A CVA was introduced as one of the rescue arrangements under the Insolvency Act 1986. It allows a company to settle unsecured debts by paying only a proportion of the amount owed, or to vary the terms on which it pays its unsecured creditors. Whilst a CVA only requires approval of a 75% majority of the creditors by value, it binds every unsecured creditor of the company, including any that voted against it or did not vote at all.

In Rubin v Coote [2011] EWCA Civ 106 (09 February 2011) the Court of Appeal has upheld the decision of a liquidator to settle litigation against a former director of a company notwithstanding the opposition of the company’s creditors.

It is an age old problem for creditors who are faced with debtors who ask for more time to pay their debts. The Civil Procedural Rules (CPR) 14.9 and 14.10 allow for a debtor, following the admission of their debt, to request time to pay. It is open for a claimant to choose whether or not to accept a defendant’s proposals; if the claimant does not accept the defendant’s proposals, it is for the court to determine the time and rate of payment. The court’s discretion conferred by CPR 14.10 to extend time for payment has not, until now, been examined.

In circumstances where a debtor lacks mental capacity to deal with a statutory demand and subsequent bankruptcy petition, the court will rescind or annul a bankruptcy order.

In previous issues of TransAtlantic, we reported that the UK Pensions Regulator had issued contribution notices (CNs) and financial support directions (FSDs) against insolvent companies in the Nortel and Lehman Brothers groups. Click here for the June story on Nortel (see page 5); click here for the November story on Lehman (see page 7).

In BNY Corporate Trustee Service v Eurosail UK1, the Court of Appeal rejected a “mechanical” definition of balance sheet insolvency.

Insolvency of your client or customer is bad news, even if, these days, it comes as no surprise.

Where a company goes into administration and the administrators sell on part or all of the business the question arises whether accrued employee liabilities will pass over to the buyer, who may inherit an unexpected list of old debts.

Regulation 8(7) of TUPE 2006 attempted to mitigate the effect of TUPE in the case of certain insolvencies. Mirroring the wording in the Acquired Rights Directive, it provides that contracts of assigned employees (with their accrued liabilities) will not pass to the buyer where the transferor  

Where lenders rely on floating charge security to make recoveries from companies in administration, some recent cases have massively increased the potential for administration expenses to swallow up those recoveries. The more well-known cases could just be the start. So, what are the potential risks? What can lenders do in the face of the law as it currently stands? What is going to happen next?

The Nortel decisions

BNY Corporate Trustee Services Limited v Eurosail-UK 2007-3BL Plc & others [2011] EWCA Civ 227

The Court of Appeal has allowed companies around the country to breathe a solvent sigh of relief, as it has held that the so-called “balance sheet” test of insolvency in s123(2) Insolvency Act 1996 is intended to apply where a company has reached a “point of no return” rather than being used as a “mechanistic, even artificial, reason for permitting a creditor to present a petition to wind up a company”.