The past 12-18 months have seen some of the biggest changes to established insolvency law and practice in England and Wales since the Insolvency Act 1986 and Insolvency Rules 1986 (the old Rules) came into force. These have culminated with the new Insolvency Rules 2016 (the new Rules), which become effective on 6 April 2017 and are intended to consolidate the old Rules (including all 28 subsequent sets of amendments to them).
Legislation soon to take force creates a new special administration regime for private providers of social housing, introducing changes that will transform restructuring in the sector.
On 11 October 2016, the High Court10 held that statutory interest payable on an insolvency (under rule 2.88(7) IR 1986) is not “yearly interest” for UK tax purposes. Such statutory interest is therefore not subject to UK withholding tax (20%).
The facts of the case are somewhat unusual in that there was a substantial surplus in the administration and the statutory interest was estimated at £5bn. However the decision is a welcome clarification of the position. It also confirms HMRC’s previous guidance on the taxation of statutory interest (subsequently withdrawn).
On 29 November 2016, the First-tier Tribunal9 held that the issue of growth shares to certain key employees had inadvertently caused an existing class of ordinary shares to carry a preferential right to assets on a winding up. The effect of this was that both prior ordinary share issues, and future share issues, failed to meet the requirement of the Enterprise Investment Scheme (EIS) rules.
When this topic was last considered two years ago, there was a real danger of pension rights (previously thought of as sacrosanct) being within the reach of trustees in bankruptcy by way of an income payments order (IPO). There were also two conflicting first instance decisions in play. The issue? Whether a pension entitlement capable of drawdown by election, but not yet in payment, can fall within the definition of income in section 310(7) of the Insolvency Act 1986 (IA86), and so be the potential subject of an IPO.
Savers who become bankrupt but have not yet drawn their pensions will not have to hand them to creditors after a ruling of the Court of Appeal put an end to fears that pension pots were at risk.
The Court of Appeal upheld the High Court’s ruling on Horton v Henry, originally heard in 2014, settling legal difficulties arising from a conflicting judgment of Raithatha v Williamson (2012); and the introduction of the pension freedoms.
The Housing and Planning Act changes what happens to insolvent housing associations, says Séamas Gray in an article for Inside Housing.
Traditionally, when a company becomes insolvent, it enters one of several types of insolvency processes and its assets are typically sold to the highest bidder to raise as much money as possible to distribute to the company’s creditors.
In relation to a housing association, this might well mean a sale outside the regulated sector with the knock-on effect of an immediate reduction in available social housing.
In Lehman Brothers International (Europe) (in Administration) v Exxonmobil Financial Services BV(1) the High Court considered a range of issues arising from the application of the close-out provisions of the standard-form Global Master Repurchase Agreement (GMRA) 2000.
In Lomas and others v HMRC [2016] EWHC 2492 (Ch), the High Court has confirmed that statutory interest payable on insolvency is not 'yearly interest' for UK tax purposes. The administrators therefore had no obligation to account for income tax on the interest payments made. The Court was also critical of HMRC's contradictory guidance on this issue.
Background