken by lenders with one goal in mind - Assemble a majority position and exchange, refinance or otherwise abandon their existing positions to move up the capital structure, which in turn helps increase their blended return on their exposure to a borrower and prevents a different configuration of investors from grabbing the “high ground” above them.

This is one of a series of articles we at Morton Fraser are producing to guide our clients through the wholesale change proposed in Scots law in relation to security over goods, intellectual property and shares, on the one hand, and invoice finance or the purchase of receivables, on the other. For a general introduction to what the Bill covers, see here.

UK Government introduces a temporary increase to minimum debt level required for a winding up petition

Restrictions have been in place since the start of the pandemic to prevent creditors taking steps to wind up debtor companies. Those restrictions are due to expire on September 30, 2021. To lessen the risk of October seeing a mass rush by creditors seeking to wind up their debtors, the UK Government has introduced a further temporary measure in connection with liquidation petitions.

In this two part article we highlight for directors some of the main ways in which the general protection of limited liability does not apply or can be lost.

Part one of this article discusses those exceptions to the principle of limited liability that arise in insolvency or distress situations. Part two deals with the provisions that have more general applicability.

Breach of duties

Limited liability is one of the fundamental concepts in our understanding of company law. Even people who know very little about the working of limited companies may know that directors and shareholders are not liable for the debts of their companies. For the last 160 years, the protection of limited liability has been a key factor in economic growth and commercial activity as it has allowed entrepreneurs to speculate and take risks that they might not have been willing to do if the risk of personal liability overshadowed their decision-making.

One of the main differences in insolvency law between Scotland and England & Wales relates to the challengeable transactions regime under the Insolvency Act 1986.

In both jurisdictions, transactions that are entered into before a formal insolvency process begins can be attacked if they are detrimental to the creditors of the insolvent company. However, although both systems use similar language and address similar concerns, the law in the two jurisdictions is different, most notably with different time periods and defences to a challenge.

The pandemic has created a chaotic business environment in which it is has at times been practically impossible to make any definitive plans. Lockdown measures have changed regularly, legislation has been introduced and extended and the rules for conducting business (when it is even possible to trade) have varied across the UK and have at times been criticised by those most harshly effected as being arbitrary and unscientific. All of this has often happened at very short notice.