UK High Court Confirms Broad Definition of a “Financial Institution” – (Re Olympia Securities Commercial Plc (in administration) [2017] EWHC 2807 (Ch))

The High Court has confirmed it will adopt a broad definition of a “financial institution” for the purposes of the transferability provisions in a loan agreement including: (i) a newly incorporated company with a share capital of £1, (ii) an entity that has not traded and (iii) a special purpose vehicle established for the purpose of acquiring debt.

Facts

'I can't be responsible for every single thing that goes on at Sports Direct. I can't be. I can't be!'

Mike Ashley founder and Executive Deputy Chairman Sports Direct appearing before the Business Innovation and Skills Select Committee (June 2016)

Two United States Bankruptcy Judges for the Southern District of New York recently issued a joint opinion addressing common issues raised by motions to dismiss in two separate adversary proceedings – one pending before Judge Bernstein and the other before Judge Glenn (the “Adversary Proceedings”). The Adversary Proceedings were filed by the debtors in two chapter 11 cases, each involving an Anguillan offshore bank – National Bank of Anguilla (Private Banking Trust) Ltd. and Caribbean Commercial Investment Bank Ltd. (the “Debtor Banks”).

Manley Toys Limited once claimed to be the seventh largest toy company in the world. Due to ongoing litigation and declining sales, it entered into a voluntary liquidation in Hong Kong. On March 22, 2016, the debtor’s appointed liquidators and foreign representatives filed a motion for recognition under chapter 15 of the Bankruptcy Code. The motion was opposed by ASI Inc., f/k/a Aviva Sports, Inc. (“Aviva”) and Toys “R” Us, Inc. (“TRU”).

Accountability is the major theme of the recent government consultation regarding ‘Insolvency and Corporate Governance’, which follows high profile failures such as BHS and Carillion. The consultation contains proposals relating to four main areas as set out below.

Sales of businesses in distress

The proposal represents a significant extension of the current duties owed by directors. Under the proposal, a director of a parent company may be held liable for losses following a sale of a subsidiary if:

Obtaining Decree

After obtaining a Decree (or judgment in England) there are a number of steps that can be taken, if the debtor does not make payment, to recover the outstanding debt. In Scotland this process is known as “diligence”.

Charge for payment (“Charge”)

Lord Bannatyne has issued his opinion in respect the Note of The Provisional/Interim Liquidator of Equal Exchange Trading Limited [2018] CSOH 35 which gives guidance in respect of the role of the court reporter when fixing the remuneration of a liquidator. The full opinion can be viewed here.

Background

In LRH Services Ltd (in Liquidation) v Raymond Arthur Trew (1) Jason Marcus Brewer (2) and Derek O'Neill (3) [2018] EWHC 600 (Ch), LRH Services Ltd (LRH), acting by its liquidators, brought claims for breach of duty against three former directors. The claims arose from a reorganisation in 2009. LRH did not trade but had two trading subsidiaries (R and E) and it was wholly owned by CSGH, which also had another subsidiary in addition to LRH, CSG. Two of the directors of LRH were substantial shareholders in CSGH.

The reorganisation

Toone v Robbins 2018 [EWHC] 569 (Ch)

The lessons to takeaway

Directors who are also shareholders need to be careful when arranging how to take payments from a company. For tax reasons, dividends can be perceived to be an attractive way to take cash out of a company, but if there are insufficient distributable reserves, such payments are unlawful and can be clawed back.

Date

6/22/2017

Action

Testimony of Keith Noreika, Acting Comptroller of the Currency, before the Senate Committee on Banking, Housing, and Urban Affairs.

Key Provisions

The Comptroller made a series of recommendations for regulatory reforms directed at promoting economic growth and reducing regulatory burden. He stated that the OCC’s recommendations are consistent with the Treasury Report.

Key recommendations include: