There has been considerable controversy about the extent of the powers, and the extent of obligations of a business rescue practitioner in relation to a cession of book debts by the company in rescue.

This is an important issue in business rescue because most financially distressed companies have an overdraft facility with a bank which is secured by a cession of debtors. Many practitioners want or need to use the overdraft facility as working capital.

Cession (generally)

It has been understood since the Hindcastle case in 1997 that a guarantor’s payment obligations under a lease survive disclaimer by an insolvent tenant’s liquidator.  What has been less clear is how that works, given that the tenant’s obligation to pay rent dies when the lease is disclaimed.

The UK Supreme Court has recently overturned a much-criticised and controversial ruling of the Court of Appeal by finding an ambiguously worded advance payment bond effective in the case of insolvency. In doing so, it clarified the proper role and application of considerations of business common sense when interpreting commercial contracts. Where a clause is capable of two or more possible interpretations, Rainy Sky SA v Kookmin Bank held that the court should prefer the one which is most consistent with common business sense.

On 28 June 2022 the Insolvency Service published a report it had commissioned from RSM UK to assess the impact that CVAs were having on commercial landlords (the “Report”).

The government has introduced the Debt Respite Scheme (Breathing Space), which came into effect on 4 May 2021, which allows individuals who are struggling with debt to apply for a “breathing space” in which to sort out their finances.  This scheme, which was introduced in response to the unprecedented impact of the COVID-19 pandemic, includes residential tenants who are in arrears of rent.

What is a breathing space?

There are two types of breathing space:-

Long awaited insolvency reforms in the UK, plus the government’s COVID-19 proposals on the use of statutory demands – and much more

What’s the latest?

A recent High Court case (Fairhold Securitisation Limited v Clifden IOM No 1 Ltd) has affirmed that in debt issuances involving a trustee, noteholders have only limited rights to take direct enforcement action. The case confirmed that:

The Pension Protection Fund (PPF) is responsible for paying compensation to members of defined benefit occupational pension schemes where the scheme is in deficit on a PPF funding basis and the employer becomes insolvent. One of the criteria that must be satisfied by a scheme to enter the PPF is that the participating employer(s) suffer a "qualifying insolvency event" (QIE).

The High Court of England and Wales handed down judgment last week in the case of Christine Mary Laverty and others as Joint Liquidators of PGL Realisations PLC and others v British Gas Trading Limited [2014] EWHC 2721.  In an important decision for the insolvency industry, it was held that the statutory deemed contracts regime for gas and electricity supply could not be used by utilities companies to gain priority over other creditors.

Proposals issued October 2010

Confirmation given 31 January 2011

Policy statement issued May 2011

Draft guidance on the bespoke measurement of investment risk issued May 2011. Consultation ends on 24 June 2011

Consultation on the 2012/13 levy determination expected in autumn 2011

The PPF has confirmed its intention to implement a new levy framework from 2012/13. Key features of the framework confirmed in the policy statement include: