IPS and Insolvency Monthly update
Welcome to the third Monthly IPS and Insolvency legal update. This covers the release of the next upgrade, as well as the latest legal news and feedback from the IPS User Group Meeting. We would also like to take this opportunity to wish all of our clients a very happy Christmas and prosperous 2015.
Release of IPS Build 164
As you will know from our recent email, IPS Build 164 has now been released. What started as a fairly minor upgrade to focus on RTI (see October blog) has, as it always does following a User Group Meeting, grown to encompass a whole range of feature-rich developments. These include; major changes to time recording, dashboard improvements, monthly pay change for ERA, VAT treatment in posting routines, updated VAT forms and introduction of phase 2 of the creditor portal. Please ensure that all users read the development logs provided with the upgrade to become fully aware of all new features and modifications.
IPS User Group Feedback
The 25th IPS User Group Meeting took place at Warwick University on 8th October, with Ted Wetton from Gibson Booth Insolvency chairing the proceedings. We had a varied agenda and the meeting was very well attended. Some of the highlights included the RPO portal development update from The Redundancy Payments Office, the demonstration of Phase 2 of the Turnkey portal, and, of course, the ever-popular breakout group sessions.
Giles Ecart, joint head of the RPO delivered an update on the RPO portal offering (whereby employees will be entering the RP1 and RP2 data). This is now in testing with a very small number of firms, feedback is being taken and improvements made. Delegates put a number of questions to Giles, particularly around dismissal of employees prior to appointment, he said that these would be considered. Subsequent to this a recent update has confirmed that the RP2 will be live for all claimants in the new year, although no firm date was given. The RP1 has been delayed until at least February next year.
The Turnkey creditor portal has proved a major success since it was launched. Phase 2 of the portal was announced at the User Group Meeting. This will allow creditors to submit claims with supporting evidence and to vote at meetings by completion of an online proxy form. The developments within the latest IPS build support this and we hope that many users take advantage of the significant efficiencies that this will bring. A copy of the presentation is available here: Portal Presentation-
The breakout sessions as ever provide us with useful insights into areas where users would like to see further development and areas that require modification. Items discussed included form additions such as the CT600 short, improving data imports from Excel, training videos and technical discussions around cloud data storage and mobile device support. Following the discussions many of the points raised were then taken on board for the 164 Build.
IPS Training Videos
Following feedback at the User Group Meeting, we have started to post training videos on our YouTube channel. These will cover many aspects of IPS. The first video explains the use of the document portal and is available at: IPS Video
We have created this video using captions rather than voiceover on the assumption that users may wish to view these in a working environment. We would welcome feedback on whether users would prefer the videos to be narrated.
Insolvency and restructuring legal briefing
We would like to thank MacDonald Henderson solicitors for their efforts in making this possible.
INSOLVENCY AND RESTRUCTURING BRIEFING – NOVEMBER/DECEMBER 2014
Secondary Proceedings – where and by whom?
In the case of Burgo Group C-327/13, the European Court of Justice (“ECJ”) required to consider issues concerning the opening of secondary insolvency proceedings. Under the EU Regulation on insolvency proceedings (1346/2000/EC), main insolvency proceedings may be raised in the state in which a company has it centre of main interest. However, local secondary proceedings may be raised, in addition to the main proceedings, in a member state in which the company has an “establishment”. A creditor might elect to apply for the opening of secondary proceedings if, for example, the law of the main proceedings state was less advantageous than that of another state in which the company had an establishment. Secondary proceedings would apply only to assets of the company located within the secondary proceedings state. A Belgian company (“the Company”) had been placed into liquidation in France. The Company’s centre of main interest was in France. The French proceedings were therefore the main proceedings. An Italian company, who was a creditor of the Company in connection with the supply of goods, (“the Creditor”) – had its claim rejected under the main proceedings on the basis that its claim was out of time under French law. The Creditor as a result elected to apply to the Courts of Belgium to open secondary proceedings. The Company had a registered office in Belgian and the Creditor contended that this constituted an “establishment” in terms of the Insolvency Regulation. The Belgian Court referred the following three questions the ECJ:-
1. Does “establishment” as referred to in the Insolvency Regulation preclude secondary proceedings from being brought against companies in the member state in which their registered office is situated?
2. Must the party applying for the opening of secondary proceedings reside in or have a registered office in the member state being asked to open the secondary proceedings?
3. Does the Court being asked to open secondary proceedings first require to apply a test as to the appropriateness of secondary proceedings being opened?
The ECJ held that the Insolvency Regulation does not rule out the possibility of secondary proceedings being opened in the member state in which a company’s registered office is located and where it possesses legal personality. Such a prohibition would undermine the objective of secondary proceedings – to protect the diversity of interests that may arise as a consequence of varying laws across different member states. The right to open secondary proceedings must in terms of the Insolvency Regulation be determined with reference to the law of the member state where the opening of the secondary proceedings is being sought. The right to apply for the opening of secondary proceedings cannot therefore be limited to parties with a place of domicile or registered office within that member state. As a matter of Belgian law, for example, any creditor (including one domiciled outside of Belgium) may apply to have secondary proceedings opened. If the main proceedings are winding-up proceedings then, provided that the Court applies principles which comply with EU Law and its general principles, the Court may exercise its discretion under its own law as to whether it would be appropriate to open secondary proceedings. Any local tests as to appropriateness must be EU compliant.
