We reported on the High Court case of BNY Corporate Trustee Services Limited v Eurosail in August 2010 and last week's Court of Appeal decision provides further important guidance on the interpretation of the balance sheet insolvency.

While the construction press seems to be full of speculation over which contractors are currently facing financial difficulties, coverage in relation to consultants' insolvency seems relatively minimal.

The recent Court of Session case of Tayplan Limited (in administration) v Smith, is particularly interesting as it is a case where the administrator chose to pursue directors for breach of fiduciary duties rather than using any of the more common statutory remedies.

The Facts

Tayplan Limited was a family business with two directors - Mr Smith senior and Mr Smith junior. Mr Smith senior and his wife each held 50% of the shares in the Company.

Where lenders rely on floating charge security to make recoveries from companies in administration, some recent cases have massively increased the potential for administration expenses to swallow up those recoveries. The more well-known cases could just be the start. So, what are the potential risks? What can lenders do in the face of the law as it currently stands? What is going to happen next?

The Nortel decisions

Last week the Employment Appeal Tribunal ruled in five conjoined appeals that TUPE applies in all administrations, since they constitute "relevant insolvency proceedings" and not "liquidation proceedings". This will be the case even in “pre-pack” administrations, where a business is placed into administration but immediately sold to a purchaser who has been lined up to buy the business beforehand.

In this case, a liquidator had commenced proceedings against the former director of a company in relation to transactions which were alleged to have been made at an undervalue and/or with an intention to defraud creditors and/or which were preferential. It was also alleged that the former director had acted in breach of his fiduciary duties in procuring or permitting the transactions to take place.

The Employment Appeal Tribunal (EAT) held in OTG Ltd v Barke (2011 UKEAT) that TUPE will apply to transfer employees when a company goes into administration, including on a pre-pack administration. This decision overturns the leading case of Oakland v Wellswood (Yorkshire) Ltd, which found that TUPE did not apply to "pre-packs".

Lehman Brothers Special Financing Inc.’s pending appeal against the judgments of the UK High Court and the Court of Appeal in the so called “flip clause cases”, concerning the enforceability of flip clauses, is scheduled to be begin with Belmont Park Investments Pty Limited (Belmont Park Investments Pty Limited v BNY Corporate Trustee Services Limited and Lehman Brothers Special Financing Inc (UKSC 2009/0222)) on March 1, 2011.

There has been an upturn in the frequency of trade finance workouts, restructurings and formal insolvencies. Susan Moore and Luci Mitchell-Fry look at some key issues that banks face when trade finance lending passes to "bad bank".

The bank's decisions at every stage of a trade finance transaction are critical: at origination; when following a workout/restructuring; and once a formal insolvency process becomes a reality.

Origination

The EAT's judgment