From 1 December 2020 onwards, HMRC will be treated as a preferential creditor of companies for certain taxes including PAYE, VAT, employee NICs and Construction Industry Scheme deductions. In the event that a company enters administration or liquidation, HMRC's claim for these taxes will rank ahead of any floating charge holder.

This reflects recent changes made to the Finance Act 2020.

The impact on floating charge holders

As part of its pandemic-driven £1.2 billion solvent recapitalisation, Virgin Atlantic recently became the first company to use the UK government's new restructuring plan introduced in June 2020.

Let's look at why the court approved Virgin's restructuring plan, and what companies intending to use the new plan need to know before moving forward.

The lender's dilemma

Lenders who take security over shares in an English company have to decide whether to take either:

• a legal mortgage by becoming registered owner of the shares
• an equitable mortgage or charge with the chargor remaining the registered owner.

A legal mortgage gives the lender the right to vote subject to the terms of the mortgage document and prevents the chargor from disposing of legal title to the shares to a third party, as the lender is the registered owner of the shares.

Investors may, for reasons outside of their control, find themselves with a financially distressed company in their portfolio and possibly in unfamiliar territory. Consequently, it is not just those investors who actively seek out opportunities within the distressed space who should be mindful of the implications of insolvency processes (most commonly administration which can often also be used as part of a wider restructuring).

The English High Court has sanctioned Smile Telecom Holding Limited's (Smile) restructuring plan, despite there being no parallel restructuring proceedings in Mauritius, the place of Smile's incorporation.

Background

In a recent judgment, the English court refused to sanction a restructuring plan put forward by oil and gas producer, Hurricane Energy PLC.

Background

Sky Building Ltd (the Company) owned a development property (the Property) and granted leases for 145 flats. Leasehold contracts were exchanged in relation to 143 flats, giving rise to purchasers' liens. Some of the purchasers' liens (securing liabilities of approximately £6.5 million) were protected by registration of notices against the title to the Property, conferring a priority interest in the event of a sale of the Property.

As previously reported, the Corporate Insolvency and Governance Act 2020 (CIGA) had made some permanent and temporary changes to the insolvency regime.

Here we focus on the impact of CIGA on construction contracts and, in particular, how the new provisions impact on construction contracts and the Construction Act.

What is CICA?

Background

The case concerned royalty payments, which a creditor had a contractual right to receive, arising from iron ore produced at a mine in Sierra Leone.

The parent company of the Sierra Leonean mining company went into administration and administrators from PwC were appointed. The creditor's director called the administrators to stress the importance of bringing the royalty payments to the attention of a third party purchaser.

The administrators subsequently sold the mine, but did not make the purchaser aware of the royalty issue.

Key points

• Failure to comply with sections 333 and 363 of the Insolvency Act constitutes contempt of court for which a committal order may be obtained.

• A trustee in bankruptcy should not usually require permission to apply for a committal order.

• Correct procedure for application confirmed by the court.