You are about to enter a new dimension. A world not only of law and of the Insolvency Act 1986, but of equity. You are about to enter… The Twilight Trust Zone!

Cash-flow is the life blood of a company. As a company fails the flow of this vital sustenance grows weaker. The heart stutters and fails. The company is dying. Worse, it is unable to meet its liabilities as they fall due, and so fails one of the statutory tests of insolvency.

Introduction

In the recent High Court decision in Bilta (UK) Ltd (In liquidation) and others v Nazir and others [2012] EWHC (Ch), the court considered the application of the legal doctrine of ‘ex turpi causa non oritur actio’ in the context of fraud.

California’s AB 506 process was intended to help a municipality in restructuring its debt obligations and avoid bankruptcy. However, the lessons of the bankruptcies of the City of Stockton, the Town of Mammoth Lakes and the City of San Bernardino support the reality that a meaningful restructure requires material involvement by the major stakeholders. California’s recent wave of municipal bankruptcies tend to show that the AB 506 process has not changed this reality, but rather made a difficult process longer and more arduous.

Often, corporate boards do not consider how to handle a company bankruptcy until the moment insolvency is looming.

The issues concerning validity of appointment, which arose following the decision in Minmar Limited v Khalastchi have been considered in a number of recent cases, most recently BXL Services Limited [2012] EWHC 1877 (Ch).

In these parlous economic times, more businesses are facing increased financial pressure, resulting in periods of stressful trading. In such cases, consideration needs to be given to the development of a sound strategy that allows the company to successfully continue to trade and pay its creditors.

The purpose of this article is to address some of the “tools” available to assist directors in the restructuring of a company.

In reaction to a decision by the U.S. Court of Appeals for the Fourth Circuit, Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), in which the court held that a licensee of patents, copyrights and trademarks loses its rights if the trustee or debtor in possession rejects a license under the Bankruptcy Code under which the debtor was the licensor, Congress enacted section 365(n) of the Bankruptcy Code (11 U.S.C. § 365(n)).

The new Insolvency rules which came into force on 23rd February 2012 provide that when presenting a Petition, the Petitioning Creditor must now conduct an initial search to ascertain whether any other petitions have been presented against the debtor within the previous 18 months.

The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board announced the process for receiving and evaluating the initial resolution plans--also known as living wills--from the largest banking organizations operating in the United States. The agencies also gave a timetable for release of the public portion of such plans, which are due on July 2.

Leisure Norwich (2) Ltd & Others v Luminar Lava Ignite Limited & Others - [2012] EWHC 951(Ch). Incurring liabilities to third parties is often necessary in order to carry out an effective administration of an insolvent company.