THE PERENNIAL PROBLEM OF UNPAID DEBTS – YOUR RECOVERY OPTIONS

Company Administrations in the UK are still on the rise. An administration is the nearest UK equivalent of a US Chapter 11 procedure or an Insolvenzplan in Germany. You may not have heard the term ‘pre-packs’ but if you become involved with any struggling business in the UK, be it your own or that of a customer, supplier or a tenant, you should know what you are up against.

Where "prejudice" is suffered by a creditor or contributory, the court can order a compulsory liquidation despite a voluntary liquidation having already been entered into.

Summary and implications

Now, more than at any other time of this economic cycle, landlords are faced with the prospect of dealing with tenants who have entered one of the various stages of insolvency and require straightforward solutions to bring their tenancy to an end. Often landlords wish to;

In its previous decision in April the First Tier Tribunal upheld the cross border group relief claims which Marks & Spencer made in respect of its Belgium and German subsidiaries after the subsidiaries had commenced liquidation. The Tribunal held further that, whereas the utilisation of the losses was to be determined by reference to local rules, the unutilised losses had to be re-computed according to UK principles for the purposes of determining the amounts which could be group relieved.

To avoid an asset reverting to a bankrupt after the end of his period of bankruptcy, the asset must be realised. An assignment of a beneficial interest for a future price does not amount to a realisation.

With ever increasing numbers of corporate insolvencies, it is likely that the courts will see an increase in litigation raised by insolvency practitioners and creditors arising out of restructuring arrangements entered into by companies in an attempt to stave off insolvency.

While debt restructurings must always remain a significant part of the corporate recovery toolkit, all stakeholders must be aware of the underlying rules relating to the challengeability of transactions in the run up to insolvencies.

There are two main challengeable areas in Scots law:

Administrations are still on the rise and our high streets, retail parks and shopping centres are changing appearance as units lie empty. You may not have heard the term ‘pre-packs’ but it could become an option for retailers to help overcome this depressing trend.  

In this edition of Retail Matters we have pulled together the facts about pre-packs, the pros and cons and an outline of the ways in which insolvency practitioners and other professional bodies are aiming to ensure that the procedure is not abused.  

What is a pre-pack?  

Many commercial landlords will currently be dealing with issues arising out of their tenants' financial difficulties, in particular the impact of insolvency proceedings. For tenants who are in administration, a moritorium applies, which will prevent a landlord taking action against the tenant without leave from the Court. Generally, the Courts will have a degree of sympathy for landlords, and will afford significant weight to the landlords’ proprietary rights when deciding whether to allow landlords to commence proceedings against a tenant.

The UK generally distinguishes between “loan relationship” debts (e.g. loan receivables) and other debts (e.g. trading debt in respect of outstanding consideration for the sale of goods or services). It is possible to turn a trading debt into a loan relationship by issue of a debenture in respect of it.

Tax treatment in the hands of the creditor