This is the first article in 'Back to Basics', a series of articles looking at insolvency processes in Scotland. In this article I examine the court process for winding up a company.

A winding up petition is a form of legal action that can be used when a company is unable to pay its debts as they fall due. Sections 122 to 124 of the Insolvency Act 1986 (‘the Act’) deal with how to wind up a company in Scotland.

When is a company deemed unable to pay debts?

Grand Peace Group Holdings Limited [2021] HKCFI 2361 (Date of Decision: 24 August 2021)

Up Energy Development Group Limited [2021] HKCFI 2595 (Date of Decision: 31 August 2021)

Introduction

The vast majority of listed companies in Hong Kong are incorporated offshore, with a corporate structure that the operating and asset owning subsidiaries in Mainland China are held through intermediate subsidiaries incorporated in offshore jurisdictions such as BVI and Cayman Islands etc.

The automatic stay under the version of the UNCITRAL Model Law on Cross-Border Insolvency adopted by Singapore ("Singapore Model Law") is an accessible and powerful tool for protection under the Singapore restructuring regime for non-Singapore debtors facing enforcement action in Singapore. Non-Singapore debtors subject to restructuring or liquidation cases outside Singapore may obtain protection from creditor action in Singapore through the application of the Singapore Model Law, thereby facilitating the debtor's ability to restructure.

The Bankruptcy Protector

On August 31, 2021, Sequential Brands Group, Inc. (NASDAQ:SQBG), together with its wholly-owned subsidiaries that own, manage and license a large-scale and diversified portfolio of consumer brands across multiple industries, filed a petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the District of Delaware (Case No. 21-11194). The company reports $442.8 million in assets and $435.1 million in liabilities.

Courts frequently dismiss creditor appeals of bankruptcy confirmation orders as equitably moot. However, the Eighth Circuit Court of Appeals recently departed from this historic practice. In reversing a District Court determination that confirmation of a plan rendered a creditor’s appeal equitably moot, the Eighth Circuit held that motions to dismiss for equitable mootness should be “rarely granted,” and it reversed and remanded the lower courts’ dismissal of a creditor’s appeal of a Plan Confirmation Order on equitable mootness grounds.

In this two part article we highlight for directors some of the main ways in which the general protection of limited liability does not apply or can be lost.

Part one of this article discusses those exceptions to the principle of limited liability that arise in insolvency or distress situations. Part two deals with the provisions that have more general applicability.

Breach of duties

The author examines a recent decision by the U.S. Court of Appeals for the Third Circuit that involved whether a contract was, or was not, an executory contract.

“[B]ankruptcy inevitably creates harsh results for some players,” explained the U.S. Court of Appeals for the Third Circuit on May 21, 2021, when it denied a film producer’s claim for contractual cure payments in In re Weinstein Company Holdings, LLC. 1

Following its approval on 5th August 2021 by the Council of Ministers, the Law-Decree n. 118 was published on 24th August into the G.U. n. 202 about the topic of "Urgent measures in the field of business crises and business reorganisation, as well as further urgent measures in the field of justice". 

Firstly, the Law-Decree postpones the entry into force of the Italian Crisis Code until 16th May 2022 (Art. 1, letter a), further postponing to 31 December 2023 the “crisis alert related procedures” introduced by Article 12 of the Crisis Code. 

A seguito dell’approvazione avvenuta il 5 agosto 2021 da parte del Consiglio dei ministri, è stato pubblicato il 24 agosto in G.U. n 202 il Decreto-legge n. 118 in tema di “Misure urgenti in materia di crisi d’impresa e di risanamento aziendale, nonché ulteriori misure urgenti in materia di giustizia”. 

Il Decreto in primo luogo differisce l’entrata in vigore del Codice della Crisi al 16 maggio 2022 (art. 1, lett. a), posticipando ulteriormente al 31 dicembre 2023 le procedure di allerta della crisi introdotte dall'art. 12 CCI.