Insolvency Bulletin: May 2017

 

This is the first XXIV Old Buildings Insolvency Bulletin since the new Insolvency Rules 2016 came into force. Whilst the 1986 Rules will still be relevant to cases commenced before April 2017, this bulletin will over the coming year provide practitioners with essential case updates as the new rule changes bed in. Practitioners should also note that the rule changes affect the applicability of various practice notes and directions. A revised Insolvency Practice Direction is not expected until 2018.

In this edition we cover BTI v Sequana, decided last year, whose effect is now being felt in recent cases. In BTI, the High Court held that a real risk of insolvency was not sufficient for a director’s duty to creditors to arise. This left practitioners wondering just how likely insolvency had to be. In Dickinson v NAL Realisations a different judge of the High Court endeavoured to apply the test. In both cases the court was content to hold that on the particular facts before them, there was not a sufficient risk of insolvency, practitioners are still left without a workable test. This area is ripe for examination by the appellate courts.

In the last few months the Supreme Court handed down its long awaited decision in Akers v Samba. Although expected to be of interest to trust lawyers the court brushed technical trust questions aside and instead focused on the application of basic trust principles to claims to set aside post-presentation dispositions of the legal title to property beneficially owned by the company. The case is now the go-to judgment on dispositions of property held for insolvent companies.

Trusts also featured in the Court of Appeal’s decision in Green v Wright albeit, in this case, the trust was one arising under an IVA. The Court of Appeal provided helpful clarification on the default rules where the supervisor acquires property, otherwise subject to the trust, after issuing a certificate of completion. As the court noted, careful drafting can ameliorate these issues. This case is, therefore, required reading for all those who prepare IVAs and CVAs.

The English courts have also considered with a number of procedural points which frequently arise in bankruptcy proceedings. In Harvey v Dunbar Assets, the Court of Appeal set out the circumstances in which a debtor’s attempts to run the same arguments twice will be an abuse of process. The area can be tricky; the application of res judicata and issue estoppel is not always straightforward in insolvency proceedings. This decision is a welcome guide for those grappling with similar problems.

In Canning v Irwin Mitchell LLP, the High Court held that a fundamental defect in the service of a statutory demand robs the court of its jurisdiction to entertain a petition. There is no scope for discretion. The consequence of this decision, however, is that the distinction between merely irregular service and service which is fundamentally defective assumes great significance. Drawing that line in practice may not be straightforward.

Finally, this bulletin includes two case summaries from overseas courts which we think will be of interest to insolvency practitioners. In The Provisional Liquidators of BJB Career Education Company Limited v Xu Zhendong, the Hong Kong court expressed its views on the common law principles relating to the recognition of foreign office-holders and the assistance which can be afforded to them. The decision is helpfully consistent with the direction of travel throughout the common law world, notwithstanding Hong Kong’s unique constitutional arrangement.

In Bank of America v Pacific Andes Enterprises, the BVI Commercial Court considered whether principles developed in the context of confidentiality clubs during disclosure, could be used to put materials before an insolvency judge on a winding up application, to the exclusion of certain creditors. This decision will, we hope, be useful reading for all those involved in large, multi-jurisdictional, group restructuring.

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