A new Statement of Insolvency Practice relating to pre-packaged sales in Administration has been issued and has effect from 1 November 2013.

This provides for earlier notification to creditors of the sale and the justification for it and provides a more extensive list of information that must be included.

The main changes are:

The Court of Appeal’s decision in the matters of Nortel GMBH and Lehman Brothers International (Europe) (both in administration) and other companies has been overturned by the Supreme Court. Liabilities imposed on insolvent companies by the Pensions Regulator (“tPR”) will not be treated as an expense of the insolvency, which would be payable by the office holder in advance of making payment of his own remuneration or to floating charge holders. The liability will rank as an unsecured debt rateably with all other unsecured creditors.

The majority of businesses have periods of stress and distress during their life cycle. The keys to managing these periods to achieve a successful profitable business are recognition, decision and implementation.

In most cases, management are aware (from available internal management information) of issues arising before they do in terms of a potential reduction in revenue or increase in cost. Once these periods are recognised management can move to address them by taking decisions to manage the situation to a positive outcome.

The judgment handed down on 6 June 2013 by the Court of Appeal in the case of The Trustees of the Olympic Airlines SA Pension and Life Assurance Scheme v Olympic Airlines SA [2013] EWCA Civ 643 reversed a High Court decision made in May 2012 that a winding up order could be granted in the UK in respect of Olympic Airlines, the Greek national airline, which was in liquidation in Greece as a result of it receiving illegal state aid and the privatisation of the airline business.

The Supreme Court has boosted the rescue culture by ruling that Financial Support Directions (FSDs) issued by the UK Pensions Regulator after commencement of insolvency proceedings are not an expense of the administration and, instead, rank on a par with unsecured claims. This decision in the Nortel and Lehman administrations will be reassuring to creditors and insolvency and restructuring practitioners.

Key Points

The Landlords of units occupied by Game have been given permission by the Court to appeal to the Court of appeal against the principles laid down in Goldacre (Offices) Ltd v Nortel Networks UK Ltd (In Administration) [2009] EWHC 3389 (Ch) [2010] Ch 455 that rent falling due before the commencement of an administration does not fall to be paid as an expense of the administration.

In an important decision for private equity sponsors and other insiders who advance loans to their businesses, on April 30, 2013, the Ninth Circuit Court of Appeals in In re Fitness Holdings International confirmed that bankruptcy courts may recharacterize debt as equity, but held that recharacterization is determined by state law. In its ruling, the Ninth Circuit joins the U.S. Court of Appeals for the Fifth Circuit in deferring to state law on this issue and explicitly rejects the various federal law based tests that have been adopted by a majority of U.S.

The United States Bankruptcy Court for the District of Delaware recently upheld a secured lender’s claim for a $23.5 million “makewhole” premium (the “Makewhole Claim”) over the heavily litigated objection raised by the unsecured creditors’ committee in In re School Specialty, Inc., No. 13-10125 (KJC) (Apr. 22, 2013).

A recent decision of Mr Justice Mann in VLM Holdings Limited v Ravensworth Digital Services Limited [2013] EWHC 228 (Ch) held it is possible that termination of a head licence on insolvency of the licensor does not necessarily mean a sub-licence becomes ineffective.

What was it all about?

Chapter 11 of the U.S. Bankruptcy Code provides debtors with a number of tools to restructure comprehensively their debts and other liabilities as well as immediate protection from secured and unsecured creditors.