In an important decision for commercial property landlords, the High Court in Prudential Assurance Co Ltd and Others v PRG Powerhouse Limited and Others has ruled that a CVA (defined below) cannot operate so as to prevent landlords from enforcing a parent company guarantee. The Court's decision however was reached on the basis that to determine otherwise would have been "unfairly prejudicial" to the landlords.

How to get out of a guarantee

There are not many legal cases which are claimed to have a potential financial impact of £38bn across the property industry, or to represent ‘Armageddon’, but both these claims were made in relation to Prudential Assurance Company Ltd v PRG Powerhouse Limited [2007]. While that may have been a little over the top, it is not hard to see the reasons for alarm.

ARMAGEDDON?

Termination, rights to withhold payment and withholding notices under the Housing Grants, Construction and Regeneration Act 1996 Under the JCT suite of contracts, an employer is entitled to terminate the contractor’s employment where the contractor has become insolvent (including the appointment of administrative receivers in relation to the contractor). If an employer exercises this right of termination, the JCT provisions set out the resulting financial consequences.

The claimant appealed against a decision that her former husband’s one third interest in the matrimonial home vested in his trustee in bankruptcy (the first defendant) free from any rights asserted by her, so permitting an order for possession and sale of the property. The claimant argued that pursuant to a matrimonial consent order made prior to the bankruptcy, she had a right of exclusive occupation of the property until remarriage, cohabitation or death.

A trustee in bankruptcy applied for an order for sale of a property owned jointly by the bankrupt and his wife, the claimant. The claimant, who suffered chronic ill health, resided in the property. She also jointly owned another property with her brother, and in order to suspend orders for possession and sale of the matrimonial property, offered charges over that other property. This was not accepted by the trustee on the basis that the husband’s creditors would be unlikely to receive payment in the near future.

Case summary:

When a contractor failed to pay certain agreed invoices the sub-contractor issued a winding up petition. The contractor applied to halt the advertising of the petition on the grounds that the debts were bona fide disputed on substantial grounds as there was a cross claim which exceeded the amount claimed. The court refused to halt proceedings because the absence of a withholding notice under the HGCRA meant that there were no substantial grounds for disputing the petition.

Comment:

A landmark ruling has paved the way for companies to restructure without necessarily making their pension scheme ineligible for the Pension Protection Fund (PPF). Trustees in the case of L v M sought the court’s support (and that of the Pensions Regulator) for a plan to prevent the insolvency of the sponsoring employer which would result in an apportionment of the debt due to the scheme from the employers, the winding up of the scheme and would take the scheme into the PPF.

Several tort claims were made against T & N Limited (“the Insured”) arising out of its use of asbestos. As a consequence it became unlikely to be able to pay its debts. Administrators were appointed for the purposes of approving a scheme of arrangement under section 425 of the Companies Act 1985.

Several tort claims were made against T & N Limited (“the Insured”) arising out of its use of asbestos. As a consequence it became unlikely to be able to pay its debts. Administrators were appointed for the purposes of approving a scheme of arrangement under section 425 of the Companies Act 1985.

Freakley v Centre Reinsurance International Company & Ors [2006] UKHL 45

This case concerns whether a claim to reimbursement of claims-handling expenses should have priority over other creditors on insolvency of the insured.