In an important decision for commercial property landlords, the High Court in Prudential Assurance Co Ltd and Others v PRG Powerhouse Limited and Others has ruled that a CVA (defined below) cannot operate so as to prevent landlords from enforcing a parent company guarantee. The Court's decision however was reached on the basis that to determine otherwise would have been "unfairly prejudicial" to the landlords.

How to get out of a guarantee

There are not many legal cases which are claimed to have a potential financial impact of £38bn across the property industry, or to represent ‘Armageddon’, but both these claims were made in relation to Prudential Assurance Company Ltd v PRG Powerhouse Limited [2007]. While that may have been a little over the top, it is not hard to see the reasons for alarm.

ARMAGEDDON?

Several tort claims were made against T & N Limited (“the Insured”) arising out of its use of asbestos. As a consequence it became unlikely to be able to pay its debts. Administrators were appointed for the purposes of approving a scheme of arrangement under section 425 of the Companies Act 1985.

Freakley v Centre Reinsurance International Company & Ors [2006] UKHL 45

This case concerns whether a claim to reimbursement of claims-handling expenses should have priority over other creditors on insolvency of the insured.

On 2 March 2007 the High Court handed down the first decision on whether non-domestic rates are payable by an administrator as an expense, and in priority to his remuneration, under Rule 2.67 Insolvency Rules 1986 ("IR"). The judge determined that rates in respect of occupied business premises are a "necessary disbursement" (Rule 2.67(f) IR) of an administration.

Although it was not argued, the judge also expressed the view that this liability to pay rates incurred during the period of the administration would be unaltered if the property were unoccupied during this time.

Case summary:

When a contractor failed to pay certain agreed invoices the sub-contractor issued a winding up petition. The contractor applied to halt the advertising of the petition on the grounds that the debts were bona fide disputed on substantial grounds as there was a cross claim which exceeded the amount claimed. The court refused to halt proceedings because the absence of a withholding notice under the HGCRA meant that there were no substantial grounds for disputing the petition.

Comment:

A landmark ruling has paved the way for companies to restructure without necessarily making their pension scheme ineligible for the Pension Protection Fund (PPF). Trustees in the case of L v M sought the court’s support (and that of the Pensions Regulator) for a plan to prevent the insolvency of the sponsoring employer which would result in an apportionment of the debt due to the scheme from the employers, the winding up of the scheme and would take the scheme into the PPF.

Several tort claims were made against T & N Limited (“the Insured”) arising out of its use of asbestos. As a consequence it became unlikely to be able to pay its debts. Administrators were appointed for the purposes of approving a scheme of arrangement under section 425 of the Companies Act 1985.

As commonly understood amongst bankruptcy professionals, when a creditor violates the discharge injunction in a bankruptcy case, courts have the authority to levy civil contempt violations against the violating creditor. However, a more difficult question for those professionals, and one that presiding courts have occasionally struggled to answer, is under which circumstances a creditor’s abusive action actually rises to the level of civil contempt.

In In re Argon Credit, LLC, 2019 WL 169315 (Bankr. N.D. Ill. Jan. 10, 2019), the U.S. Bankruptcy Court for the Northern District of Illinois ruled that, in accordance with section 510(a) of the Bankruptcy Code, a standby clause in a subordination agreement prevented a subordinated lender from conducting discovery concerning the senior lender’s claims.