An important decision on the “boundary issue” between arbitration and insolvency came out this week. One that has troubled me in the past.

Question: Can you wind up a company for a debt due under a contract containing an arbitration agreement or do you have to go through arbitration first? Up until now, you had to get an arbitral award first, regardless of whether the debt was disputed.

But now, unless the debt is disputed on genuine and substantial grounds, you can press ahead with applying for a winder. So said the Privy Council today.

The recent case of Re UKCloud Ltd (in liquidation) [2024] EWHC 1259 (Ch) (24 May 2024) looked at whether a charge over Internet Protocol (IP) Addresses was a fixed or floating charge. Notwithstanding that the charging document purported to create a fixed charge over such asset, the High Court concluded that it was a floating charge primarily because the control provisions in the charging document were not complied with or enforced in practice.

In Mitchell and others v Al Jaber; Al Jaber and others v JJW Ltd [2024] EWCA Civ 423 the Court of Appeal has confirmed that a director remained subject to a continuing fiduciary duty post liquidation when purporting to transfer assets owned by that company, on the basis he was an “intermeddler”. While the case concerned a BVI company, the court’s decision was based on English-law authorities and therefore has wider significance.

Facts

Boris Becker was originally made bankrupt in June 2017. In the ordinary course, a debtor is made bankrupt for a period of one year, and upon the anniversary of the bankruptcy order they are automatically discharged. While a bankrupt is undischarged, they are subject to various restrictions e.g. they are unable to act as company director or be involved in the management, promotion or formation of a business. Once discharged, the debtor can (in theory) start to rebuild their life afresh while their pre-bankruptcy assets remain in the hands of their trustee in bankruptcy (the Trustee).

Introduction

When parties agree to submit disputes to arbitration there is often language defining the issues that can be determined by arbitration, such as ‘any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination’ (LCIA recommended clause). Once a dispute has arisen the exact scope of the issues before the arbitral tribunal will likely be detailed in the terms of reference or other procedural document.

While franchising has typically been a more robust business model than others, it remains susceptible to broader economic and sectoral pressures, as The Body Shop’s recent entry into administration demonstrates.

In the unfortunate event that a franchisor or franchisee becomes insolvent, disruption is inevitable. However, insolvency doesn’t necessarily spell a terminal outcome. In this article we consider some of the key considerations for both franchisors and franchisees.

Handling franchisee insolvency: the franchisor’s approach

The recent case of Re VE Global UK Ltd (In Administration) [2024] EWHC 749 (Ch) is a useful reminder to practitioners and lenders alike of the importance of correctly identifying documents which create security interests, analysing them to determine whether such security interest is required to be presented for registration at Companies House and ensuring that all registration steps in respect of such interests are completed within the required 21 day time period.

In the recent case of Loveridge v Povey and Ors [2024] EWHC 329 (Ch) a company shareholder sought to challenge the administrators’ decision to rescue a balance sheet solvent company as a going concern by securing additional funding, as opposed to pursuing a sale of the business.

Background

The High Court has handed down an important decision confirming that an unrecognised foreign judgment can be used to form the basis of a bankruptcy petition.

In rejecting the bankrupt’s appeal, the court confirmed that a debt arising pursuant to such a judgment is capable of constituting a “debt” for the purposes of section 267 Insolvency Act 1986 (the Act), despite the fact that the underlying judgment had not been the subject of recognition proceedings in England.

Facts

Junior debt – sometimes referred to as subordinated debt, occasionally talked about as mezzanine debt – is referred to as such because it ranks behind other, more senior, debt owing by the same borrower. Junior creditors can come in many different shapes and sizes and can include shareholder lenders and specialist debt investors or funds.