Insolvency update - September 2011

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Statutory Developments

On 16 June 2011, the Insolvency Service published a draft of the Insolvency (Amendment)(2) Rules 2011.  These rules will amend the Insolvency Rules 1986 to include extra regulation of insolvency pre pack sales.  Under the proposed changes to the Insolvency Rules 1986, administrators and liquidators who undertake a pre pack sale must:

1. When consenting to act, confirm that the pre pack sale price represents the best value for creditors;

2. If there has been no open marketing of the company’s assets, provide creditors three business days’ notice of the terms of a pre pack sale to a connected or associated party;

3. If the pre pack sale completes before relevant documents are set out, report details of the pre pack sale in their statement of proposals or first progress report to creditors;

It had been intended that the new rules would come into force in October 2011.  However, the Insolvency Service has confirmed that the implementation of the rules has now been delayed and will not take place before April 2012.  The draft rules are being revised and a version previously published on the Insolvency Service website has been removed. 

Brief Case News

Is a club a company?

In Panter -v- Rowellian Football Social Club (2011) the High Court had to consider whether a social club was a company and therefore capable of being the subject of an administration order.  The court took the view that a social club is not a company, within the meaning of paragraph 111(1A)(c) of schedule B1 to the Insolvency Act 1986, and so could not enter administration.  The court took the view that the natural meaning of the word ‘company’ implies an incorporated entity and therefore a social club, as an unincorporated association, does not fall within its scope. 

The combined effects of this decision and the 1993 decision in Witney Town Football & Social Club (where the court held that a club was not an unregistered company within the meaning of Section 220 of the Insolvency Act 1986 so could not be the subject of a winding up order) means that clubs such as Rowellian Football Social Club cannot go into administration or liquidation.  It is possible that a secured creditor might appoint a receiver to a club’s asset but this could reduce the return for creditors as a whole because it might make the sale of the club’s business as a going concern more difficult in practice.  If a secured creditor does not exist or the secured creditor does not wish to appoint a receiver, there is no obvious answer as to what options the club has available to it. 

No value in a transaction at an undervalue claim

In Re The Trustee in Bankruptcy of Claridge (2011), the High Court decided it had discretion to refuse to make an order for relief despite there having been a transaction at an undervalue.  In this case, the court found that a transfer of funds by an individual to his spouse was a transaction for consideration the value of which was significantly less that the value of the consideration provided within the meaning of Section 339(3)(c) of the Insolvency Act 1986.  However, the court also decided that it was just not to make an order for relief in favor of the trustee in bankruptcy because of the exceptional circumstances of the case. 

This is an unusual decision because although the wording in the Insolvency Act appears to be mandatory, i.e. the court ‘shall’ make an order (when the criteria in Section 339 is satisfied), the court appears to have a discretion to make no order for relief. 

Bankruptcy constraints on a landlord

In Christina Sharples -v- Places for People Homes Limited 2011, the court of appeal decided that the landlord of an undischarged bankrupt does not need the permission of the court, under Section 285(3)(b) of the Insolvency Act 1986 to take possession of the leasehold premises should the tenant default under the terms of the lease.  The court’s decision applies to repossession either by peaceable re-entry or court order. 

Whilst landlords will no doubt welcome the decision that permission of the court is not required prior to repossession of leasehold property occupied by a defaulting tenant, the decision means that trustees in bankruptcy must act quickly to ascertain the intentions of the landlord.