Insolvency Bulletin: August 2015

30 July 2015

Insolvency Bulletin: August 2015

The August 2015 edition of the XXIV Old Buildings Insolvency Bulletin provides a number of important updates on key developments in bankruptcy and corporate insolvency.

Since the last bulletin, there have been several new decisions from the High Court on issues arising on applications by debtors to set aside statutory demands. In Re Payne, in a judgment that will hopefully produce greater consistency across the bankruptcy regime, the court held that the test for annulling a bankruptcy was the same as that for setting aside a statutory demand, having considered earlier inconsistent authorities.

In Howell v Lerwick Commercial Mortgage Corp, the court clarified the circumstances in which it would refuse to set aside a statutory demand, even if the undisputed debt is less than the bankruptcy limit of £750. This will improve the position for creditors faced with allegations that there are cross claims that do not exceed the sum demanded, particularly when there are supporting creditors.

In another decision on the court’s discretion to set aside statutory demands, the court in Re Maud set aside a demand in circumstances where the debtor would have been criminally liable under the international Libyan sanctions regime if he had paid the debt. Although the decision in this long running litigation turns on the particular provisions of that sanctions regime, it provides an indication of the circumstances where ‘illegality’ will provide a way out for debtors, even where they concede an inability to pay the debt.

Big-ticket litigation has also produced interesting decisions on issues arising in corporate insolvency. In Re Lehman Brothers, the latest judgment on the fallout from the bank’s collapse, the Court of Appeal clarified issues relating to non-provable debts, foreign currency claims, post-administration interest and unlimited companies. Although the problems explored are likely to be applicable only where there would otherwise be a distribution to members or cases involving unlimited companies, this judgment contains an interesting history of the law of insolvency and some useful dicta on contingent debts.

The latest round in the litigation involving the Tchenguiz brothers, Tchenguiz v Grant Thornton, required the court to consider the circumstances in which the fact that a party is in a foreign insolvency can prevent the English courts from having jurisdiction to resolve claims against it. The judgment is a useful analysis of the ‘insolvency’ exception in the EC Judgment Regulation (since January 2015, recast as EC 1215/2012) but also the different results that can be produced where the foreign insolvency process is in a European state.

The Judgment Regulation also came up for consideration by the High Court in Re Van Gansewinkel, in which the court laid down considerable guidance to practitioners dealing with schemes of arrangement involving foreign companies. For those dealing with such schemes, this judgment will be required reading on practice and procedure, particularly when and how to raise issues as to the English court’s jurisdiction.

In Re Kingstons Investments Ltd, the court allowed a creditor’s appeal against the decision of the chairman of a CVL s.98 meeting to admit, for voting purposes, a claim in the sum of £1.  As the claim was for a liquidated sum, the chairman should have admitted it, rejected it or mark it objected to and allowed it for voting purposes.  The case is a reminder of the importance of establishing whether a debt is liquidated or not at s.98 meetings. The court then noted that the default position at law was to order a new meeting, but decided to dispense with another meeting in all the circumstances, and to order the appointment of a second, joint liquidator as sought by the appellant.

Finally, in Gabriel v BPE Solicitors, the Supreme Court considered and overruled longstanding authority on the circumstances in which a trustee in bankruptcy will be liable for the costs of proceedings commenced by the debtor prior to the bankruptcy. In a judgment that will provide trustees with greater incentives and certainty when considering whether to adopt pre-existing litigation, the Supreme Court clarified the different circumstances in which the trustee’s liability would arise. Given the ‘trustee-friendly’ tone to the judgment, it can be expected that trustees will pursue more appeals in litigation commenced by bankrupts.