Welcome to this month’s insolvency update. I have set out below some recent cases and changes to the legislation which may be of interest relating to both corporate and personal insolvency.
We would also like to invite you to our new series of Insolvency updates, the first one taking place on 12th March 2014, book here to confirm your place.
Revised Statement of Insolvency Practice for Pre Pack administrations is published
A revised Statement of Insolvency Practice for Pre-Pack administrations (SIP 16) has taken effect from 1 November 2013 which provides for greater levels of accountability and transparency in respect of Pre Pack administrations. Insolvency Practitioners will be required to issue a statement justifying and explaining the pre pack sale as well as confirming that the best sale price has been achieved. Pre Pack administrations have attracted much criticism given the lack of involvement of and accountability to creditors. The revised SIP 16 has extended the administrator’s disclosure obligations with the Annex to SIP 16 setting out the information that must be provided to creditors. There will also be an obligation on the Administrator to provide creditors with the information set out in the Annex within 7 days of the date of sale. However, despite the intention of the revised SIP 16 being to increase accountability and transparency to creditors, it does not place an obligation on the Administrator to give creditors advance notice of the sale.
Administrators are warned that the making of an administration order is not simply a formality.
Proposed administrators have been reminded by the court that the making of an administration order is not simply a formality. It would appear that there is a higher evidential burden upon the proposed administrators when making an application for an administration order than when using the out of court route. The proposed administrator must provide evidence to support his assertion that one of the primary objectives pursuant to section 3(1) of schedule B(1) of the IA 1986 can be achieved. In Data Power Systems Ltd and others v Safehosts (London) Ltd, the court held that although the company was clearly insolvent, there was insufficient evidence put forward by the administrator to show that one of the primary objectives could be achieved. The administrator provided an outline strategy but nothing further. Accordingly the court exercised its powers pursuant to section 125 and treated the application as if it were a winding up petition. The court appointed a provisional liquidator and held that the appointment of the provisional liquidator would allow a swift realisation of the company’s assets for the benefit of the creditors and would allow the court to control and direct the function of appointment which would benefit the creditors as a whole given the lack of common ground between them.
Does a Right to appeal against a tax liability constitute “property” of the Company in Liquidation?
In the recent decision of Williams v Glover [2013] the court had to consider an interesting question that could potentially have wider application. The issue for the court was whether the company’s right to appeal against a tax liability constitutes property belonging to the Company and therefore, allow the Liquidator to sell or assign such property.
The court was told that there was no English authority on this point. An authority of a similar decision in the Australian Court was considered. The court found that a bare right to appeal was not property within the meaning of Section 436 of the Insolvency Act 1986. The Court did not have to address the other subsequent issues but it did comment that absent the agreement of the office holder, the court would not have sanctioned the assignment of the right of appeal to the Respondents even if it was a right capable of being assigned. In brief the Judge explained that his reasons for reaching that conclusion were: The assignment of the right to appeal without being able to assign or novate the liability would place the office holder in a potentially invidious position – an unreasonable and intransigent position might be adopted in relation to the appeal that might expose the Company to penalties interest and costs that could otherwise have been avoided. This risk is not one that the court should sanction given the potential implications for creditors as a whole. The office holder would have no control over whether the appeal was persisted or whether any offers to settle should be accepted.
Early Bankruptcy Discharge is repealed
The administrative process of dealing with the early discharge from bankruptcy was deemed to be both costly and time consuming. Accordingly, the repeal of the procedure for early discharge from bankruptcy contained in section 279(2) of the Insolvency Act 1986 has been brought into effect for all bankruptcies commencing on or after 1 October 2013.
This repeal was implemented pursuant to the Enterprise and Regulatory Reform Act 2013 and has now been brought into effect by the Enterprise and Regulatory Reform Act 2013 (Commencement No 3, Transitional Provisions and Savings) Order 2013 (SI 2013/2227).
The court, for the first time, considers the effects of a suspended IVA.
The court has recently been forced to consider the effect of a suspended IVA. It was argued that the suspension of an IVA following the first creditors meeting, when approved at the second meeting of creditors, took effect as if it had been approved at the first meeting. Accordingly, it was argued that a liability between the first and second creditors meeting, did not fall within the IVA. The court held that this was not the case.
The court considered that there is nothing in the IA 1986 or the IR 1986 to suggest that where a second meeting is called to reconsider an IVA or consider revised proposals, a party who becomes a creditor between the first meeting of creditors and second meeting of creditors is not bound by the IVA. The court considered the application of section 262 IA 1986. Section 262(6) allows the court to extend any interim order to prevent creditors from making any claim against the debtor whilst the outcome of a creditors meeting is pending. The court noted that Parliament has not limited its ability to extend an Interim Order to instances where an IVA has been revoked. If a suspended IVA had the effect as argued in this case, the court’s power would be restricted to the extension of an interim order where an IVA has been revoked. Accordingly, where an IVA is suspended, a liability which is incurred between the first and second creditors meetings will be caught within the IVA.
The Insolvency Update – 12th March 2014
Taylor&Emmet LLP would also like to invite you to their free Insolvency Updates hosted by Rob Moore and Emma Rigby. There will be a series of updates throughout the year focusing on Corporate Insolvency, Personal Insolvency and Contentious Insolvency Issues.
You will be provided with breakfast and an opportunity to network with fellow Insolvency Professionals. The seminars will be completed by 9.45am.
To book your place on the next seminar, simply complete the booking form here. We hope that you are able to attend and look forward to seeing you.
Events details
Date: 12th March 2014
Venue: Taylor&Emmet, 20 Arundel Gate
8:00 – 8:30am Registration & breakfast with the opportunity to network
8:30 – 9:30am Seminar with case studies
9:30 – 9:45am Discussion & close
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