Powers of liquidators to bring proceedings in own names
In the case of Kirkpatrick v Snoozebox Limited  B.C.C. 477 the Court required to consider the circumstances in which a liquidator may bring proceedings in his/her own name. The Court were also prepared to allow the claimant liquidator some leeway despite the fact that the liquidator had not had the power to raise the action. The Liquidators had raised a contractual claim against the defendant company (“the Defendant”). The claim form stated that the Liquidators were pursuers “as joint liquidators” of the company in liquidation. The claim form did not state that the Liquidators were bringing the claim on behalf of the company. In the course of the action the Defendants sought security for costs. The Liquidators refused to give security on the basis that they, rather than company in liquidation, were the claimants. In response, the Defendants then sought to have the action struck out on the basis that the Liquidators had no standing to bring the proceedings in their own names. The Court required to consider whether the Liquidators were entitled to bring the proceedings in their own name. Liquidators are a creature of statute and unless specifically permitted to do so by statute the Court considered that the Liquidators were not entitled to bring the proceedings in their own name. The power of liquidators to bring proceedings in their own names is restricted by section 234 of the Insolvency Act 1986 to actions for the purpose of recovering property of the company. The claim in this case was not for recovery of property of the company, but rather for payment of a debt. Albeit that section 234 permitted the Court to order that a third-party make payment, this was specifically in the context of money being held by a third party which was the property of the company. The Court also noted that the Liquidators were acting as an agent of the company and that the common law required action to be brought in the name of the company, as the Liquidators’ principal. It was determined by the Court that the action had clearly been brought in the name of the Liquidators rather than on behalf of the company and that the Liquidators had not had the power to do so. Given that the action had been ongoing for almost a year – under the Defendant’s erroneous understanding that the action had been brought in the name of the company – the Court were, however, prepared to allow the Liquidators an opportunity to substitute the company as claimant.
Administration – appointment declared invalid
In the case of Silentpride Limited, Re (unreported) an appointment of joint administrators, which proceeded a demand for payment by a bank under a facilities agreement, was declared invalid. A retrospective administration order was, however, granted. The joint administrators had been appointed by a bank (“the Bank”) under a facilities agreement in respect of a property development company (“the Company”). The Company and shareholder applied for a declaration that the appointment had been invalid. Further to failure by the Company to make payment of commission under the facilities agreement the Bank had served a letter of demand upon the Company. The Bank, as holders of a floating charge, subsequently appointed administrators. The appointment of the administrators was purportedly effected on the basis of a demand letter in respect of commission. Principally, the Court held that the appointment of the administrators was invalid on the basis that the commissions alleged as owing had already been paid as at the date of the demand letter. The Bank had used its powers under the facilities agreement to transfer funds between accounts. Paperwork showed that a prior payment had been used to pay three months’ commission payable in advance and that the commissions said to have been outstanding in terms of the demand letter had in fact previously been paid. Accordingly, there was neither basis to serve the demand or appoint the administrators further to the same. The appointment was invalid. Notwithstanding, the administrators sought a retrospective administration order and the Court granted the same with a retrospective period of one year less a day. The Court noted that the conditions for making an administration order were only satisfied if a company was, or was likely to be, unable to pay its debts and that such an order would achieve the purpose of administration. The Court held that the Company was unable to pay its debts as they fell due on the basis that its assets could not cover its contingent and prospective liabilities. It was also clear that the company could not be restructured or rescued in any other way and that administration would achieve a better result for creditors than liquidation. In the circumstances, the Court determined it was appropriate to grant the retrospective administration order.
Recovery of documents
In the case of Khan v Whirlpool (UK) Limited  EWHC 3477 (Ch), the Court conducted a helpful review of the ability of a liquidator (or other insolvency office holder) to recover evidence under Section 236 of the Insolveny Act 1986. Liquidators sought certain documents from respondent companies in terms of Section 236. The liquidators were in office in respect of a company which had previously sold refrigerators (“the Company”). The respondent companies (“the Respondents”) had manufactured component parts and sold refrigerators to the Company. The Respondents had taken part in a cartel in respect of refrigeration compressors. The liquidators wished to recover documents and investigate whether the Company had a claim in connection with being supplied with compressors at inflated prices as a result of the cartel activity – with a view to deciding whether to raise proceedings for any recoverable loss. Amongst other things, Section 236 permits the Court to require prescribed persons “to submit to the Court an account of his dealings with the company or to produce any books, papers or other records in his possession or under his control relating to the company or … [the promotion, formation, business, dealings, affairs or property of the company”. The liquidators sought an order for production of information, books, papers and other documents in the possession of the Respondents which amounted to sales data, input cost data and pricing methodology. The Court noted the following points:-
1. Section 236 should not be construed too narrowly. Provided the documents had some connection to the business or dealings of the company and were relevant to the liquidator properly undertaking his statutory functions, the documents were within the ambit of Section 236.
