Beware of Demand Letters

An immediate concern for any company is a threat to present a winding up petition made in an email or letter – regardless of the size of debt, whether the debt is disputed or the company has a counterclaim.

The consequences of ignoring such a threat can have an immediate and adverse impact on a business. Failure to respond can be used as evidence that the company is unable to pay and that can be used as evidence to support presentation of a winding up petition.

The court orders a disqualified director of an insolvent company to pay personal compensation to creditors.

This is only the second time the courts have considered a personal compensation order against a disqualified director since their introduction in 2015.

What happened?

Secretary of State v Barnsby [2023] EWHC 2284 (Ch) concerned an individual who was the sole director and majority shareholder of a company that sold package holidays.

The High Court has considered the point at which the directors’ duty to consider the interests of creditors arose in the context of a tax mitigation scheme that ultimately failed

The judge found that the duty to consider creditors’ interests had arisen once the directors had become aware that there was a real risk that the scheme would fail and that the company would therefore be unable to pay its debts.

A floating charge debenture holder has the advantage that they can enforce their security by appointing their choice of administrators. This is a powerful and useful tool for lenders but is subject to the caveat that the debenture has to be “qualifying”.

On 7 July 2022, the UK Government published a consultation on changing UK law to implement two model laws in the field of insolvency that have been adopted by the United Nations Commission on International Trade Law (UNCITRAL). These are:

Snapshot

The Restructuring Plan (Plan) was introduced as part of the UK Corporate Insolvency and Governance Act 2020, which introduced a new part 26A into the Companies Act 2006 (CA 2006). The part 26A Plan provisions are largely based on the existing scheme of arrangement rules detailed under part 26 of the CA 2006, and it is often referred to as the “super scheme”.

Plans now sit alongside schemes of arrangement and company voluntary arrangements (CVAs) to provide a further restructuring option for companies and insolvency practitioners alike.

‘If, at first, you don’t succeed, then try and try again’ is a fitting description for HMRC’s recent approach to restructuring plans, with its opposition of plans proposed by The Great Annual Savings Company (GAS) and Nasmyth Group Limited (Naysmyth).

The GAS sanction hearing (which is due to take place this week) will be the first time that HMRC has taken an active role contesting a restructuring plan at sanction following the case of Houst where the Court exercised its discretionary power to “cram down” HMRC.

With all the market turmoil and headlines about insolvencies or potential insolvencies in the financial sector and the wider markets, and potential rescue of stressed/distressed entities, many clients are concerned, and should be thinking, about the potential impact of these developments on their derivatives (commonly documented under an ISDA master agreement (an ISDA)) and, in particular: (a) if the relevant event constitutes a default, potential event of default, event of default or termination event or, alternatively, will trigger automatic early termination, under their ISDAs with their

This article provides information regarding what will now happen to the operations and business of the UK arm of Silicon Valley Bank (SVB UK) after the sale (the Sale) of SVB UK to HSBC’s ring-fenced UK subsidiary, HSBC UK Bank plc (HSBC).

The Bank of England (the BoE) will apply to put the UK arm of Silicon Valley Bank (SVB UK) into Bank Insolvency, which is a modified version of liquidation under Part 2 of the Banking Act 2009, on Sunday 12 March 2023 unless a buyer can be found for SVB UK’s business and assets.

The situation remains fluid and this represents our advice based on public announcements by the BoE and SVB UK that we are aware of as at 12pm on 12 March 2023.