Corporate insolvencies are set to rise over the coming months and years as the effects of the cuts in Government expenditure begin to infiltrate the private sector.

In the recent English Court of Appeal case of Rubin v Coote, the court allowed a liquidator to settle litigation without having obtained the agreement of all creditors to the compromise.

The Facts

The story of the Silentnight restructuring has featured in the press today. There have been calls for the Pensions Regulator to use its anti-avoidance powers under the Pensions Act 2004 to compel HIG Europe to pay more towards the considerable deficit of the Silentnight Pension Scheme, following the purchase of Silentnight out of administration by the private equity firm last Saturday. Earlier this year, Silentnight had failed to obtain the PPF's approval to a Creditors Voluntary Arrangement aimed at addressing its historic debt, including a pensions deficit of around £100m.

The EAT has confirmed that it is not necessary for the eventual transferee to have been identified in order for an employee, dismissed in the run up to a transfer, to claim automatic unfair dismissal by reason of a relevant transfer under TUPE (Spaceright Europe Ltd v Baillavoine & another).

In its ministerial statement this week in relation to its consultation on the proposals for a restructuring moratorium, the Government has indicated that it now proposes to consider implementing measures to tackle the unreasonable use of termination clauses in insolvencies.

What Are Termination Clauses?

Termination clauses are, of course, found in most commercial agreements and are a means by which a party may terminate an agreement on the occurrence of certain events (invariably including insolvency of the other party).

The Court of Appeal has confirmed the High Court's decision that the "Balance Sheet Test" (for whether a company is unable to pay its debts under Section 123(2) of the Insolvency Act 1986) cannot be reduced to a single formula or set of principles that apply to all companies.

The Balance Sheet Test forms part of the provisions that regulate when a company may be compulsorily wound up by the Court.

In BNY Corporate Trustee Services Ltd v Eurosail UK 2007 - 3BL PLC & Ors, the English Court of Appeal has decided that the mere fact that a company’s aggregate liabilities exceed its assets may not render the company to be deemed unable to pay its debts under section 123(2) of the UK Insolvency Act 1986 (commonly referred to as the “balance sheet test”). The test is whether a company has reached a point of no return such that its state of affairs is not or is unlikely to continue having regard to its contingent and future liabilities.

With effect from 6 April 2011, the London Insolvency District (General London County Court) Order 2011 gives the Central London County Court jurisdiction over bankruptcy cases where the bankrupt resides, or carries on business, in the London insolvency district. The High Court used to have jurisdiction over all London's bankruptcy cases.

The EAT has held that employees of a business will transfer to the buyer of that business, even where the business is in administration, as long as there has been a 'relevant transfer'.

This was conclusion of the Court in the case of Nicola Jane Haworth v Donna Cartmel and Revenue & Customs Commissioners. The case was an application by Ms Haworth to annul or rescind a bankruptcy order on the grounds that she lacked capacity when a statutory demand and bankruptcy petition were served on her personally.