The suspension of wrongful trading under the Corporate Governance and Insolvency Act 2020 was introduced to allow directors to trade during the pandemic without the unwanted distraction of potential liability. This article considers whether that objective is likely to be achieved in circumstances where there has been no modification to the common law rules governing duties owed to creditors, and in light of the Court’s power to award compensation in disqualification proceedings.

Introduction

Section 284 of the Insolvency Act 1986 (the “IA86”) deals with the restrictions on a bankrupt in dealing with their property in the period between the making (practically speaking, the presentation) of a bankruptcy application and the vesting of the estate in the trustee. This period is defined as the “Relevant Period”. If a bankruptcy order is made, any disposition of property in the Relevant Period is automatically void. Any person in receipt of disposed property is treated as holding it on trust for the benefit of the bankrupt’s estate.

The High Court recently considered whether a creditor can be a victim to, and obtain relief for, a transaction which is reversed before the claim is even brought and the creditor is put back to the position they were in before the transaction took place.

Timeline

In this session, the panellists took up the challenge of predicting the post COVID future for directors, and the immediate challenges they will face as a result of the winding back of protections and support provided in 2020.

People get divorced for all sorts of reasons. What if the main reason for a divorce is to put assets beyond the reach of creditors? A quick divorce giving assets to the soon-to-be-ex spouse, followed by a declaration of bankruptcy can look incredibly suspicious, but if there’s a Court order granting the divorce and division of assets what can be done about it?

Transfer at an undervalue

The suggestion that the financially stronger party is at risk of bankruptcy is not a novel argument in financial proceedings following a divorce. In many cases, the threat of bankruptcy does not materialise and therefore has no bearing on the final outcome. In some, however, the risk of bankruptcy is used as an excuse for a breach of orders made in the family court and in the worst case scenario, the threat of bankruptcy can become a reality.

The recent case of Manolete Partners Plc v Hayward and Barrett Holdings Ltd [2021] EWHC 1481 (Ch) impacts both insolvency practitioners and assignees of insolvency claims, potentially making such claims more expensive to bring and a procedural burden by requiring (depending on the nature of the pleaded claims) two sets of proceedings, even though the claims arise from the same facts.

Expert input is critical to a successful restructuring. Obtaining proper independent expert input is vital, and this next article in our series focusses on managing director duties and stakeholder interests in a restructuring. The impact of Covid19 on businesses has been significant and severe.

A series of high-profile insolvencies in 2020 caused by the coronavirus pandemic, oil price crash and allegations of fraudulent activity has brought to the forefront the question of a seller's rights over goods when they are in transit to an insolvent buyer. While the seller might have a claim in damages or for the price, such claims will be unsecured and therefore of little to no value against an insolvent buyer.

• The judgment in Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale (Electrical) Limited recognised that insolvent parties have an unfettered right to adjudicate.
• In so doing the judgment opened the door for Insolvency Practitioners to use adjudication, or the threat of adjudication, to resolve disputes arising under construction contracts.

PRIOR TO BRESCO