Insolvency practitioners and buyers of distressed assets beware: although the National Security and Investment Act 2021 (NSI Act) will come into effect in the UK on 4 January 2022, it has retrospective power to examine transactions from 12 November 2020.

Mandatory notification

From 1 December 2020 onwards, HMRC will be treated as a preferential creditor of companies for certain taxes including PAYE, VAT, employee NICs and Construction Industry Scheme deductions. In the event that a company enters administration or liquidation, HMRC's claim for these taxes will rank ahead of any floating charge holder.

This reflects recent changes made to the Finance Act 2020.

The impact on floating charge holders

IP licensing and insolvency reform: ipso facto clauses

Licensors of intellectual property rights may soon be unable to terminate licenses where the licensee has gone into an insolvency process.

What are ipso facto clauses and why do they matter?

Background

High-profile use of company voluntary arrangements or CVAs, has led to widespread media coverage and controversies. Household names such as Jamie's Italian, Prezzo, Toys R Us, Mothercare, Gourmet Burger Kitchen and more recently Debenhams are amongst the growing list of companies who have followed this well-trodden path, with varying degrees of success. Those companies unable to turn their fortunes around face administration or liquidation.

Key Points

• Insurers had no priority rights to collect premiums over the proceeds of a successful action they had insured, as a result of a drafting error.

• The High Court affirmed the general rule that, where a party has contracted for an unsecured right only, the court will not elevate it to a secured status.

The Facts 

The English High Court has sanctioned Smile Telecom Holding Limited's (Smile) restructuring plan, despite there being no parallel restructuring proceedings in Mauritius, the place of Smile's incorporation.

Background

In a recent judgment, the English court refused to sanction a restructuring plan put forward by oil and gas producer, Hurricane Energy PLC.

Background

Sky Building Ltd (the Company) owned a development property (the Property) and granted leases for 145 flats. Leasehold contracts were exchanged in relation to 143 flats, giving rise to purchasers' liens. Some of the purchasers' liens (securing liabilities of approximately £6.5 million) were protected by registration of notices against the title to the Property, conferring a priority interest in the event of a sale of the Property.

As part of its pandemic-driven £1.2 billion solvent recapitalisation, Virgin Atlantic recently became the first company to use the UK government's new restructuring plan introduced in June 2020.

Let's look at why the court approved Virgin's restructuring plan, and what companies intending to use the new plan need to know before moving forward.

The lender's dilemma

Lenders who take security over shares in an English company have to decide whether to take either:

• a legal mortgage by becoming registered owner of the shares
• an equitable mortgage or charge with the chargor remaining the registered owner.

A legal mortgage gives the lender the right to vote subject to the terms of the mortgage document and prevents the chargor from disposing of legal title to the shares to a third party, as the lender is the registered owner of the shares.