2. A distinction must be drawn between documents and information. A request for information cannot be disguised as a request for documents. If information was sought, the Court could only order it to be provided by summoning a person to answer questions, order interrogatories of ordering affidavits.
3. It was not a fundamental flaw in the application that the request for documents had not been made with reference to particular books, papers or other documents. The Respondents knew which documents they held and the liquidators did not. If an applicant is not able to identify the specific document he seeks but is able to adequately describe the document relative to its subject matter then that may be sufficient.
4. The term “books, papers and other records” includes documents in electronic format. The Court also noted that a Section 236 order would be more readily made against an officer or former officer of the Company, but held that a careful balancing exercise led to the conclusion that it was appropriate to make the orders sought. The benefit likely to be gained by the liquidators outweighed the burden likely to be placed on the Respondents.
England & Wales
Jurisdiction to wind-up
The case of Buccament Bay Limited  EWHC 3130 (ch) highlights important points in connection with jurisdiction to wind-up companies not incorporated in the UK. The Petitioners sought an order to wind-up two companies (“the Companies”) incorporated in Saint Vincent and the Grenadine (“SVG”). The Companies were part of a group of companies which developed and operated luxury resorts in the Caribbean. The Petitioners were investors who had paid large deposits for units located in SVG. Title to the units had not been delivered and their deposit had not been returned. The Petitioners argued that the Companies had their centres of main interest in the UK and the Court therefore had jurisdiction in terms of Insolvency Regulation I346/2000 art. 3(1). The Court refused to accept jurisdiction and dismissed the Petition. The following points were highlighted by the Court:-
1. The Court should act with considerable caution before exercising its discretion to wind up a company, under section 221 of the Insolvency Act 1986, which is incorporated in another jurisdiction. The Court must always consider whether there is a more appropriate jurisdiction.
2. There is authority that art. 3(1) of the Insolvency Regulation applies in relation to a company incorporated in a country which is not a member state, but there is a presumption that a company’s centre of main interests is in the jurisdiction in which it is incorporated. There must be sufficiently clear evidence to rebut that presumption.
3. Even if it is established that a company has reasonably substantial connection with a jurisdiction, it must also be shown that there was a reasonable possibility of the petitioner deriving benefit from the grant of the winding-up order. Amongst other things, the Court held that the latter requirement had not been satisfied. An English liquidator would have difficulty gaining control of the Companies’ assets. There was no advantage in winding up in England rather than SVG, which had a perfectly satisfactory winding-up process. The Court also considered that the evidence came nowhere near to rebutting the presumption that the Companies’ centres of main interests were in SVG.
Release of Official Receiver
From 1 December 2014, the Insolvency Service will slim down the manner in which the Official Receiver closes a case following the completion of its administration. The Official Receiver will no longer be applying for release as trustee or liquidator. The closing notice letter including the notice of release and account summary will also no longer be sent, and neither will the TRLTB to the bankrupt giving notice of the application for release.
Insolvency statistics – Q2 2014/15
The Accountant in Bankruptcy (“AIB”) has published its most recent statistics. In respect of corporate insolvencies, the figures of the AIB show that the number of Scottish companies becoming insolvent or entering receivership in the second quarter of 2014/15 decreased by 16.4% relative to the last quarter. This quarter’s total was 22% lower in comparison with the same quarter of last year. The AIB have also reported personal bankruptcies at their lowest level since 2008. There were 1,654 awards of sequestration in the second quarter of 2014/15 – the lowest number since the fourth quarter of 2007/08. The figures show that personal insolvencies, which include both sequestrations and Protected Trust Deeds, fell by 12.5% in comparison to the same period of last year. The number of entries into the Debt Arrangement Scheme also decreased, with 1,156 cases being approved. A drop of 8.3% relative to the last quarter and a reduction of 1.2% in comparison to the same period of last year. The overall demand for personal statutory debt solutions in Scotland continues to decline. This briefing does not constitute legal advice. Separate legal advice should be taken as required.
Bankruptcy Restriction Orders
The Accountant in Bankruptcy (“AIB”) obtained an eight year Bankruptcy Restriction Order (BRO) against a debtor at Alloa Sheriff Court. The debtor was self-employed and was unable to produce any books or accounts for his business. The debtor’s other failings included: making false statements to his trustee in connection with his business; taking out a loan for £5,000.00 when he knew that he already has debt in a sum of £350,000.00 and would not be able to make the repayments; failure to explain what had happened to monies received in the course of a number of business transactions; refusal to identify who was paying his children’s school fees; providing a finance company with false information which he had already sold with a view to inducing them to loan him further funds; and failing to declare bank accounts to his trustee. A BRO may be made against a debtor on the application of the AIB under Section 56B of the Bankruptcy (Scotland) Act 1985. This briefing does not constitute legal advice. Separate legal advice should be taken as required.
This briefing does not constitute legal advice. Separate legal advice should be taken as required.