03 April 2014
[2014] EWCA Civ 383
Court of Appeal (Sullivan, McFarlane and Lewison LJJ)

Further guidance from the Court of Appeal on the meaning of insolvency and the relationship between the cash flow and the balance sheet tests.  A company that can only pay its debts as they fall due by incurring further debt is still insolvent. 

The courts have been busy in recent months considering various schemes of arrangement and reconstructions, including the following 4 unusual and high-profile applications.

In the matter of Co-operative Bank plc

18 December 2013

Companies Court (David Richards J)

[2014] EWHC 4397 (Ch)

21 January 2014
[2014] EWCA Civ 26
Court of Appeal (Arden, Sullivan and Davis LJJ)

Following suspension of IVAs, all creditors were bound by varied IVAs approved at a further creditors' meeting directed by the court, even if they had become creditors after the initial suspension.

07 March 2014
[2014] EWCA Civ 215
Court of Appeal, Civil Division (Patten, Lewison and Sharp LJJ)

The Court of Appeal, reversing the first instance decision, held that moneys paid to an agent after the agent’s insolvency were available for agent’s creditors generally and were not held on trust for the principal.

Key point

Under English law it is now clear that, in order to trace monies through bank accounts, it is not necessary that payments should occur in any specific order. 

The facts

Introduction In the case of Rawlinson & Hunter Trustees SA v Akers & Another¹ the Court of Appeal considered the parameters of litigation privilege, providing a useful reminder of how narrow the protection is and the care that must be taken in relation to the production of documents by third parties where a dispute is, or may be, on the horizon.

Key point

The UK Government has published its response to their July 2013 consultation on restoring transparency and trust in the UK corporate governance regime. There are a number of proposals to widen the scope of the director disqualification regime and make recovery of losses by creditors from responsible directors easier.

The response

Key point

Where in a UK administration an action would give some benefit to creditors, and risk neither detriment to them nor impede the administration's progress, the court may be willing to intervene and support a challenge to the administrator's actions.

The facts

In the past, HMRC has allowed insolvency practitioners to cancel the VAT registration of businesses at an early stage and account for VAT on any subsequent supplies using form VAT 833. HMRC has received legal confirmation that a deregistered business cannot issue a valid VAT invoice, which could result in VAT registered buyers of assets from insolvent businesses being denied claims for input tax. As a result, HMRC will no longer allow the early deregistration of insolvent businesses.

The Privy Council has handed down judgment in the claim brought by the liquidators of Fairfield Sentry Limited ("Fairfield") against a number of redeemed investors, seeking to recover the amounts paid out to them on redemption.