Following proposals Treasury made at the end of 2009, it has now published for consultation draft regulations setting up a special resolution regime for investment banks. The regime will apply to firms that meet all of the following three conditions:

Insolvency procedures involving companies are complex and generally take a long time to complete. There is plenty of jargon which adds to the confusion, whereas all that an unsecured creditor usually wants to know is how to make a claim for the monies owed to him by the company, to whom the claim should be made, how long it will take to decide the claim and whether there is a possibility of recovering any monies from a company which is obviously experiencing financial difficulties.

In a market study, called “The market for corporate insolvency practitioners,” published on 24 June 2010 The Office of Fair Trading (OFT), proposed extensive reforms of the current corporate insolvency regulatory regime. After an eight-month study the OFT believes that reforms are needed to build market trust and create a regime that works in the best interests of creditors as a whole.

In Pick v Sumpter and another, the first defendant's trustee in bankruptcy applied for an order for possession of the defendants' matrimonial home. At the hearing in May 2006, the evidence showed that the sum outstanding as at November 2005 was £25,571 but did not take into account legal costs. That sum was an estimate and did not take into account statutory interest on the bankrupt's debts beyond the date of the hearing, solicitor's costs of the possession hearing or any increase or decrease in the trustee's remuneration.

Re Johnson Machine and Tool Co 6

The company was the subject of a “pre-pack” administration, whereby it was placed into administration and its assets immediately transferred to a new company controlled by the directors and owners of the existing company.

Why has the Financial Support Direction (FSD) been issued?

Christmas came early for landlords last year when the High Court handed down its decision in this case. The court had to consider the circumstances in which a tenant's administrators are obliged to pay rent as an expense of the administration, thereby giving the landlord priority over other unsecured creditors.

In the current economic climate, landlords are having to deal more frequently with tenants who are in administration. Where the administrators of the tenant are using the property for the purposes of the administration, the moratorium on forfeiture and irritancy proceedings that applies in administrations means that the landlords are unlikely to be able to recover the property in order to relet it.

Summary and implications

The court has clarified that administrators must pay rent as an expense of the administration when they use property.

The High Court has recently held* that:

A decision by the High Court in December has strengthened the position of landlords who sometimes do not get paid during the administration even where the administrator is running the business from the property.

Certain categories of expense which may be incurred by the company after it has gone into administration, and which an administrator has to pay are known as "expenses of the administration" and the assets of the company in administration must be applied towards payment of these expenses ahead of any payment to creditors under floating charges or to unsecured creditors.