A recent judgment has clarified the duty of receivers when selling secured property to a company connected to a creditor.
Background
The claimant alleged that the receivers, appointed on behalf of, and selling to a party connected to the creditor, had acted in bad faith. They had placed themselves in a position of conflict and had engaged in self-dealing. As well as dealing with this issue, the court also assessed where the burden of proof lies when allegations of failing to act in good faith are raised.
Held
Key points
Once clear that an action is improperly constituted, it should not be allowed to proceed.
Those in control of a company have the duty to manage that company in accordance with its constitution.
The Facts
The UK High Court has excluded 'out of the money' creditors and shareholders from voting on Smile Telecoms Holdings Limited’s (Smile) restructuring plan because they did not have a genuine economic interest in the company.
Background
The High Court recently considered whether a creditor can be a victim to, and obtain relief for, a transaction which is reversed before the claim is even brought and the creditor is put back to the position they were in before the transaction took place.
Timeline
In Uralkali v Rowley and another [2020] EWHC 3442 (Ch) – a UK High Court case relating to the administration of a Formula 1 racing team – an unsuccessful bidder for the company's business and assets sued the administrators, arguing that the bid process had been negligently misrepresented and conducted.
The court found that the administrators did not owe a duty of care to the disappointed bidder. It rejected the claimant's criticisms of the company’s sale process and determined that the administrators had conducted it "fairly and properly" and were not, in fact, negligent.
Facts
Centenary Homes Limited (C) was a property development company which acquired two blocks of flats: one in Enfield and the other in Bloomsbury. The Bank of Scotland (BOS) extended secured finance to C for the development of the two properties.
C defaulted on its repayment obligations in 2012 and fixed charge receivers were appointed in March, when the balance outstanding was approximately £4.4 million.
The receivers were able to sell the Enfield flats in July 2012, for £3,250,000.
Videology Inc and it's UK subsidiary, Videology Limited (the "Company") applied to the English court for their US Chapter 11 proceedings to be recognised as "foreign main proceedings" under Article 17 of the UNCITRAL Model Law of Cross-Border Insolvency (the "Model Law") and for an administration moratorium under the Article 21 of the Model Law. The Videology group had secured an agreement with an interested party to buy its business and assets.
Decision
Key points
The Court of Appeal confirmed that there is a complete statutory code for the payment of interest.
Statutory interest represents compensation for dividends paid after the administration, and does not depend on any right to interest under the underlying claim.
Regard can be had, however, to the rate at which interest would have been paid to the creditor after the administration.
The facts
The English High Court has rejected a creditor's application to bring a moratorium to an end following the monitors' decision not to terminate the moratorium.
Background
A monitor must terminate the moratorium if they 'think' that the company is unable to pay any pre-moratorium debts for which the company does not have a 'payment holiday'. Surprisingly, debts arising under an agreement involving 'financial services' are excluded from the payment holiday.
Decision
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the Regulations) came into effect on 4 May 2021. While the Regulations will provide residential tenants with additional procedural protection regarding rent arrears, they will be an unwelcome additional hurdle to landlords.
What do the Regulations do?