An interview with Mark Byers, Partner and Head of Strategic Relationships, Grant Thornton

What insolvency trends were you seeing before the pandemic?

The decision provides new judicial guidance for determining the boundaries of cross-class cram down tests. 

On 28 June 2021, the High Court declined to sanction a restructuring plan proposed by Hurricane Energy plc (Hurricane), an AIM listed oil drilling company, under Part 26A of the Companies Act 2006 (Act). The plan would have seen shareholders diluted to 5% of Hurricane’s equity, with the remaining 95% issued to bondholders as consideration for a partial debt-for-equity swap. 

As the measures in the UK designed to protect businesses from insolvency draw to an end, what guidance can be taken from Australia where similar measures ended a few months ago?

Given the global pandemic, it's somewhat unsurprising that the UK's loss of access to the EU Regulation on Insolvency Proceedings (EUIR) has received relatively little press.

After all, what with the state support of furlough and loan schemes along with the temporary suspension of winding up petitions and wrongful trading rules, as well as the ban on landlords evicting commercial tenants formal insolvencies in the UK have "just dried up" says HFW fraud and insolvency co-head Rick Brown.

The ruling confirmed that Section 423 of the Insolvency Act 1986 has extensive international reach, and does not require a transaction at an undervalue to leave the debtor with insufficient assets.

Background

What were the main insolvency and restructuring trends you were seeing pre-pandemic?

A challenging economic environment and Covid-19 are behind a looming wave of contentious insolvency in the Middle East. The legislative framework in the UAE now provides the tools to creditors to face the challenge.

Few things go together as naturally as fraud and insolvency. The pattern is now well rehearsed: scams pile up unnoticed while money flows in the good times, but when recession hits, increased scrutiny from lenders, counterparties and the tax man – not to mention insolvency practitioners – means fraud is far more likely to be discovered.

The decision confirms that company voluntary arrangements remain a flexible tool for restructuring leasehold portfolios.

• No rigid test exists for “basic fairness” that requires a landlord to receive at least market rent, or that contractual rent should be interfered with to the minimum extent necessary.

• If a landlord is entitled to terminate the lease and receive a better outcome than in the alternative, any automatic unfairness from changes to the terms of the lease is negated.

• Whether a CVA is unfairly prejudicial depends on all the circumstances of the case.

The Covid-19 pandemic has had a severe impact on the economy. This has given rise to an increasing number of claimants with claims against insolvent businesses.

In these circumstances, a third-party claimant would usually notify the company’s insolvency practitioner of its claim. The claimant is then required to pursue its recovery as part of the insolvency process alongside other creditors.

The Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act)¹