Last week the High Court of England and Wales revoked a company voluntary arrangement (CVA) promoted by retailer Miss Sixty in a damning judgment that called into question the conduct of the practitioners involved. The case of Mourant & Co Trustees Limited v Sixty UK Limited (in administration) [2010] could end so-called guarantee stripping – where the CVA purports to discharge guarantees given by a third party – and provide powerful ammunition to landlords seeking to negotiate future CVAs with tenant companies.

We first reported on The Trustee in Bankruptcy of Louise St John Poulton v Ministry of Justice in the October 2009 banking update. In short, the Court Service had failed to give notice of a bankruptcy petition to the Chief Land Registrar. As a result, no pending action had been registered against the name of the debtor and no notice had been registered against the debtor's property.

Financial guarantees often contain non-competition clauses. This is mainly to:  

• increase the financier’s recoveries from its principal debtor, by stopping the guarantor from draining money from the principal debtor; and  
• prevent the guarantor from obstructing a restructuring of the principal debtor’s liabilities.  

A recent case suggests these clauses should expressly exclude the “rule in Cherry v. Boultbee”. Zoë Thirlwell and Alexander Hewitt explain.

Counter-indemnity rights  

In Pick v Sumpter and another, the first defendant's trustee in bankruptcy applied for an order for possession of the defendants' matrimonial home. At the hearing in May 2006, the evidence showed that the sum outstanding as at November 2005 was £25,571 but did not take into account legal costs. That sum was an estimate and did not take into account statutory interest on the bankrupt's debts beyond the date of the hearing, solicitor's costs of the possession hearing or any increase or decrease in the trustee's remuneration.

In our September 2009 Pensions update we reported on proposals to make changes to the employer debt regime aimed at assisting corporate restructurings. The final regulations have now been published and come into force on 6 April 2010. Under these provisions, where there is a corporate restructuring and one employer’s assets and pension liabilities are transferred to another, then as long as the prescribed steps (set out below) are followed, no statutory employer debt will arise. Employers relying on an easement will not be expected to seek clearance from the Pensions Regulator.

Following consultation last autumn, the Government is once again changing the Regulations under s75 Pensions Act 1995.

The changes1 take effect on 6 April 2010. They are intended to facilitate corporate restructurings. They also address some minor technical issues. The Government has postponed any more fundamental rewriting of the Regulations, saying that “this is a complex area that deserves closer consideration”.

Restructurings

A new wrinkle in the Lehman Brothers bankruptcy cases emerged recently when a U.S. bankruptcy judge issued an opinion directly at odds with the decisions previously rendered by certain English courts regarding priority of payment provisions (the “Priority Provisions”) with respect to collateral under the “Dante Program.”

The Dante Program

In the case of In the matter of Construction Confederation and In the matter of the Insolvency Act 1986 [2009] EWHC 3551 (Ch), the trustees of the Construction Confederation Staff Pension Scheme have obtained an order for winding up of the sponsoring employer, an unincorporated association.

In May 2009, the Treasury published a discussion paper entitled Developing effective resolution arrangements for investment banks. In this discussion paper the Treasury set out its initial thinking on the steps necessary to improve the regime around the failure of investment firms.

The US Bankruptcy Court has issued a declaratory judgment that the relevant clause flipping priority from the swap counterparty to the noteholders constituted an ipso facto provision and was therefore unenforceable – a judgment that produces a different result under US law to that established by the Court of Appeal in the Perpetual Trustee case from November 2009.