Insolvency Bulletin: May 2016

In this edition of the XXIV Old Buildings Insolvency Bulletin we review a number of significant decisions handed down by the courts in the first quarter of 2016.

In recent months there have been a number of decisions considering the intersection of insolvency and matrimonial proceedings. In Sands v Singh the High Court held that consent orders entered into by debtors compromising matrimonial claims prior to any bankruptcy order would rarely be susceptible to attack as antecedent transactions prejudicing creditors. Trustees looking to bring such claims in the future are likely to need direct evidence of collusion to act detrimentally to the bankrupt’s creditors between spouses.

Conversely, in Re Elichaoff, the High Court confirmed that consent orders entered into between spouses after the presentation of a petition will be void dispositions under section 281 of the Insolvency Act 1986. This applies to matrimonial claims the principles applicable to challenges to any other post-bankruptcy dispositions.

There has also been a focus on decision making in the course of insolvencies. In the recent, and significant, decision in Narandas-Girdhar v Bradstock, the Court of Appeal resolved longstanding uncertainty about the sort of irregularities which might render void a decision to approve an IVA. Predictably, the court adopted an interpretation of section 262 that makes late challenges to IVAs more difficult for bankrupts (or disappointed creditors).

In Re Longmeade Ltd, the High Court clarified the principles applicable to a liquidator’s decision whether or not to issue proceedings against third parties. In a judgment that contains much practical guidance for those faced with making such decisions, the High Court declined to give directions to the liquidators leaving them, instead, to reach their own decision.

There has also been welcome clarification on conflicts of laws issues. In Hosking v Apax Partners LLP, the court explained the relationship and overlap between the service out provisions in the CPR and in the Insolvency Rules. This judgment will prove useful to any practitioners navigating the not entirely consistent or straightforward provisions engaged when office-holders bring proceedings against defendants located abroad.

In a short judgment on the meaning of article 4 in the EC Insolvency Regulation, the European Court of Justice in Kornhaas v Dithmar held that, when considering whether a director is under an obligation to repay money to an insolvent company, the relevant law is the law governing the winding up, not the law of incorporation.

The English law on the obligations of directors to make payments to insolvent companies was also under the spotlight in Grant v Ralls. In this case the High Court held that directors were guilty of wrongful trading, but refused substantive relief on the grounds that the wrongful trading did not cause any loss. The case contains a helpful exposition of the relevant principles and evidence necessary to establishing loss in wrongful trading claims.

The English courts have also had cause to consider technical issues connected with winding up petitions.

In Hamilton v Brown the High Court considered that a trustee in bankruptcy had standing to present a contributories’ petition against a company, notwithstanding that the relevant shares remained registered in the name of the bankrupt. InSecretary of State for Department for Business, Innovation and Skills v PLT Anti-Marketing Limited, the High Court held it had the jurisdiction to wind up an insolvent company, even though the only petition before it was a public interest petition.

Both decisions show the extent to which the courts are loath to allow technical issues with petitions stand in the way of resolving the real and significant issues.

Finally, there have also been several significant decisions relating to administrations. In a decision that will be of interest to all insolvency practitioners, the High Court in Walker v National Westminster Bank gave useful guidance on the scope of an administrators’ charge over assets under paragraph 99 of Schedule B1. The case highlights the difficulties former administrators face when asserting the charge over speculative assets, in this case compensation for the mis-selling of interest rate protection products.

In Thomas Cook v Mortgage Debenture Limited the Court of Appeal provided much needed clarification of the scope of the moratorium imposed by paragraph 44 of Schedule B1. After considering the effect of similar moratoria imposed by other provisions, the Court of Appeal held that defensive steps (which might include an application to join existing proceedings) were not precluded by the moratorium.

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