Facts

Longmeade went into compulsory liquidation. The liquidators were advised that the company had a good claim against BIS. The liquidators has secured third party funding in respect of the claim, which if successful, would double the dividend for creditors. However, 99% by value of the creditors of the company opposed the commencement of an action against BIS. The position of the few remaining creditors was unclear. The liquidators applied to the court for directions as to whether to cause the Longmeade to pursue the claim.

Held 

Key Points

• Directors should take (and follow) advice from insolvency practitioners as early as possible in distressed situations in order to protect themselves from liability.
• If a company does continue to trade “wrongfully”, the directors must be able to demonstrate that they have taken all steps to reduce losses to individual creditors, as well as creditors as a whole. However, no order should be made unless the deficiency for creditors as a whole is increased in the period of wrongful trading.

The Facts

Directors can be held liable to contribute to company assets if they knew or ought to have known at a point before the commencement of administration or insolvency that there was no reasonable prospect that the company would avoid this process. This is known as wrongful trading (section 214 of the Insolvency Act).

Does section 127 of the Insolvency Act 1986 void payments made by the insolvent company’s bank after the presentation of a winding-up petition but pursuant to payment instructions issued by the company before presentation of the petition?

The Third Parties (Rights Against Insurers) Act 2010 (“TPR”) will finally come into force on 1 August 2016, making it easier for third parties to bring claims against insurers of insolvent companies.  It has taken more than six years, spread over three separate governments and was amended even before it came into force, but TPR will finally replace the Third Parties (Rights Against Insurers) Act 1930 (the “1930 Act”).

The Background

Due to the introduction of new tax legislation on 6th April 2016, distributions made to shareholders of companies undergoing Members’ Voluntary Liquidation (MVL) are now treated as income (rather than capital) and are taxed accordingly.

On 24 March, HMRC published a summary of responses to the December consultation on Company Distributions, together with details of the Government's position on the issues raised. The December consultation was covered in my 3 February blog.

Finance Bill 2016 includes provisions designed to prevent taxpayers converting profits generated in a company into a capital receipt in the hands of the shareholder(s). Taxpayers may want to consider winding-up their companies or making substantial dividend distributions ahead of 6 April 2016 as a result of these measures and the changes to the taxation of dividends.

Broadly, the intention is that a capital distribution made in the winding-up of a company will be taxed as income if:

Key Point

There is no assumption under English law that, where a company appeals against a winding-up order, it should give security for costs.

The Facts

Key Point

An English Court holds that a rate saving scheme involving liquidations of tenant companies is an abuse of the English insolvency legislation.

The Facts