The Court of Session has confirmed that the administration in Scotland of a Scottish company will take priority over an Indian liquidation of the same company, regardless of where the company’s business and assets are situated. The Court has also confirmed that the validity and enforceability outside the UK of a floating charge is irrelevant to the validity of an administrator’s appointment in Scotland under that floating charge.

The recent Court of Appeal decision in Horton v Henry has highlighted the protection afforded to a bankrupt holding a private pension to the detriment of his bankruptcy creditors.

Facts

The High Court in London handed down judgment on Part C of the Lehman Waterfall II Application on 5 October 2016.

The judgment examines the extent of creditors’ entitlements to Default Rate interest on debts arising under ISDA Master Agreements governed by English law and New York law. As some £4.4 billion of LBIE’s admitted claims arise under ISDA Master Agreements and the debts were outstanding for more than five years, this judgment will materially influence the amount of money which must be applied in satisfaction of creditors’ entitlements to statutory interest.

An opinion issued this week is the first examination by a Scottish court of the principle of 'modified universalism' and the requirements for an enforceable floating charge where all the company's property is situated in a non-UK jurisdiction.

This opinion by Lord Tyre in the Court of Session concerns three companies incorporated in Scotland, but which carried on business in India.

When considering whether or not to bring a legal action, it is important to establish if it is competent and commercially worthwhile to do so. The ability to bring, or continue with, legal proceedings against a company can be restricted if that company enters into a formal insolvency process. The position of creditors may be improved now that the Third Party (Rights Against Insurers) Act 2010 has at last been brought into force.

Summary

WATERFALL IIC JUDGMENT (ISDA MASTER AGREEMENT ISSUES)1

The Court of Appeal has resolved previously conflicting case law to confirm that a bankrupt cannot be obliged to crystallise his pension benefits in order to produce income to pay off creditors.

In the May 2015 edition of Pensions Priorities we reported on a case where the High Court found that an agreement dealing with the costs associated with the secondment of employees between group companies included liability for the receiving company to pay for the section 75 debt arising in relation to the seconded employees.

A recent case in the insolvency courts has seen the court considering the possibility of forcing a bankrupt pension holder to draw down funds to be used by their trustee in bankruptcy.

Time will tell whether this type of order will filter into financial settlements on divorce. There are already a number of options for dealing with pensions on divorce that I consider with my clients, particularly when creating bespoke and creative solutions for them. The ability to force someone to draw on their pension would have to be seen as a last resort but would be a tool worth having.