In Re JT Frith Limited [2012] EWHC 196 (Ch):

• the terms of an intercreditor agreement; and
• some unwitting help from the junior creditors,

enabled a senior secured lender to benefit indirectly from the prescribed part on the insolvency of its debtor.

Existing law at a glance

The Enterprise Act 2002 introduced the prescribed part under a new section 176A(2) of the Insolvency Act 1986. It reserves part of the floating charge recoveries for unsecured creditors.

Since then, the courts have held that:

Lending to a foreign company? If you choose English law to govern your facility documents and provide for the English court to have exclusive jurisdiction, an English scheme may be a viable means of restructuring the debt later, if the need arises.

Lending to a foreign company? If you choose English law to govern your facility documents and provide for the English court to have exclusive jurisdiction, an English scheme may be a viable means of restructuring the debt later, if the need arises.

On 26 July 2010, the Insolvency Service issued proposals for a new type of short-term restructuring moratorium. The moratorium would be available through a court-based process to companies with a viable business and the general support of creditors. The proposed moratorium could have the potential to encourage more companies to view the UK as an attractive jurisdiction for restructuring.

What are the proposals?

The main features are:

Treasury is consulting on how to improve protection and payment of benefits for policyholders of insurers who get into financial difficulty. Historically, few insurers have been put into administration or liquidation, and none have been so seriously affected in the recent crisis. So Treasury thinks it is time to review the regime and suggests changes that would:

Treasury has published two orders made under the Insolvency Act 1986 and the Banking Act 2009. The orders are:  

Meem SL Limited was an unsuccessful start-up company in the United Kingdom.  The board resolved to put the company into administration and sell the business to a company owned by the directors.

In Lafferty v Official Assignee Gordon J considered Mr Lafferty's appeal of two decisions of the Official Assignee to refuse Mr Lafferty's applications under section 62(1)(a) of the Insolvency Act 1967 to enter or carry on business while bankrupt.

Gordon J dismissed the appeal on the basis that Mr Lafferty could not show that the Official Assignee had made an error of law, failed to take into account relevant considerations or was manifestly wrong in exercising its discretion under regulation 34 of the Insolvency Regulations 1970.

In a second application heard on the same day, Hildyard J considered an application by the administrators of Lehman Brothers Europe Limited (LBEL) for directions that would enable a surplus to be distributed to the sole member of LBEL while LBEL remained in administration. The proposed scheme had material benefits for both shareholders and creditors. The administrators acknowledged that the orders sought were an indirect means of circumventing the Insolvency Act 1986 (UK), which does not expressly provide for directors to make distributions during an administration.

In a comprehensive judgment arising out of the collapse of Lehman Brothers, the UK Supreme Court recently determined the ranking of creditors.

Principally, the Court held that Lehman Brothers International (Europe)'s subordinated debt holders were "at the bottom of the waterfall", behind statutory interest and non-provable debt claimants.