We reported on the High Court case of BNY Corporate Trustee Services Limited v Eurosail in August 2010 and last week's Court of Appeal decision provides further important guidance on the interpretation of the balance sheet insolvency.

Corporate Debt Restructuring through a Company Voluntary Agreement

In the current economic climate most businesses will experience temporary or longer term cash flow pressure resulting in stressful trading and creditor pressure.

The cuts revealed in the Comprehensive Spending Review have not been quite as bad as the construction industry had apparently been expecting (£3.5 billion not as bad). Nevertheless there have still been billions of pounds shaved off various departmental budgets which will affect the construction industry. Where public spending has in the past been a reliable source of income, some companies are inevitably now going to feel the effect of the cuts.

On 26 July 2010, the Insolvency Service issued proposals for a new type of short-term restructuring moratorium. The moratorium would be available through a court-based process to companies with a viable business and the general support of creditors. The proposed moratorium could have the potential to encourage more companies to view the UK as an attractive jurisdiction for restructuring.

What are the proposals?

The main features are:

Parent company guarantees and performance bonds are typically used in the construction and engineering industries to provide a developer with some security in the event that the contractor breaches the building or engineering contract or, in some circumstances, upon the contractor's insolvency.

In the current economic climate, contractor default is, unfortunately, even more prevalent in the construction and engineering industries, and so the issues surrounding parent company guarantees and performance bonds are very much in focus for developers.

The recent descision of BNY v Eurosail1 is an important modern descision on the blance sheet test for insolvency.

In the current economic climate, security for payment is key. Although banks have started to lend money again, they remain cautious and those construction firms with weak balance sheets remain at risk of insolvency. This article discusses five pitfalls in the context of some relevant case-law and devices to protect against these.

Many of us in the construction industry seem to be hearing the same old bed time story over and over again: A instructs B to do the work; B does the work; A does not pay B; for months the parties dispute the level of payment due; B becomes fed up waiting for payment and takes steps to wind up A.

Is this the most appropriate way to deal with a disputed debt?

Today, HM Treasury announced the conclusion of discussions with Lloyds Banking Group (Lloyds) and Royal Bank of Scotland Plc (RBS), regarding their participation in the U.K.

The High Court in England has made an interesting decision in the case of ED Games Limited. A director of that company procured that it did not pay VAT for a period prior to its liquidation and in that period, the net deficit on the company's balance sheet increased. The High Court has held that the director could be held personally liable for the increase in such net deficit.