Dead Horses

When is a dead horse really a dead horse? Given that ‘insolvency’ opens the door to various procedures for creditors and others, it should (in theory) be fairly easy to define. In practice, however, it is not.

The last two months have seen two key appeals in which the court was required to decide whether the tenant of a particular type of building should enjoy the statutory right to acquire the freehold of a house. This right is enshrined in the Leasehold Reform Act 1967.

The properties, and the questions for the court in each case, were quite different. What the judgments had in common was a purposive approach to interpretation of the Act.

Landlords often ask for a rent deposit when they grant a new lease, or consent to an assignment, especially if the incoming tenant is of shaky covenant strength. This provides security against possible future default.

If a tenant becomes insolvent then this is exactly the sort of situation where a landlord would want to make use of a deposit. Where it is in the “commingling” form (i.e. paid to the landlord so that it becomes a debt in favour of the tenant) then that is unproblematic: no restrictions are imposed by the moratorium which arises on the tenant’s insolvency.

The Corporate Insolvency and Governance Act 2020 (CIGA) came into force on 26 June 2020, having been fast-tracked through Parliament. Although most of CIGA relates to insolvency law, the Act also makes some temporary changes to company law in the UK. The purpose of these is to give companies greater flexibility to deal with the difficulties caused by COVID-19.

Key changes

Delivering on the announcement in the Autumn Budget, HMRC issued its consultation "Protecting your taxes in insolvency" on 26 February 2019. The consultation proposes legislation that will give HMRC the elevated status to secondary preferential creditor in a company's insolvency. If this is implemented, HMRC will have priority to recover certain taxes from insolvent businesses ahead of other creditors from 6 April 2020.

Facility agreements almost always contain events of default based on a borrower's insolvency. Defining insolvency is therefore key. In this article published in July 2013 we discussed how, following Eurosail¹ , the common law was beginning to move the statutory tests of insolvency towards a more commercial view.

This article first appeared in the December 2014 edition of Corporate Rescue & Insolvency journal. Written by Deepak Reddy in Dentons' New York office, Carlo Vairo in Dentons’ Toronto office and Alexander Hewitt in Dentons' London office.

Key Points

The Government has fed back on the responses to DBIS’s consultation on the effect of bankruptcy on the ability to access a basic bank account. Responses to the consultation have shown that only 27% of people subject to a bankruptcy order are able to retain their bank account. A bank's decision not to offer a bank account to a bankrupt is mainly based on the bankrupt's credit record, rather than on the risk of the trustee making a claim against the bank, a risk that the consultation process has shown is more perceived than real.

On December 29, 2011, the US Court of Appeals for the Third Circuit issued an opinion in the chapter 11 bankruptcy case In re Nortel Networks, Inc., holding that the "automatic stay" on creditor collection actions outside the bankruptcy applied to prevent the UK Pension Protection Fund and the Trustee of the UK Nortel Pension Plan from participating in UK pensions proceedings initiated by the UK Pensions Regulator.

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