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Insolvency Bitesize

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This edition of Insolvency Bitesize is set against the backdrop of the developing “EFF crisis” with squeezes on energy, food and fuel creating uncertainty for the future. But while the shelves may be empty, developments affecting the restructuring and insolvency market are far from being in short supply. As ever in periods of uncertainty, it pays to stay focussed.

The All Party Parliamentary Group on Fair Business Banking Report on “Resolving Insolvency” was published last month. It was highly critical of the IP industry, the regulatory framework and the practice around taking appointments. R3 has made clear its disappointment with elements of the report and its lack of understanding of the framework. We can see that many of the proposed changes could have broader, and unintended, repercussions for both the lending and corporate rescue environment. With the Government due to report shortly on its consultation into the IP regulatory framework, it seems likely that the report and its proposals will attract further attention. We know that many of you have strong opinions about how representative this report was of modern practice and would be keen to continue the conversation.

Around the same time, the Insolvency Service published its annual plan for 2021 to 2022. One notable inclusion was its plan to work on proposals for whether to incorporate the Model Law on Recognition and Enforcement of Insolvency-Related Judgments into the UK legislative framework. It will involve, in large part, a decision as to whether to retain, modify or reject the Gibbs rule. That could well determine the state of the UK restructuring and insolvency market for years to come, have ramifications for the cost of borrowing and even the attractiveness of English law in international finance.

We recently advised Caffè Nero whose nominees and directors were fully vindicated by the High Court’s rejection of all allegations of material irregularity and unfair prejudice brought by a disgruntled landlord against Caffè Nero’s CVA (which had secured the overwhelming support of creditors late last year). If you’ve not seen it already, have a read of our client alert which highlights the key takeaways for IPs.

In this edition of Insolvency Bitesize, we take a look at:

  • three separate cases involving the recognition in the UK of foreign insolvency and restructuring procedures in Singapore, Russia and France. While the issues in each were distinct, seen together they underscore the continued relevance of the Gibbs principle for English law obligations and the limits of common law recognition assistance;
  • what the new temporary insolvency practice direction, a case involving a statutory declaration taken in Israel and the revised practice for dealing with winding-up petitions might mean for out-of-court administration appointments; and
  • a round-up of other issues, including the Pensions Regulator’s final guidance policy on how it will investigate and prosecute its new criminal powers under the Pension Schemes Act 2021, the court’s construction of a settlement agreement and how it benefitted former administrators (though possibly not their legal advisors) and a reminder of the new rules governing the procedural aspects of the standalone moratorium procedure.

We hope you find this edition useful. As ever, please get in touch with any questions you may have.

Topics covered in this report

1

No recognition of Singaporean moratorium as Scottish Court of Session applies the Gibbs principle

The Scottish Court of Session recently refused Prosafe’s petition for recognition of its Singapore moratoria in the UK under the Cross Border Insolvency Regulations 2006. Put simply, the CBIR could not be used to side-step the effects of the Gibbs principle in respect of English law governed claims which simply fell outside of the Singapore restructuring accordingly and could not be restricted by it. 
2

Foreign bankruptcy trustee obtains common law recognition but High Court refuses to extend assistance to UK immoveable property

A recent decision involving the court’s common law recognition powers reaffirms that the court will not look to fill in significant gaps in the law, that being the role of Parliament.

This was a rare case on the limited extent of a court's common law assistance powers following the common law recognition of a Russian personal bankruptcy proceeding against Mr Bedzhamov. Statutory recognition under the Cross Border Insolvency Regulations 2006 was not available because Mr Bedzhamov did not have his COMI in Russia at the time of the personal bankruptcy.

3

English law obligations under facilities agreement continue despite French insolvency proceedings

The High Court recently declared that a borrower's obligations in an English law senior facilities agreement to provide information to the lenders continued when that borrower entered into French sauvegarde insolvency proceedings.
4

Administration appointments: watch the clock!

The new 2021 Temporary Insolvency Practice Direction supporting the 2018 Insolvency Practice Direction deals with some of the legal and practical difficulties arising from the IR 2016 which will need substantive rule changes, in particular:

  • the out of hours appointment of administrators;
  • the provisions relating to making statutory declarations remotely; and
  • the time of obtaining the standalone moratorium procedure.
5

Helpful clarity on statutory declarations and administration appointments

When appointing an administrator out-of-court, it will be necessary for the appointing QFC holder or the directors/company to give a statutory declaration. The High Court recently had to consider whether an administration appointment might be void because the English qualified solicitor taking the oath did so while abroad.
6

Winding-up petition restrictions – residual risk for some administration appointments?

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 impose new, but more limited, restrictions on winding-up petitions. The changes are particularly relevant for commercial landlords. The new tapering restrictions are being implemented so as not to undermine the new rent arbitration scheme which will be implemented in March 2022 and which will apply to pandemic related rent.
7

Practical guidance to address new criminal liability under the Pension Schemes Act 2021

The Pensions Regulator’s new criminal powers under the Pension Schemes Act 2021 came into force in October. In essence, it will be able to prosecute the avoidance of a s75 employer debt or any conduct putting at risk accrued scheme benefits. The drafting of the powers in the legislation is, on purpose, extremely wide and could apply to a range of typical restructuring and insolvency activities and situations where there is a defined benefit scheme.
8

Construing settlement release in favour of former administrators

A recent High Court decision has highlighted how a settlement agreement could be relied on by the former administrators to release them from any liability connected with their decision not to pursue possible swap mis-selling claims against a secured creditor. The High Court found that they were able to rely on the release granted by the company to its former officers and agents on the basis that such a construction would prevent ricochet claims that could otherwise undermine the purpose of the settlement agreement.
9

New moratorium rules

Permanent procedural rules for the new Part A1 standalone moratorium procedure introduced by CIGA came into force on 1st October 2021: the Insolvency (England and Wales) (Amendment) (No.2) Rules 2021. 

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