IPS and Insolvency Monthly update
Welcome to the second Monthly IPS and Insolvency legal update. This covers current issues, the status of the next upgrade, training course update as well as the latest legal news and details of the IPS User Group Meeting.
Current IPS news and user issues
I mentioned last month the requirement for IP’s to produce RTI information when employee dividends are made. I am pleased to report that IPS is now producing the required files. These files have been successfully uploaded to the H M R & C portal. This functionality will be available within the next release of IPS, due for release at the end of October/beginning of November.
If you are an IPS user you will have been emailed with the details of a printer offer. This offer made by the one of the main suppliers of secure cheque stationary involves the supply of a free cheque printer when cheque stationery is ordered. Please email firstname.lastname@example.org to find out more.
IPS Training Courses
We have been assessing uptake for our recent training course programmes and it would appear that the first level ‘Administrator Course’ has the lowest attendance rate. We do work hard to ensure IPS is an exceptionally user-friendly system, and that may explain the lack of applicants for this particular course. As a result we are considering removing this from future training schedules and your feedback on this would be appreciated. We are of course happy to provide training in all aspects of IPS and a lot of effort is made in securing the best training venue locations, but the course content is the most important factor. Please email me at email@example.com with any suggestions you may have.
IPS User Group Meeting
The next User Group Meeting will take place at Warwick University on the 8th October. The uptake has been very good and users are encouraged to attend. This is the users’ main forum for providing feedback to Turnkey and many users find the meeting a very worthwhile day out. If you require details please email firstname.lastname@example.org.
Insolvency and restructuring legal briefing
We would like to thank MacDonald Henderson solicitors for their efforts in making this possible.
INSOLVENCY AND RESTRUCTURING BRIEFING – SEPTEMBER/OCTOBER 2014
EU / UK
Liquidation – effect of English stay on EU proceedings
The High Court in ARM Asset Backed Securities SA  EWHC 1097 (Ch) held that leave of an English Court was required to bring proceedings in Luxembourg against a company which had its centre of main interest (COMI) in England and which had been placed into provisional liquidation by an English Court. In terms of the Insolvency Act 1986, a stay in respect of legal proceedings against a company is automatically imposed when the company is wound-up or is placed into provisional liquidation. Under EU Insolvency Regulation, if insolvency proceedings are raised in respect of a company with its COMI in an EU member state the law of the member state in which the proceedings have been raised applies. A judgment opening main insolvency proceedings in one member state shall automatically impose the same consequences in any other member state as would apply in the member state where the main proceedings have been opened. A Luxembourg public prosecutor attempted to bring proceedings against the company under Luxembourg securities law. The proceedings were held subject to the stay in terms of the Insolvency Act which was automatically applicable in Luxembourg under the Insolvency Regulations.
Administration – utility costs can be “provable debts”
The High Court in Laverty v British Gas Trading  EWHC 2721 (Ch) held that charges for the supply of gas and electricity under “deemed contracts” during an administration are provable debts, rather than an expense of the administration. The administrators were appointed in respect of companies (“the Companies”) which owned a chain of retail premises. The defenders (“the Suppliers”) supplied gas and electricity to the premises. While the administrators were in occupation of the premises it was agreed that gas and electricity would be supplied and the charges were paid for as expenses of the administration. However, after the administrators ceased occupation of the premises gas and electricity continued to be used by other parties at the premises. Deemed contracts were held to be imposed under The Gas Act 1986 and the Electricity Act 1989 (“the Utility Acts”). The Suppliers contended that the amounts due under the deemed contracts were payable as expenses in the administration. The significance was that if payable as expenses the Suppliers’ charges would have had priority ranking. Failing that the charges would have constituted provable debts and would not have benefited from priority. The Court analysed the relevant sections of the Insolvency Act 1986 together with the Utility Acts and held that the liabilities under the deemed contracts were provable debts. The distinction between the utilities supplied under deemed contracts (provable debts) and as actually agreed with the Suppliers (expenses) should be noted.
