It concerns me when I meet with a director of a failing company and he or she simply doesn’t know the various insolvency procedures should their company get into financial difficulties.

In the Matter of System Building Services Group Limited (In Liquidation) [2020] EWHC 54 (Ch), the court confirmed that a director’s fiduciary duties continued after the appointment of an administrator or liquidator and that the subsequent purchase from the administrator/liquidator of a property at an undervalue was in breach of those duties. As a result, the property was declared to be held by the director on a constructive trust for the company.

The famous and respected Beales department store chain has entered into administration, an insolvency procedure provided under the Insolvency Act.

It is always depressing when any company fails and is forced to enter into administration, let alone a prestigious business such as Beales with its 139-year-old history. The ripples of such an insolvency not only impact upon its 1300 employees, but it is also painfully felt amongst its suppliers, landlords and of course the greater community.

Retail, as a sector, has long been under pressure from increased competition from online retailers, which has resulted in reduced footfall on the high street, affecting many companies, including many well-known names.

Between 2016 and 2019, 13 of 23 company voluntary arrangements (CVAs), which are used by UK businesses to reduce their debts, saw their group going into administration, while other companies that did not agree a CVA ended up seeking investors to buy the business.

What is a CVA?

On 4 December 2019, the UK Supreme Court issued its decision in MacDonald and another as joint liquidators of Grampian MacLennan's Distribution Services Ltd v. Carnbroe Estates Ltd [2019] UKSC 57, a Scottish case involving insolvency and "gratuitous alienations" (sales at undervalue).

It is extremely sad to hear the news that Katie Price has been declared bankrupt.

Although the stigma of bankruptcy may have disappeared, it is still an extremely sobering event when an individual fails financially and is declared bankrupt by a court. In an increasingly materialistic world, bankruptcy is an ever-common event in society.

Recently, the British Chamber of Commerce (BCC) warned that economic conditions are weakening and businesses are struggling, following a survey they have conducted of 6,600 companies employing 1.2 million workers. Their research found that domestic and export sales are falling, and services firms have seen a decrease in work in the three months to September. This has prompted fears that the UK’s economy may fall into recession.

Gurbinder Grewal and Michael Wright in the UK Construction Team explain the knock on effects of insolvencies and the mitigating steps that can be taken. Early warning signs of looming insolvency can be spotted.

Key points

Background

The Court of Appeal has considered whether interim dividends paid to a shareholder at a time when the company did not have sufficient distributable reserves, making the payments unlawful, could later be reclassified as salary payments.

Facts