Can a liquidator run an unjust enrichment claim to seek to recover PAYE and NIC liabilities from a company’s directors arising from the company’s use of a “disguised remuneration” employee benefit trust (“EBT”) scheme? Based on the findings of ICC Judge Barber in the case of Re Ethos Solutions Ltd, the answer is “no”.

EBTs: Background

In Short

The Situation: Historically, creditors pursued by liquidators under the unfair preference regime could rely on a statutory set-off as a defence to the claim, reducing or eliminating their liability to repay what would otherwise be preference payments, on the basis that the liability for the unfair preference payment formed part of a running account between the creditor and the company.

This FAQ has been updated to take account of developments through March 15, 2023.

Since the start of 2023, we have seen an uptick in the number of new matters and inquiries regarding debts, insolvency, enforcement of securities and distressed assets due to increased pressure on the financial position of the counterparties.

Silicon Valley Bank (SVB) was closed by its California state regulators on Friday, March 10, 2023, and the Federal Deposit Insurance Corporation (FDIC) was appointed as receiver. As the market absorbed these developments, customers of SVB and other regional banks rushed to protect their deposits over the weekend, resulting in the closure of Signature Bank in New York, and the announcement on Sunday that all deposits at SVB and SB were moved to newly formed bridge banks.

What you need to know:

In Short

The Situation: The High Court of Australia has confirmed in Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2 that the "peak indebtedness rule" is no longer available to liquidators when assessing the value of running accounts in unfair preference claims.

News of HSBC's acquisition of Silicon Valley Bank UK (SVB UK) has brought huge relief to the UK tech community and wider economy – quite possibly the optimal result in the circumstances following the Bank of England's announcement of a likely insolvency procedure on Friday 10 March.

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.

Our last newsletter commented on high inflation, dwindling business confidence and international supply chain issues. Those factors continue to influence the economic outlook, with some businesses unable to survive the strengthening head winds impacting the economy. The consumer price index increased 7.2 percent in the 12 months to December 2022, remaining stubbornly high despite significant movements in the official cash rate to 4.5%, up significantly from the 0.25% it was sitting at in October 2021. ANZ's economic forecast warns that a "policy induced recession is looming".