There are various routes by which a company may enter administration. The most common is an appointment by the directors. Alternatively, the holders of a qualifying floating charge may appoint or an application may be made to the court by one or more creditors.

The case of Hull v Campbell serves as a reminder of an outmoded debt recovery procedure that needs to be modernised.

Rainy Sky SA et al v Kookmin Bank [2010] All ER (D) 255 (May) In our Spring 2010 e-news we reported on the case of Kookmin Bank which dealt with the interpretation of a refund guarantee between Kookmin Bank (the “Bank”) and the customer of an insolvent shipyard. The Bank issued a refund guarantee to secure obligations assumed by its customer Jinse Shipbuilding (the “Builder”). The agreement required the Bank to repay on demand all of the instalments paid by the buyer, Rainy Sky, on the occurrence of a default event under the refund guarantee.

Section 113 of the Housing Grants, Construction & Regeneration Act 1996 (the 1996 Act) outlaws pay when paid provisions, with one exception. It is permissible for a Contractor to use a pay when paid provision to deny payment of outstanding amounts due to its Sub-contractor where the Client at the top of the supply chain has gone bust. The general consensus is of course that this exception is unfair. It is essentially asking the Sub-contractors to act as insurers of both the main Contractor and Client insolvency.

Introduction

For all of the legal difficulties which market participants are facing in light of the insolvency of Lehman Brothers, the insolvency is providing the Courts with the opportunity to pass judgment on many of the tricky provisions of the 1992 and 2002 versions of the ISDA Master Agreement (together the "Agreements").

There are essentially three types of insolvency proceeding: liquidation, receivership and administration. Liquidators realise and distribute a company’s assets before dissolving the company. Receivers usually realise certain secured assets to repay certain debts, before appointing a liquidator. However, an administrator’s first objective is to rescue the company as a going concern. It is only if this is not practicable that the administrator can realise and distribute a company’s assets.

The much awaited EAT decision inOTG Ltd v Barke and others (formerlyOlds v Late Editions Ltd) was delivered on 16 February. As expected, the EAT has taken the view that an administration cannot amount to “bankruptcy” or “analogous insolvency proceedings” for the purposes of Regulation 8(7) of TUPE. So, on a sale by an administrator (even in a pre-pack administration) TUPE will apply.

In more detail

The full force of TUPE is relaxed in relation to insolvent transfers as follows:

In the Matter of Bell Lines Limited (In Liquidation)  

That decision has effectively been relied on since 2006 for the proposition that, except for the Social Insurance Fund, a party advancing monies for the payment of remuneration falling due before the commencement of an insolvency process but actually paid after such commencement is not entitled to subrogate to the employees’ preferential claims.

The Appeal

Third parties associated with an employer may find themselves liable to contribute to the employer's occupational pension scheme.

According to a ruling of the High Court, Financial Support Directions and Contribution Notices issued by the Pensions Regulator once an English insolvency process has commenced rank as expenses of the insolvency process (and therefore take precedence over ordinary creditors). This ruling will cause huge practical difficulties for insolvency practitioners. The decision is subject to appeal.