A recent English case has considered for the first time whether and if so to what extent the general duties of a director survive a company’s entry into an insolvency process.

In Meadowside Building Developments Ltd (in liquidation) –v- 12-18 Hill Street Management Company Ltd [2019] EWHC 2651 (TCC), the Court found that in certain circumstances, it is possible for companies in liquidation to legitimately engage in adjudication proceedings.

Background

Historically, there has been some doubt as to whether or not an Adjudicator has jurisdiction to make a decision if the referring party was insolvent. This was due to the fundamental incompatibility between the adjudication process and the insolvency regime.

Following a recent government consultation, new draft legislation is expected this summer which will render HMRC as a “secondary preferential creditor” in insolvencies that commence on or after 6 April 2020. The government’s objective is to ensure that more tax which is collected on behalf of HMRC (circa £1.9bn) is actually paid to HMRC and used to fund public services, and is not distributed to pay other creditors.

Section 127 of the Insolvency Act renders void any disposition of property by a company made in the period between presentation of the winding up petition and the making of a winding up order on that petition unless the court orders otherwise. Guidance on applications for validation orders is given in the Insolvency Practice Direction (“PD”).

In Mission Product Holdings Inc. v. Tempnology LLC, No. 17-1657, the Supreme Court has held that a debtor’s rejection of an executory contract does not abrogate the rights others enjoy under that contract. Although the Court’s ruling specifically dealt with rights to a trademark license, the reasoning appears broader than that. The Supreme Court has in effect done away with a debtor’s right to reject any lease, concession, license, or agreement and then prevent a counterparty from enjoying the use of the rights previously granted.

If you are a landlord where the tenant company goes into liquidation you should consider your options carefully before taking any action.

In such a case, the liquidator is able to disclaim “onerous property,” which is likely to include a lease at an open market (or similar) rent. The effect of the disclaimer is to bring the liability of the tenant company to an end as well as ending its interest in the property.

The British Property Federation has produced a document to codify CVA best practice with a view to giving guidance to insolvency practitioners on key items landlords will look for in a CVA proposal.

The document is available on the BPF's website and can be found here.

On June 22, creditors of House of Fraser will vote on CVA proposals in the culmination of a bid to restructure the retailer which has hit headlines in both property and mainstream news. The proposals would see 31 of House of Fraser's 59 stores closed, and a 25% rent reduction in respect of a further 10.

In a judgment handed down on 13 April 2018, Morgan J entirely dismissed a claim for £35m made against the former directors (and alleged shadow/de facto directors), and professional advisors of Instant Access Properties Limited (IAP).

Centenary Homes Limited v (1) Jon Howard Gershinson and (2) Victoria Claire Liddell (2017)