Understanding the rights of your employees in redundancy is an important part of any insolvency procedure. Here we look at what happens during various administration and liquidation processes, plus the way in which redundancy entitlement is calculated.

Staff redundancy following liquidation

The Court of Session has confirmed that the administration in Scotland of a Scottish company will take priority over an Indian liquidation of the same company, regardless of where the company’s business and assets are situated. The Court has also confirmed that the validity and enforceability outside the UK of a floating charge is irrelevant to the validity of an administrator’s appointment in Scotland under that floating charge.

Recent cases we have been involved in have highlighted the need for Insolvency Practitioners to pay careful attention to the effect that block transfer orders have on administrations where the exit route is a creditors' voluntary liquidation ("CVL"). Failure to do so could risk the appointment of liquidators being invalid.

The statutory requirements

On 30 September 2016, the Competition and Markets Authority (“CMA”) published its finding that two companies involved in the online retail of licensed sport and entertainment posters and frames had breached the Competition Act 1998 (“CA98”) by entering into agreements (or, at least, ‘concerted practices’) to artificially inflate the prices charged for certain products. A formal charge was accepted by the main protagonist, Trod Limited (in administration) (“Trod”) and fines imposed, which became payable by Trod’s administrators as of 13 October 2016.

The Association of Business Recovery Professionals suggests that unsecured creditors, on average, receive 1% of the debt due to them from a company that undertakes a pre-pack sale and 3% in cases in which a going concern sale is achieved.  Given such poor prospects, investment of time in identification and reduction of insolvency risk can pay dividends.

There are a number of warning signs of supply chain risk, and it is key that you are familiar with these:

The Court of Appeal in England has confirmed that a Trustee in Bankruptcy (“TIB”) cannot force a bankrupt person to elect to take their uncrystallised pension benefits solely so that the TIB can recover the benefit as income for the member's creditors. The decision in Horton v Henry (2016) clarifies the legal position after previous conflicting judgements had been given by the Courts.

A recent Court of Appeal decision in the UK has ruled that individuals facing bankruptcy cannot be forced to hand over their pensions to pay off outstanding debts. We examine the affect insolvency can have on your pension in this jurisdiction.

The recent UK Court of Appeal decision in Horton v Henry ruled that there was no requirement to draw down funds held in a pension in the event of bankruptcy. As a result of this decision, the UK legal system now appears to acknowledge that pension funds should be out of the reach of a bankruptcy trustee.

Horton v Henry: Pensions clarified

We previously discussed the uncertainty surrounding the treatment of pensions in a bankruptcy which arose from two conflicting high court decisions: Raithatha v Williamson [2012] EWHC 909 (Ch) and Horton v Henry [2014] EWHC 4209 (Ch).

In Hinton v Wotherspoon [2016] EWHC 623 (CH) (where this firm successfully represented the trustee in bankruptcy, Lloyd Hinton of Insolve Plus Limited), the court commented that the approach in Horton v Henry [2014] EWHC 4209 (Ch) was “plainly correct”.

In the case of Re BW Estates Ltd the High Court considered the validity of a directors’ out of court appointment in circumstances where there was technically an inquorate directors’ board meeting.

A defined hierarchy of creditors exists when a company enters insolvency, with secured creditors being at the top, and first in line for payment once the Insolvency Practitioner’s fees have been met. Unsecured creditors, on the other hand, rank near the bottom of the list.

A secured creditor is generally a bank or other asset-based lender that holds a fixed or floating charge over a business asset or assets. When a business becomes insolvent, sale of the specific asset over which security is held provides repayment for this category of creditor.