England & Wales
Challenge of administrator’s conduct out of time
In Holgate and another v Reid and another  EWHC 4630 (Ch), the High Court rejected the challenge by a creditor to an administrator’s conduct on the basis that it had been brought more than 28 days after the administrator’s proposals had been deemed as approved by the creditors. Under the Insolvency Act 1986, if the conduct of an administrator unfairly harms the interests of a creditor / the creditors as a whole a creditor may apply to the Court for an order directing the administrator as to how the administrator should act. A creditor’s right to apply to the Court ceases if more than 28 days have elapsed since the creditors approved the administrator’s proposals for the administration. While in this case the administrator had not been required to call a meeting of creditors (the company did not have sufficient assets to permit a distribution to unsecured creditors other than by way of the prescribed part), and no such meeting had been called for the purposes of seeking approval of the administrator’s proposal, the proposals were in terms of the Insolvency Act deemed approved on the basis that no creditor had requisitioned a meeting of creditors to consider the proposals. The Court held that such deemed approval triggered the 28 day period and rejected the challenge as failing to comply with the strict time limit.
Insolvency Statistics – April to June 2014
Official statistics on insolvencies in England and Wales for the period April to June 2014 have been published by the Insolvency Service. Relative to the same period last year – liquidations, administrations, receiverships and company voluntary arrangements all decreased. With regards to individuals, bankruptcies and debt relief orders decreased but individual voluntary arrangements increased by one-fifth – resulting in an overall increase in personal insolvencies.
Winding-up of a social club
In the case of Baker v West Reading Social Club  EWHC 3033 (Ch) it was held that it was appropriate for the Court to grant a winding-up order in respect of an unregistered social club. The petitioners were the trustees of the social club (“the Trustees”). The club was unregistered. The petition was advertised and no opposition was lodged, but notwithstanding the Court required to consider whether it had jurisdiction to grant a winding-up order and, if so, what powers should be granted to any liquidator. The club was not an “association” within the meaning of section 220 of the Insolvency Act 1986. The statutory provisions relating to the winding-up of unregistered companies could not therefore be applied so as to effect its winding-up. However, the Court also has an inherent jurisdiction to wind-up an organisation where no other method to effect winding-up is available. The Court held that it was desirable for the Court to exercise this jurisdiction given various factors, including that: the club was not operating and showed no prospect of operating further; funds were available for distribution to creditors; disputes had arisen between the Trustees and former trustees and it was desirable to wind up the club in order to put in place a mechanism for resolution of those disputes; and, there had been no objection to its winding up. While the Court recognised that any liquidator needed sufficient powers to handle the club’s affairs and it was not in anyone’s interest that the liquidator should have to make repeated applications to the Court to extend his powers, the full statutory powers available to a liquidator of a registered company were not available to the liquidator of an unincorporated club. Rather than grant such full powers, the Court held it appropriate to award only selected powers on the understanding that the liquidator could apply to extend powers if necessary.
An end to recovery of success fees and insurance premiums in insolvency actions
It has been reported that the insolvency exceptions to the reforms of Lord Justice Jackson will come to an end in April 2015. The result will be that Conditional Fee Arrangement success fees and After the Event Insurance premiums will no longer be recoverable in actions brought by liquidators, administrators and trustees in bankruptcy. Subject to a few other specific exceptions, recoverability in all forms of claim was abolished in April 2013. A temporary exemption in respect of insolvency proceedings was allowed. Despite calls from the insolvency market to make the insolvency exception permanent, the government have adhered to its initial plan to allow insolvency proceedings only a two year period of grace from the end of recoverability.
