Insolvency Bulletin: May 2015
The May 2015 edition of the XXIV Old Buildings Insolvency Bulletin provides useful summaries of several recent cases of interest to those practitioners dealing with corporate insolvencies.
The Bulletin opens with a short digest on recent legislative changes likely to have an impact on insolvency practitioners. Of the two new Acts, the first is the Small Business, Enterprise and Employment Act 2015, with many legislative changes ranging from pubs, childcare, concessionary coal payments and zero hours contracts. Importantly for readers, it makes a number of changes relevant to administrators, IVAs and the powers of liquidators and trustees in bankruptcy.
The second is the Deregulation Act 2015, which in an attempt to “make provision for the reduction of burdens resulting from legislation for businesses or other organisations” adds another 252 pages to the statute book. Amongst the changes made to the insolvency regime are amendments to the provisions for the appointment of administrators after presentation of winding up petitions.
Turning to the recent case law, there have been a number of interesting developments in the law surrounding the initial winding up process. In Sebry v Companies House, the High Court considered the unusual and widely reported situation where the Registrar of Companies erroneously recorded a company as having been wound up. The High Court found, for the first time, that the Registrar owed a common law duty of care to the company.
In Abbey Forwarding v HMRC the High Court attempted to reconcile arguably inconsistent authorities on cross-undertakings given by HMRC, in that case upon the appointment of a provisional liquidator before the final hearing of the petition. The case is a useful example of the circumstances required for a company to enforce such undertakings, although the authorities and underlying principles remain somewhat incoherent.
The underlying policy behind validation orders was helpfully reviewed in Wilson v SMC Properties, which provides an indication of the importance that a court will place on good faith when exercising its discretion whether to validate dispositions of company assets.
In a short and clear judgement, the Supreme Court in Trustees of the Olympic Airlines Pension and Life Assurance Scheme v Olympic Airlines addressed directly the circumstances in which a company will have an “establishment” within England & Wales for the purposes of giving the English courts jurisdiction to open secondary proceedings under the European Insolvency Regulation. The unanimous judgment shows the weight given to the explanatory report that frequently accompanies European legislation.
The meaning and effect of the Regulation was also in issue in Lutz v Bauerle, where the European Court of Justice emphasised the importance of a uniform application of the Insolvency Regulation when deciding whether German or Austrian limitation provisions governed an application to set aside a payment to an Austrian creditor from a company in liquidation in Germany. The case is an important warning to insolvency professionals dealing with cross-border insolvencies of the need to obtain advice on foreign time limits.
The interaction between the Arbitration Act 1996 and the insolvency regime was in the spotlight in Philipott & Orton v Lycee Francais Charles de Gaulle. A recurring theme in recent months, the High Court, once again, upheld the primacy of arbitration as the appropriate forum for resolving a dispute where there is a relevant arbitration clause. Liquidators could not use their right to apply for directions in relation to a proof of debt to evade the effect of such clauses.
The Court of Appeal’s decision in Bellis v Challinor confirmed the difficulties faced by investors unable to recoup losses sustained in collective investment schemes in establishing Quistclose trusts over funds paid over into such schemes. In the light of this, and other recent decisions, it seems the courts will be slow to find these trusts unless there is clear evidence of terms restricting the transferee’s use of the funds.
If these two decisions show clear trends, confusion remains regarding the scope of the illegality defence following the Supreme Court’s decision in Jetivia SA v Bilta (UK) Ltd. Whilst the case is an interesting examination of the principles and policy considerations relating to attribution of knowledge in a corporate context, the Justices’ differing reasoning (despite the unanimous agreement on the result) means the precise ambit of the defence remains unclear.
Finally, in Re BW Estates Ltd the Court examined the circumstances in which administrators might properly accept appointment, even where there is a suggestion that the directors took the decision to enter administration from an improper motive. The case provides useful guidance on the appropriate considerations for administrators when accepting an appointment and clarifies the width of the term “rescue”.