Under Part 26 of the Companies Act 2006, it is open to a solvent company to enter into an arrangement or compromise with its creditors or members. Over the past 10-15 years such solvent schemes have been implemented in M&A and restructuring transactions and have proved increasingly popular in the insurance market, permitting insurers to crystallise their contingent liabilities.

Readers of our December 2009 issue will recall that we wrote about the Scottish court decision on the Scottish Lion Insurance Company scheme of arrangement. Just before this issue went to press the decision of the Scottish court of appeal (the Inner House of the Court of Session) on the issue of whether “creditor democracy” would be allowed to prevail or whether unanimity was required became known.

Protecting clients’ money and assets has been a pillar of the UK financial regulatory regime. The obligation on regulated entities to “…arrange adequate protection for clients’ assets when it is responsible for them” is enshrined in Principle 10 of the Principles of Business Sourcebook of the Financial Services Authority (FSA) Handbook. The FSA has made rules to protect client money by requiring FSA regulated entities to hold such money in trust accounts (the Client Money Rules).

Following consultation last autumn, the Government is once again changing the Regulations under s75 Pensions Act 1995.

The changes1 take effect on 6 April 2010. They are intended to facilitate corporate restructurings. They also address some minor technical issues. The Government has postponed any more fundamental rewriting of the Regulations, saying that “this is a complex area that deserves closer consideration”.

Restructurings

A new wrinkle in the Lehman Brothers bankruptcy cases emerged recently when a U.S. bankruptcy judge issued an opinion directly at odds with the decisions previously rendered by certain English courts regarding priority of payment provisions (the “Priority Provisions”) with respect to collateral under the “Dante Program.”

The Dante Program

FSA has published the statement it made to the US bankruptcy court examiner on the collapse of Lehman Brothers Holdings Inc. It has published the statement in the public interest, although it contains information that would otherwise have been confidential. The statement explains FSA’s actions and conversations in respect of the potential purchase by Barclays of the company in September 2008.

In the current economic climate, LLPs and their members are being forced to grapple with insolvency legislation. Applying the provisions of the corporate insolvency regime established by the Insolvency Act 1986 to LLPs is not straightforward. One of the issues is whether an individual member can apply to wind up an LLP.

In the case of In the matter of Construction Confederation and In the matter of the Insolvency Act 1986 [2009] EWHC 3551 (Ch), the trustees of the Construction Confederation Staff Pension Scheme have obtained an order for winding up of the sponsoring employer, an unincorporated association.

On 7 December 2009, His Honour Judge Purle QC sitting as a high court judge, decided that where administrators were using, for the benefit of the company in administration, part of a site held by that company under two leases, the quarter's rent due under those leases falling due on the 25 December 2009 was payable in full from that date as one of the costs and expenses of the administration.

Amendments to the Third Party (Rights against Insurers) Act 1930 are long overdue, so the reforming Bill currently being fast-tracked through Parliament, the Third Party (Rights against Insurers) Bill, should be welcomed by the insurance industry. In the words of the Ministry of Justice, it is intended to make it “… easier and less expensive to claim compensation from insolvent defendants”.

Current law