Sequestration – refusal by Court of authority to take possession of family home
In an action raised by a trustee in sequestration to recover possession of a family home, Perth Sheriff Court refused to grant Decree of removal and authorise sale of the property on the basis that the trustee had not complied with the requirements of section 41 of the Bankruptcy (Scotland) Act 1985. The property was owned wholly by the debtor. The debtor lived in the property together with his spouse. The debtor’s spouse was therefore a “non-entitled spouse” within the meaning of the Matrimonial Homes (Family Protection) (Scotland) Act 1981. In terms of section 41 of the 1985 Act, if a sequestrated estate includes a matrimonial home owned wholly by the debtor and which a spouse has a right to occupy then a trustee must inform the debtor’s spouse of certain matters within 14 days of his/her appointment. The Court held that the trustee must inform the non-entitled spouse of the general right to Petition for recall of sequestration, and specifically of the ability of the Sheriff to allow recall of sequestration or grant other orders appropriate to protect the occupancy rights of a non-entitled spouse if the Sheriff is satisfied that the purpose of the Petition of the sequestration was wholly or mainly to defeat the occupancy rights of the non-entitled spouse. The Sheriff held that it was a pre-requisite for the trustee to inform the debtor’s wife accordingly before an order to remove the debtor’s wife and authority to sell the property could be granted. The Sheriff confirmed that but for the trustee’s failure to comply with section 41 the orders sought would have been granted. While Decree was not granted by the Sheriff and he confirmed that one option open to him would have been to dismiss the action, the Sheriff did not do so. Instead the Sheriff fixed a further Hearing to allow parties to react to his determination and indicated that an application by the Trustee under Section 63, which allows the sheriff to waive failures to comply with requirements of the Act, would be an avenue open to the trustee.
Dissolution – lease in favour of company remained terminated notwithstanding restoration
The Sheriff principal of Glasgow & Strathkelvin held in the case of ELB Securities Limited v Love 2014 G.E.D 28-562 that a lease in favour of a dissolved tenant company was terminated by notice of disclaimer by the Crown notwithstanding the restoration of the company to the register of companies. A company (“the Tenant”) was a tenant of premises under a lease. The Tenant had failed to lodge statutory accounts and was dissolved. The landlord raised proceedings to have the Tenant removed from the premises. The director of the Company applied to have the Tenant restored to the register. The Tenant was restored to the register and the Tenant submitted that as a result all things had diverted to the status quo as it had prevailed as at the date of dissolution (i.e. that the Tenant held a tenant’s interest and was entitled to be in possession of the premises). The Sheriff at first instance dismissed the action for possession on this basis. However, as a result of the dissolution the Tenant’s interest in the property was bona vacantia (i.e. the right had passed to the Crown). After dissolution and prior to restoration the Crown had disclaimed by notice its right and title to the Tenant’s interest in the property. It was accepted on appeal that the effect of the disclaimer was to terminate the lease. The Tenant argued that the restoration of the Tenant to the register of companies had the effect of retrospectively eliminating the deemed status of the Tenant’s interest as bona vacantia and essentially reversed the effect of the notice of disclaimer. The Sheriff Principal, however, held that this submission was unsound. Reading the relevant terms of the Insolvency Act 1986 as a whole, the Sheriff Principal held that the lease had been terminated by the notice of disclaimer and that termination was not affected by the restoration. Notwithstanding the restoration, the Tenant’s interest had been terminated and decree for possession in favour of the landlord was granted. While the circumstances of the case did not involve an insolvent company, the same principle could apply to the situation of a company dissolved further to winding-up. In this context also, any notice of disclaimer would require to be considered – for instance, in connection with the merits of restoring such a company to the register.
Madoff Bankruptcy Case – limit of U.S. trustee’s reach
The U.S. Supreme Court has confirmed that the trustee administering the bankrupt estate of the infamous Bernie Madoff could not use U.S. bankruptcy powers to claw back entirely foreign transactions. Madoff had partly funded his infamous Ponzi Scheme by means of “feeder funds” – investment vehicles which pooled external investments for the purpose of in turn being invested in Madoff’s investment company. Many of the feeder funds were situated outside of the U.S. and many of the investors were also foreign. After Madoff declared his fraud in 2008 a trustee was appointed to the estate. Under U.S. statute, the trustee has power to recover or void certain transactions, including those that were fraudulent or preferential. The trustee has power to recover property subject to such transactions even if the property has since been transferred to another party. The question was whether the trustee’s powers could extend to avoid transactions in connection with the feeder funds and recover associated property when the transactions had taken place between foreign parties in foreign jurisdictions. The Supreme Court confirmed that the transactions were extra-territorial and that congress had not intended the statute to apply to such extra-territorial conduct. Foreign insolvency proceedings are on-going. The Supreme Court noted the importance of respecting these proceedings.
This briefing does not constitute legal advice. Separate legal advice should be taken as required.