Dead Horses
When is a dead horse really a dead horse? Given that ‘insolvency’ opens the door to various procedures for creditors and others, it should (in theory) be fairly easy to define. In practice, however, it is not.
The last two months have seen two key appeals in which the court was required to decide whether the tenant of a particular type of building should enjoy the statutory right to acquire the freehold of a house. This right is enshrined in the Leasehold Reform Act 1967.
The properties, and the questions for the court in each case, were quite different. What the judgments had in common was a purposive approach to interpretation of the Act.
Landlords often ask for a rent deposit when they grant a new lease, or consent to an assignment, especially if the incoming tenant is of shaky covenant strength. This provides security against possible future default.
If a tenant becomes insolvent then this is exactly the sort of situation where a landlord would want to make use of a deposit. Where it is in the “commingling” form (i.e. paid to the landlord so that it becomes a debt in favour of the tenant) then that is unproblematic: no restrictions are imposed by the moratorium which arises on the tenant’s insolvency.
In this article we look at current trends and developments at the intersection between insolvency and dispute resolution, including a rundown of some of the latest legislative changes, and issues to consider when litigating against parties in financial distress.
This analysis was first published on Lexis®PSL on 27 September 2021 and is republished with their kind permission.
Corporate Insolvency and Governance Act 2020
On 8 October 2020, the Insolvency Service published the outcome of its review of industry reforms to pre-pack sales in administration and made recommendations which will impact the way in which pre-pack sales to connected parties in particular operate in the UK in the future.
Speed read
The UK Parliament made an Order on 3 March 2020 which increases the prescribed part, payable to unsecured creditors from floating charge recoveries on the insolvency of a company from £600,000 to £800,000.
Back in August 2018, in its paper entitled “Government Response: Insolvency and Corporate Governance” (the 2018Paper) the Government responded to its consultation on ‘Insolvency and Corporate Governance‘ with the announcement of several reforms and proposed next steps.
On 24 October 2017 the Court of Appeal handed down its decision in what has become known as the Waterfall IIA and B litigation (Burlington Loan Management Limited and others v Lomas and others [2017] EWCA Civ 1462). The decision also covered an appeal of one point from the High Court Waterfall IIC decision.
In Deutsche Bank AG v Sebastian Holdings Inc and another (2015), the High Court declined to set aside an order under CPR Part 71 that a non-resident foreign officer of a judgment debtor provide information needed to enforce the judgment. There is no requirement that there be "exceptional circumstances" for such an order to be made.
Background
In related Nortel and Lehman Brothers cases, the UK Supreme Court ruled in July that Financial Support Directions ("FSDs") and Contribution Notices ("CNs") under the Pensions Act 2004 rank as provable debts if issued against insolvent targets.
Overturning the decisions of Mr Justice Briggs and the Court of Appeal, the Supreme Court has ruled that such FSD or CN liabilities are not administration or liquidation expenses. It has also confirmed that they do not rank behind other provable debts (the option which had become known as the 'black hole').
The High Court has dismissed an application by a landlord creditor to overturn a company voluntary arrangement (CVA) implemented by coffee shop chain Caffé Nero. The CVA, previously approved by its creditors, compromised rent arrears and reduced future rents for the company's premises. The decision follows a series of previous high-profile challenges to retail and leisure CVAs.