Key Points 

• Phones 4U went into administration in September 2014.
• Technology companies in the US have also faced a difficult market.
• Phones 4U’s complicated financing structure contributed to its downfall, as did its reliance on one or two key suppliers.
• The Protection of Essential Supplies Order will have considerable ramifications for tech suppliers when it comes into force.

PHONES 4U COLLAPSE: PART 1

Invoice finance has dominated the lending landscape in 2014 and has outperformed all other types of business lending in the UK.  We examine below many issues which may arise in the restructuring of those businesses funded by invoice discounters.

1. Isn’t invoice discounting just a form of finance like any other?

The vast majority of UK taxpayers pay what they owe in full and on time. Her Majesty’s Revenues and Customs (HMRC) thinks that a persistent minority choose not to pay which provides an undeserved advantage to those who are wilfully seeking to play the system, and creates costs which are ultimately borne by the compliant majority.

Phones 4u went into administration on 15 September 2014 following a decision by EE not to renew its contract. At the time of writing, all 560 stores and 160 concessions have been closed, pending a decision by the firm’s administrator whether to continue trading or break the company up in deals with, amongst others, EE and Vodafone.

In Re Lehman Brothers International (Europe) (in administration) and others [2014] EWHC 704 (Ch), the High Court ruled on issues regarding the order of distributions and payments in the administration and potential liquidation of various Lehman entities. This wide-ranging judgment gives clarity on a number of previously uncertain issues.

Summary

Following the US case of Morning Mist Holdings when a Court of Appeals decided that COMI had to be analysed on the date of the Chapter 15 case petition, we look again at the case of Kemsley where the US bankruptcy court held that COMI had to be analysed on the date of the filing of the UK bankruptcy. We consider whether this could have affected the outcome of the Kemsley case and look at the factors used by the English and US Courts to interpret an individual debtor’s COMI.

Background

This week will hopefully see the end of a long running battle between Britain’s biggest landlords and the restructuring profession. On 12 February, the Court of Appeal will start to hear an appeal relating to the administration of Game Station (Jervis v Pillar Denton). It will consider whether the administrators should pay rent for the properties which they occupied during the administration as an administration expense, so ensuring the landlords receive their rent in priority to payments  made to other creditors.

Background

This week the Court of Appeal has heard the long awaited appeal in Jervis and another v Pillar Denton Limited (Game Station) and others, better known as the Game Station case, which (depending on the outcome) may trigger a drastic change to the way in which rent in administration is treated.

This case considered whether Bulmers Transport Limited (“Bulmers”) was under the “supervision of an insolvency practitioner” pursuant to Regulation 8(7) Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).

Comment

The case provides some helpful clarity on the inter-relationship of Regulation 8(7) TUPE and s388 Insolvency Act 1986, when determining whether a company is under the “supervision of an insolvency practitioner”.

In the recent decision of Topland Portfolio No.1 Limited v Smiths News Trading Limited [2014] EWCA Civ 18, the Court of Appeal has given a timely reminder of the need for landlords to tread carefully when dealing with leases to ensure that a tenant guarantee remains effective.