In the recent case of Cash Generator Limited v Fortune and others [2018] EWHC 674 (Ch), the Court determined that non-compliance with the deemed consent procedure for nominating liquidators did not invalidate their appointment. The case provides a useful summary on the relatively new provisions governing the deemed consent procedure and welcome relief to Insolvency Practitioners (“IPs”) that a failure to fully comply with such provisions will not necessarily invalidate their appointment.

Brief facts and arguments

A recent decision of the Slovak Courts suggest that if main proceedings have been opened in one member state and the debtor has assets in Slovakia, the insolvency practitioner in the main proceedings must act quickly and sell those assets before secondary proceedings are opened in Slovakia, otherwise he runs the risk of losing the assets to the secondary estate. Legal title to the assets must have passed to the buyer before the secondary proceedings are opened; it is not enough just for contracts to have been exchanged.

Consumers could be set to jump up the insolvency hierarchy if Parliament backs the latest Law Commission recommendations.

The Law Commission’s report, Consumer Prepayments on Retailer Insolvency, recommends, among other things, that consumers who prepay for goods or services over £250 in the six months prior to a formal insolvency process should be paid out as preferential creditors instead of unsecured creditors.

The Court of Appeal has recently considered the status of contingent assets within the balance sheet test for insolvency in the context of a company’s inability to pay its debts. Under Section 123 Insolvency Act 1986, a company is deemed unable to pay its debts if its assets are less than its liabilities including contingent liabilities but nothing is said about the status of contingent assets.

In relation to insolvent liquidations under U.K. law, one of the primary objectives will be the implementation of an efficient process to preserve and recover assets for the benefit of the creditors. This is particularly so where there is a need to instigate costly litigation or cross-border recognition proceedings and where the liquidator will want increased assurances as to the likelihood that those steps will generate positive returns.

There is something positively Dickensian when looking at the anti-deprivation rule (the "rule") and images come up of scribes working in dark and dismal rooms scratching their quills by dim candle light. Indeed, the rule dates back to the nineteenth century and many lawyers would be hard-pressed to explain it even if they are able to grasp the contradictions and fine distinctions thrown up by the old cases. In essence, the rule provides that a contractual provision is void if it provides for the transfer of an asset from the owner to a third party upon the insolvency of the owner.

In a judgment useful to insolvency practitioners, a court has recently confirmed that liquidators are not personally liable for payment of dividends. In Lomax Leisure v Miller and Bramston [2007] EWHC 2508 (Ch) Miller and Bramston faced personal claims on dividend cheques they had cancelled, after receiving a pending application from a creditor whose claim they had rejected. Miller and Bramstom were later replaced by a new liquidator who brought claims in the name of the company and various creditors.

On 2 May 2007 the House of Lords ruled that the mere appointment of a receiver was not enough for a company to recover damages for business contracts that were allegedly lost as a result of that appointment.

Summary

While most jurisdictions provide liquidators with wide investigative powers to locate and realise assets locally, the exercise of such powers becomes more complicated when the assets are situated overseas. As more and more businesses expand globally and corporate structures become equally more complex, the liquidators’ task becomes more problematic in winding up such companies.