Implications of the recent decision of the High Court in Re Global Trader Europe Limited (In Liquidation) regarding the application of the FSA’s client money rules.

Summary

A recent court decision confirmed that transparent pre-pack sales can be used where they are in the best interests of the creditors as a whole. The court ruled that:

The Pensions Regulator recently became involved in the current controversies attaching to pre-pack arrangements.

The Pensions Regulator (the Regulator) recently used its powers under the Pensions Act 1995 to appoint an independent trustee to the exclusion of all other trustees of the scheme. The employer was required to pay the fees and expenses relating to the appointment.

The Regulator decided to use its powers because:

Following the rejection of Stylo's proposed CVA earlier this year and the successful "unfair prejudice" challenge of Powerhouse's CVA in 2007, the recently approved CVA proposal put forward by JJB Sports, widely described by commentators as "ground-breaking", has generated significant interest in the CVA process and the use of a CVA to effect a solvent restructuring of a listed company without resorting to administration and a suspension of trading in its shares.

Yesterday, the U.K. government published a report entitled "Developing effective resolution arrangements for investment banks" which sets forth, primarily in response to the September 2008 collapse of Lehman Brothers Holding, Inc. (in particular its U.K. arm, Lehman Brothers International (Europe)), the U.K.

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 Bankruptcy and Diligence (Scotland) Act 2007contains a wide range of provisions affecting personal insolvency and various forms of diligence for enforcing civil obligations. Many of the provisions that relate to Inhibitions – which apply to heritable property - will come into force on 22 April 2009. Generally these reforms are to be welcomed.

An inhibition enables a creditor to prevent a debtor from transferring ownership of any of the debtor’s heritable property located in Scotland, or granting a security over it while the debt remains outstanding.

Introduction

In the current economic crisis, an increasing number of companies are facing financial difficulties and potential insolvency. Unsurprisingly, at such times, tax issues can often be overlooked. This can lead to potential tax risks, lost opportunities and a failure to maximise assets. Correct planning can make a significant difference to the potential tax liabilities and maximisation of tax assets of a company or a group that is facing insolvency.

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