Directors of companies incorporated in England and Wales must be mindful of their duties and responsibilities to the company as well as the potential personal liability that could arise from breaching those duties and responsibilities in the context of an insolvency.

With the current financial difficulties faced by the oil & gas industry, this issue is especially pertinent to that sector.

The High Court in London gave judgment on parts A and B of the Lehman Waterfall II Application on 31 July 2015.  The application is part of the ongoing dispute as to the distribution of the estimated surplus of more than £7 billion in the main Lehman operating company in Europe, Lehman Brothers International (Europe) (LBIE).

On 31 July 2015, the English High Court delivered its judgments in the ‘Waterfall IIA’ and ‘Waterfall IIB’ cases. The decisions are important to stakeholders in determining key questions about how, following payment in 2014 of all the provable claims, the estimated £7.39-billion surplus (the ‘Surplus’) in Lehman Brothers International (Europe) (in administration) (‘LBIE’) will be shared amongst them. For others, the decisions may be of general interest in probing some rarely aired legal issues relating to the lower levels of the insolvency payment waterfall.

In recent times, the legal profession has undergone widespread changes at the bequest of previous governments. The most draconian measures have been in relation to the expense of professional services. These include a budgeting and costs management process which is the subject of judicial approval. In essence, service provider’s fees and expenses are estimated and capped in advance of them being incurred.

Summary

On 12 May 2015, the English High Court provided guidance on the interpretation of the Loss provision under the 1992 ISDA Master Agreement in its judgment in Fondazione Enasarco v Lehman Brothers Finance S.A. and another [2014] EWHC 34 (Ch). The judgment will be of interest to participants in the derivatives markets as it provides:

New guidance from the Pension Protection Fund (PPF) regarding pre-packaged administrations (pre-packs) outlines their approach to pre-packs when the same insolvency practitioner (IP) proposes to continue as office holder in any subsequent liquidation or company voluntary arrangement (CVA).

This article provides an essential update for insolvency practitioners on insolvency changes in 2015 and the proposed changes in 2016.

2015 Changes                

The Small Business, Enterprise and Employment Act 2015

The Tribunal has upheld HMRC's decision that a company (Danesmoor Ltd) should not be entitled to recover input VAT incurred on professional fees for a corporate restructuring. HMRC had not allowed the recovery of the input VAT on the grounds that the services were not provided to the company. The appellant argued that the advisors had been engaged and paid for by the company directly in connection with the restructuring and as such the input VAT should be recoverable.

Over the past 15 years or so, one of the most commonly recurring themes in my practice has been advising both insolvency practitioners and directors on the prospects of legal proceedings being pursued for breach of director duties and/or wrongful trading. Very often the two claims are put together for the purposes of an actual or threatened claim, and very often sitting behind the scenes as well is a possible investigation and/or claim that one or more directors should be disqualified.

On 1 October 2015 the Insolvency (Protection of Essential Supplies) Order 2015 (“PESO”) will come into force. PESO aims to strengthen the statutory protection provided to insolvent companies and insolvency practitioners who need to utilise ‘essential supplies’ to continue to trade.

Essential Supplies