In light of the business news over the last year, including the most current news of Carillion, it is important to know how business failure impacts on employment rights.

Despite the Treasury’s comparison of independent forecasts for the UK economy showing an overall upturn for January 2018, there appears to be a nasty outbreak of bad weather looming. Close on the heels of the reported financial woes of Toys R Us and House of Fraser comes the news of the fashion retailer New Look and now, massively, Carillion.

The recent decision in Leeds v Lemos may create significant problems for Trustees in Bankruptcy as they attempt to fulfil their duty of realising a Bankrupt’s estate for the benefit of his creditors.

The case centred on the wish of the Trustee in Bankruptcy to rely on documents that the Bankrupt (and some third parties) claimed were privileged. The Trustee in Bankruptcy therefore asked the Court to compel the Bankrupt to waive privilege, so that the documents could be referred to in legal proceedings..

When creditors are demanding payment and money is tight the easiest thing to do is pay those who are shouting the loudest. Often HMRC debts, including Winding Up Petitions, are ignored in favour of paying suppliers so that a business can keep going. However, ignoring HMRC can lead to unavoidable failure of a company.

Distressed and special situations investors should take note of the U.S. Bankruptcy Court’s recent decision in Oi’s Chapter 15 case. We present our takeaways for investors.

Court of Appeal judgment: Burlington Loan Management and others v Lomas and others (as the joint administrators of Lehman Brothers International (Europe) (in administration)) [2017] EWCA Civ 1462

Summary and background

A recent case shows how a company’s Articles of Association, a document which defines the duties and responsibilities of members, must be adhered to when directors are exercising their powers.

The court had to consider whether a sole director of a company, whose articles required two directors for its board meeting to be quorate, could validly pass a resolution to appoint administrators under the Insolvency Act 1986 and, if not, whether the Duomatic principle could validate the appointment.

In the case of Newwatch Ltd v Bennett, the court ruled that After The Event insurance (ATE) policies could not be used as adequate security for costs by the claimant companies who were based in Denmark and Jersey.

A recent decision in the High Court has seen an application for pre-action disclosure of an insurance policy dismissed because the defendant was not insolvent.

Peel Port Shareholder Finance Company owned a warehouse that was damaged by a fire caused by Dornoch. They argued that their claim was highly likely to win but that, if it did, it would cause Dornoch to become insolvent.

Peel Port therefore sought ‘pre-action disclosure’, meaning Dornoch would have to disclose applicable insurance cover information to Peel Port before they decided whether to proceed.

On 23rd November 2016, the European Commission released a package of banking legislation reforms. Some of these were expected in particular those related to the minimum requirement for eligible liabilities and own funds (MREL) under the Bank Recovery and Resolution Directive (BRRD) and the implementation of the Financial Stability Board's (FSB) total loss absorbing capacity (TLAC) principles into the MREL requirements.