Thor Maalouf, an Associate in the London Shipping Group, considers some of the issues which may arise where a party to a charterparty becomes insolvent.

INSOLVENCY ALONE IS NOT ENOUGH TO JUSTIFY TERMINATION

Structured finance transaction documents have typically included subordination provisions in their post-default waterfalls, effectively changing a swap counterparty’s right to get paid from above that of the noteholders to below that of the noteholders.

The case concerned credit default swaps entered into between Lehman Brothers Special Financing Inc., and various parties, and the rights of the parties in respect of collateral held by a trustee.

In New Cap Reinsurance Corporation Ltd & Anr v AE Grant & Ors, the Court of Appeal has upheld a first instance decision that section 426 of the Insolvency Act (IA) can be used to enforce a foreign monetary judgment in insolvency proceedings. However, the Court acknowledged that where there exists a statutory framework for the enforcement of foreign judgments, in this case enforcement pursuant to the Foreign Judgments (Reciprocal Enforcement) Act 1933 (the 1933 Act), then enforcement under s.426 of the IA must follow the requirements of the 1933 Act.

TPR settled its dispute with Michael Van de Wiele (VdW) in relation to its UK pension scheme and issued a Contribution Notice (CN) for £60,000. Although this is significantly less than the £21 million originally sought and the £5.08 million decided by the Determinations Panel, TPR says it is “business as usual” for the use of its statutory anti-avoidance powers. A settlement at this level might be viewed as a defeat for TPR and an indication that CNs are not a potent weapon to deal with the avoidance of employer debts. That view would be seriously misguided.

The following question was published in the Financial Times on 23 July 2011 and answered by Richard Curtin, a lawyer in the London office of Faegre & Benson LLP.

I run a food and drinks company supplying products to football clubs.  But we recently heard that one of the clubs we supply will probably go into liquidation very soon and we are concerned that we may not receive the money we're owed by it. Is there any action we can take now to make sure we are credited if and when the club becomes insolvent?

FSA has published a guidance consultation on the prudential treatment of liquidity swaps. According to the FSA, a liquidity swap involves a liquidity transformation. Typically they involve transactions between an insurer and a bank whereby high-credit quality, liquid assets (such as gilts) held by an insurer is exchanged with illiquid or less liquid assets (such as asset-backed securities (ABS)) held by a bank. The proposed guidance will apply to all regulated firms transacting liquidity swaps (not just banks and insurers) and the deadline for responses is 21 September 2011.

A CVA was introduced as one of the rescue arrangements under the Insolvency Act 1986. It allows a company to settle unsecured debts by paying only a proportion of the amount owed, or to vary the terms on which it pays its unsecured creditors. Whilst a CVA only requires approval of a 75% majority of the creditors by value, it binds every unsecured creditor of the company, including any that voted against it or did not vote at all.

The liquidator of Onslow Ditching Ltd (ODL), sought a declaration against two directors (on three grounds), seeking damages/fines or a contribution of assets from each director for:

It is an age old problem for creditors who are faced with debtors who ask for more time to pay their debts. The Civil Procedural Rules (CPR) 14.9 and 14.10 allow for a debtor, following the admission of their debt, to request time to pay. It is open for a claimant to choose whether or not to accept a defendant’s proposals; if the claimant does not accept the defendant’s proposals, it is for the court to determine the time and rate of payment. The court’s discretion conferred by CPR 14.10 to extend time for payment has not, until now, been examined.