At the end of September, Government protections that were designed to prevent a flood of insolvencies are set to be lifted. Specifically, the suspension of the provisions around wrongful trading will be over and creditors can once again seek to put companies who owe them money into liquidation. 

UK Government introduces a temporary increase to minimum debt level required for a winding up petition

Restrictions have been in place since the start of the pandemic to prevent creditors taking steps to wind up debtor companies. Those restrictions are due to expire on September 30, 2021. To lessen the risk of October seeing a mass rush by creditors seeking to wind up their debtors, the UK Government has introduced a further temporary measure in connection with liquidation petitions.

1 | 6 Critique on the Standing Committee Report on Implementation of Insolvency and Bankruptcy Code - Pitfalls and Solutions The Parliamentary Standing Committee on Finance for the year 2020-2021 (Standing Committee) has published the 32nd Report on Implementation of Insolvency and Bankruptcy Code - Pitfalls and Solutions (Report) on 29 July 2021. The Report includes various observations and recommendations of the Standing Committee with respect to the Insolvency and Bankruptcy Code 2016 (IBC) and the insolvency resolution regime in India.

In this two part article we highlight for directors some of the main ways in which the general protection of limited liability does not apply or can be lost.

Part one of this article discusses those exceptions to the principle of limited liability that arise in insolvency or distress situations. Part two deals with the provisions that have more general applicability.

Breach of duties

Limited liability is one of the fundamental concepts in our understanding of company law. Even people who know very little about the working of limited companies may know that directors and shareholders are not liable for the debts of their companies. For the last 160 years, the protection of limited liability has been a key factor in economic growth and commercial activity as it has allowed entrepreneurs to speculate and take risks that they might not have been willing to do if the risk of personal liability overshadowed their decision-making.

Facts

The Supreme Court of India (SC) in Orator Marketing Private Limited v Samtex Desinz Private Limited, Civil Appeal No. 2231 of 2021, judgment dated 26th July 2021 has held that an interest free term loan constitutes a financial debt under the Insolvency and Bankruptcy Code, 2016 (IBC).

The IBC provides that a financial debt is “a debt along with interest, if any, which is disbursed against the consideration for the time value of money” furthered by an inclusive list of examples that may be considered as a financial debt.

The terms "ranking agreement" and "intercreditor agreement" are used interchangeably but generally refer to the same types of agreement - being those which regulate the priority of repayment of indebtedness owed to the creditors of an obligor. Strictly speaking, a ranking agreement is the Scottish equivalent to the English law deed of priorities and is typically used for shorter form ranking arrangements. As is the case in England, a Scottish intercreditor agreement is typically reserved for more complex arrangements and usually ranks both securities and liabilities in point of priority.

In our first and second summaries on the key differences in taking security between Scotland and England, I summarised the positions on the Scots law of assignation and share security respectively.  This is the third summary in that five part series and considers the position on floating charges in Scotland.

The National Company Law Tribunal, Mumbai Bench (Hon’ble NCLT) in application filed by Mr. R. Subramaniakumar, Administrator of Dewan Housing Finance Corporation Limited (Administrator) against the Committee of Creditors, through Union Bank of India & Ors. in the matter Reserve Bank of India (RBI) versus Dewan Housing Finance Corporation Limited (DHFL) (IA.NO.449/MB/C-II/2021 in CP(IB)No.