This update summarises the latest jurisprudence on insolvent schemes of arrangement (schemes) and restructuring plans (RPs), and provides an overview of the key themes that are emerging in this area.
Key Concepts and Notes
The UK's latest quarterly company insolvency statistics, published on 29 October, suggest that the unexpectedly calm seas seen over the last 18 months (and maintained by unprecedented government economic support) may be starting to give way to stormier waters as corporate insolvencies begin to return to pre-pandemic levels.
Alex Jay, Head of Insolvency and Asset Recovery, discusses how companies can protect themselves from rising insolvency risks as businesses begin to emerge from the pandemic and commercial pressure increases.
Insolvency risk can affect businesses and individuals in a number of ways. Markets can turn rapidly – think for example of the recent spate of energy company failures – and can catch you off guard.
The High Court, in its recent judgment In the matter of ipagoo LLP (in administration) [2021] EWHC 2163 (Ch) (Ipagoo), has determined that no statutory trust exists over safeguarded funds held under the Electronic Money Regulations 2011 (EMRs). This can be contrasted with the decision In Re Supercapital [2020] EWHC 1685 (Ch) (Supercapital) which found that the Payment Services Regulations 2017 (PSRs) create a statutory trust over safeguarded funds.
The English High Court has rejected a challenge to the CVA proposed by Caffè Nero in a decision that provides guidance on the use of the electronic voting procedure for votes on CVAs, the effectiveness of modifications made to a CVA during the process and the duties of the directors and nominees when considering last minute offers for a business in a restructuring scenario. Mr Justice Green rejected all grounds of challenge brought by Mr Ronald Young, a landlord to Nero Holdings Limited ("NHL").
- Brexit ripped up the rules on automatic cross-border recognition of formal insolvency proceedings and restructuring tools between the UK and the EU.
- Recognition will now depend on a patchwork of domestic legislation, private international law and treaties and may lead to different outcomes depending on the jurisdiction.
- Cross-border recognition is still achievable but involves careful navigation and a more tailored approach in individual cases to selection of the most effective process and its route to recognition.
Legal landscape
It’s autumn and time to put that box-set viewing on pause and perhaps instead review the likely direction of travel of the “zombie” army of distressed businesses. How do you avoid contagion?
Unless you hibernated during the various lockdowns you will not have failed to notice that the impact of Brexit, the Covid-19 pandemic, and lockdown measures took their toll on spending, incomes and jobs, tipping the UK economy into recession after negative growth in the first two quarters of 2020.
Recent analysis by Begbies Traynor shows that more than half of UK businesses are carrying “toxic debt” that they might struggle to repay over the next 12 months. What if the company you are thinking of suing, or that is suing you, is one of them?
Since 1 January 2021, the European Insolvency Regulation and the Brussels I Recast Regulation no longer apply to the United Kingdom. In addition, the EU-UK Trade and Cooperation Agreement does not provide any specific recognition or enforcement mechanism in relation to cross-border insolvency and restructuring proceedings following Brexit. The question thus arises if and under which conditions Belgian courts will continue to recognise UK schemes of arrangement and restructuring plans post Brexit.
In this week’s update: Funds in a holding company’s bank account belonged to a subsidiary and could be used to pay the costs of a subsidiary’s acquisition, the FCA publishes a series of Q&A on the cessation of LIBOR and the Government publishes a roadmap towards greening finance and sustainable investing.