Presently, there is a lot of talk about insolvency and the legal test for corporate insolvency. In simple terms, insolvency or bankruptcy means a company or an individual cannot pay its debts when they are due. In Australia, bankruptcy refers to individuals, and insolvency refers to a company.

In this article, we will focus on corporate insolvency. What is the legal test for solvency? When are you insolvent vs having a short-term liquidity problem? What is the presumption of insolvency, and how can you rebut the presumption and prove solvency?

The High Court has recently granted Sapura Energy Bhd and its 22 subsidiaries (“Sapura Entities”) a fresh order to hold court-convened meetings with creditors within a period of three months. A restraining order was also granted for the same period. By now, the Sapura Entities would have been granted 3 restraining orders which stretches out to a total period of 15 months.

If you supply goods, the simplest step that you can take to reduce your exposure to a customer’s insolvency is to use effective retention of title (RoT).

However not all RoT clauses are effective and we see many RoT claims rejected in insolvency.

By default, once you sell goods on credit:

• the goods belong to the customer; and
• the customer owes you the purchase price.

This means that if an insolvency practitioner (IP) is appointed to the customer:

A GLOBAL LEGAL MEDIA & NISHLIS LEGAL MARKETING PUBLICATION THE US-ISRAEL LEGAL REVIEW 2022 IN ASSOCIATION WITH: Israel’s Unicorn Success Story SNNOVATION The US-Israel Legal Review 2022 1 Contents THE US-ISRAEL LEGAL REVIEW 2022 2 WELCOME FROM THE PUBLISHERS Global Legal Media and Nishlis Legal Marketing 4 ECONOMIC HEADWINDS, A HOT WAR AND A TRADE WAR: THE IMPACT ON ISRAEL’S COMPANIES With rising interest rates, rising inflation and reduced growth forecasts, how has that reality been faced by corporate clients and start-ups? Arnon, Tadmor-Levy provide some answers.

Tradition Financial Services Ltd v Bilta (UK) Ltd and others [2023] EWCA Civ 112

Key Takeaways:

SVB Financial Group, the corporate parent of Silicon Valley Bank, filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of New York on March 17. According to a press release issued by SVB Financial Group, its related entities SVB Securities and SVB Capital are not included in the Chapter 11 filing. This bankruptcy filing comes a week after regulators took control of the failed Silicon Valley Bank.

Under German law, company directors have a statutory duty to file for insolvency once the company has become insolvent or over-indebted. Company directors can be held personally liable for any payments they make after that point of time unless they prove that they exercised reasonable care, skill and diligence. After the German Federal Court of Justice (Bundesgerichtshof) clarified that standard terms and conditions of German D&O insurance contracts cover this directors’ liability, many D&O insurers have tried to find new ways to avoid their coverage.

After a lull during the pandemic, it is expected that the number of company insolvencies in Ireland will increase as financial pressures on businesses intensify following the withdrawal of temporary government supports. Recent changes to directors’ duties bring into sharp focus the actions of, and decisions taken by, company directors in the period leading up to the insolvent liquidation of a company.

Summary

In what was described as a “momentous decision for company law”, the Supreme Court in BTI 2014 LLC v. Sequana SA and Others [2022] UKSC 25 (“Sequana”) confirmed the existence of a duty owed by company directors to consider the interests of its creditors when nearing insolvency.

It marks the first time the nature, scope, and content of directors’ duties to creditors when a company is nearing insolvency has been considered by the Supreme Court.