Insolvency Bulletin: August 2014
The final insolvency bulletin of the legal year from XXIV Old Buildings will provide you with interesting holiday reading. This quarter we cover the important Supreme Court decision in FHR European Ventures v Cedar Capital. The case is about whether bribes received by an agent are held on trust for the agent’s principal or whether, in principle (but not on the facts of the case), it should be available for distribution in the event of the agent’s insolvency. The Supreme Court, including its President, Lord Neuberger held that the law required the former, thereby overturning a line of cases stretching back a hundred years and all the way forward to Sinclair v Versailles. The law had taken a wrong turn, and kept going for a long time thereafter.
As well as a collection of interesting cases decided in the Companies Court and the general Chancery Division list, we bring you a case from the British Virgin Islands involving the Financial Services Commission, which had licensed insurers there without following the statutory scheme which stipulated the establishment of local trusts to hold assets within the jurisdiction. The insurer in question in the case of FSC v Lemma Europe had kept $1.5m in a BVI bank for the purposes of the scheme with FSC knowledge and approval but that was not in compliance with the scheme. Upon the insolvency of the insurer, Bannister J held that the money was not held on trust but nor was it available for general creditors of the insurer as it was impressed with an equitable charge to meet local BVI claims.
The unusual case of Pathania v Adedeji reminds us that it is not the bankruptcy order which vests assets in the Official Receiver; until the OR notifies creditors of his decision not to summon a meeting of creditors, he is merely the receiver and manager of the bankrupt’s estate.
Re Pan Ocean is a good illustration of the important distinction between procedural and substantive rights in cross-border insolvency. The company in question was a Korean shipping company but the case concerned the right of a party to terminate an English law contract by reason of the insolvency. Under Korean insolvency law, that provision would have been void. But the Cross-Border Insolvency Regulations do not permit the English Court to apply foreign insolvency law to the extent it purports to alter substantive rights under an English law contract. The nature of relief available under Art.21(1) is confined to procedural matters. So the administrators could not obtain an order preventing the counterparty from terminating the contract.
In Hosking v Slaughter and May, on an appeal from the Registrar, the judge explained that since 1986, once administrators have agreed to pay the fees of their solicitors, it is not open to the Court (on application by liquidators later appointed) to assess them. Most of the invoices were accordingly unimpeachable. There was a single invoice levied after the administration had ended, which it was not in the administrators’ power to approve and that sole invoice fell to be assessed as the liquidators had not done so.