Syedur Rahman of Rahman Ravelli examines a case that ruled on whether a Warning Notice can be issued while there is a liquidation stay on action and proceedings.
As the saga continues following the collapse of the facilities management and construction services group Carillion, so does the legal fall-out regarding the company and its regulation by the Financial Conduct Authority (FCA).
The case of Arlington Infrastructure Ltd (In Administration) v Woolrych [2020] EWHC 3123 (Ch) is a cautionary reminder to qualifying floating charge holders (and their advisors) to review the terms of all security documents, before seeking to appoint an administrator.
COVID PROTECTIONS EXTENDED TO GIVE BUSINESSES A LAST CHANCE TO PLAN RECOVERY. TIME TO CONSIDER A COVID-19 CVA?
If the announcements last week on the lack of downward tier revisions for many areas is the bad news, the silver lining for the struggling and affected businesses came in the reinstatement of the temporary suspension on the use of statutory demands and winding up petitions until 31 March 2021.
Disputes between directors often arise because of, and/or result in, disputes about company money. Directors need to be alert to how they are required to act, particularly in times of conflict. Section 172 of the Companies Act 2006 imposes a broad duty on directors to promote the success of the company however the term “success” is unhelpfully uncertain, especially where the company is in difficulty and/or where the company is wound up.
Speed read: Rachel Clark considers whether draft new regulations requiring scrutiny of pre-pack sales to connected parties will be enough to prevent fraud and restore confidence in the process.
Once likened to sustaining ‘Frankenstein monsters’, the use of ‘pre-packs’ is controversial.
Whilst not defined by statute, the term ‘pre-pack’ is commonly used to mean an arrangement to sell all or a substantial part of a business prior to the company entering administration, with the administrator then completing the sale.
Hot on the heels of the landmark changes to the insolvency landscape brought by the Corporate Insolvency and Governance Act 2020 (CIGA) (see our previous article on CIGA), the Government recently announced reforms relating to pre-packaged administration sales to connected parties.
General rule under the laws of England & Wales
As a general rule, a cause of action (also known as a “bare right to litigate”) may not be assigned under English law. Such assignment is deemed to violate the rules regarding champerty and maintenance, the common law principles which prohibit third parties from intermeddling with the disputes of others – be it or not in return for a share of the proceeds. An assignment of a cause of action is therefore void.
The temporary restrictions that prohibit winding up proceedings where non-payment is COVID-19 related, and restrict petitions based on unsatisfied statutory demands, that would have come to an end on 31 December 2020 have been extended until 31 March 2021.
What are the restrictions?
Statutory demands
Creditors cannot rely upon an unpaid statutory demand as evidence of inability to pay debts in order to issue a winding-up petition against a company, effectively rendering the statutory demand void for that purpose.
On 3 December 2020, HM Treasury published the Government's proposal to implement a new special administration regime for PIs and EMIs (PI and EMI SAR), a copy of which can be seen here.
The UK government has published new draft regulations to require mandatory scrutiny of administration sales to connected parties (such as the insolvent company’s existing directors or shareholders).
In the UK, a "pre-pack" is an arrangement under which the sale of all or part of a company’s business or assets is agreed with a purchaser prior to the appointment of administrators. The sale is carried out by the administrators immediately on, or shortly after, their appointment. Administrators must be licensed insolvency practitioners.