Protecting your business from your customer’s insolvency

In the second article in our series on risk and opportunity in the fashion retail sector, Rob Russell and Peter Manley assess one of the most prominent areas of risk for suppliers − the insolvency of a trade customer/ retailer.

The news that USC has taken steps to commence an insolvency process is further proof (if proof were needed) that despite what TS Elliot may have claimed, January really is the cruellest month. 

In our recent article of 4 November 2014 we referred to a new case where the controversial decision in Raithatha v Williamson would be reconsidered. 

On 17 December 2014 the High Court handed down judgment in the case of Horton v Henry. The decision has been highly anticipated. 

The recent English High Court decision in Horton v Henry [2014] EWHC 4209 (Ch)has conflicted with the earlier decision in Raithatha v Williamson [2012] EWCA Civ. 799 and leaves the law unclear as to whether a debtor’s pension forms part of their bankruptcy estate.

A trustee in bankruptcy’s entitlement to seek an income payments order (“IPO”) in respect of a bankrupt’s income is governed by section 310 of the Insolvency Act 1986 (the “IA”). Under section 310(7) of the IA the income of a bankrupt:

Is a pension pot beyond the reach of a trustee in bankruptcy? Conflicting High Court decisions reviewed below raise an interesting conflict between practical policy and strict technical interpretation

In both cases, the question was whether a trustee in bankruptcy can obtain an Income Payments Order (IPO) in respect of pension entitlements under a personal pension plan, where no election to draw the pension had been made prior to the Bankruptcy Order.

Preamble

The background

In common with most of the population, now is the key time for making those resolutions for 2015. Suggestions appear below!

Background and headlines As market participants will know, the English courts have been increasingly willing to accept jurisdiction to sanction schemes in respect of foreign companies (in a series of cases culminating in Apcoa’s change of governing law – see further below). Reaching a consensual restructuring grows ever more challenging in a world where more complex capital structures and creditor composition create divergent interests.

On 31 December 2014, the Financial Services (Banking Reform) Act 2014 (Commencement No 7) Order 2014, SI 2014/3160 extended the list of unsecured debts afforded preferential status in insolvency proceedings. Following this recent change, it is worth reminding ourselves how assets are distributed in a corporate insolvency.

General Principles

The Government has announced that from October 2015 it plans to increase the minimum threshold for creditors’ bankruptcy petitions from £750 to £5,000 and the maximum level of debt in respect of which a Debt Relief Order (“DRO”) can be obtained from £15,000 to £20,000.