Restructuring and insolvency roundup: What happened in February 2021?
The effect of incapacity in bankruptcy proceedings
Case: Kumar v Hellard  EWHC 181 (Ch)
Summary: The bankrupt failed to attend the hearing of the bankruptcy petition but provided a letter enclosing documents which showed he had been diagnosed with Alzheimer’s disease. On appeal, the court held that the issue of incapacity had not been addressed at the bankruptcy petition hearing and set aside the bankruptcy order on the basis that it had been made pursuant to a serious procedural error. This case illustrates the need to review evidence that suggests a lack of capacity and to ensure the court properly addresses it, especially when the debtor is unrepresented.
Court refuses application to rescind winding up order
Case: Re Sarjanda Ltd; Sarjanda Ltd (in liquidation) v Aluminium Eco Solutions Ltd and another  EWHC 210 (Ch)
Summary: The court rejected an application to rescind a winding up order because it was not ‘exceptional’. Applications to rescind must be made within five business days but here, the application was made more than two years after the winding up order. Despite the fact that the application had merit and that the company was being supported by injections of funds from a shareholder, the Court would not grant an extension of time because there was no evidence that the company (i) was seeking to actively continue trading, (ii) had received substantial financial support from the main shareholder in order to achieve this, and (iii) had agreed to make changes to management in order to improve its cash flow.
PGS ASA scheme of arrangement gains approval
Case: Re PGS ASA  EWHC 222 (Ch)
Summary: PGS ASA’s (PGS) scheme of arrangement was sanctioned despite it being a Norwegian company. PGS had a sufficient connection to England due to the English governing law and jurisdiction clauses within its credit agreement. Mr Justice Miles followed the guidance provided by Mr Justice Snowden in Re KCA Deutag UK Finance plc and was satisfied (i) the scheme had complied with the statutory requirements (there was no technical or legal defects); (ii) that the creditor classes had been properly represented; and (iii) an overwhelming majority had approved the scheme and this was strong evidence that a reasonable creditor would also approve.
Steinhoff holding company scheme of arrangement sanctioned (Re Steinhoff International Holdings NV)
Case: Re Steinhoff International Holdings NV  EWHC 184 (Ch)
Summary: The High Court sanctioned a scheme of arrangement in respect of the ultimate holding company of the Steinhoff Group, despite objections raised by Conservatorium Holdings LLC. An objector is entitled to be heard by the court even if they are not a creditor so long as they can demonstrate sufficient interest in the scheme or the wider arrangements of which the scheme is part. The objection(s) must be based on unfairness in the scheme itself, as opposed to concern over matters which may arise if the scheme is sanctioned.
New UK restructuring plan falls outside scope of Lugano Convention 2007
Case: Re gategroup Guarantee Ltd  EWHC 304 (Ch)
Summary: Gategroup Guarantee Ltd sought to convene a hearing for a restructuring plan under s.901C of the Companies Act 2006. Mr Justice Zacaroli held that restructuring plans constituted ‘insolvency proceedings’ falling within the bankruptcy exclusion of the Lugano Convention 2007 and therefore the English court had jurisdiction despite an exclusive jurisdiction clause in favour of Swiss courts. To reach this conclusion, Zacaroli J relied on the dovetailing principle which provides that there should be no overlap between the Brussels Regulation and the Recast Insolvency Regulation. This is a significant decision as it rejects the Convention’s ability to grant a route for recognition for restructuring plans in EU Member States following Brexit.
Sham trusts in bankruptcy
Case: Re Mohammed Munir (a bankrupt)  EWHC 278 (Ch)
Summary: In the years prior to being adjudged bankrupt, Mr Munir transferred his entire beneficial interest in a property portfolio to members of his family by entering into at least three deeds of trust. The court held that the trusts were a sham not intended to have legal effect or that the entering of the deeds were transactions at an undervalue and/or transactions which defrauded creditors.
Draft pre-pack regulations presented
Summary: The Administration (Restrictions on Disposal etc to Connected Persons) Regulations 2021, (the draft regulations) were laid before Parliament on 24 February 2021. The draft regulations will apply to both pre-pack sales and sales which occur shortly after the start of the administration. They provide that prior to completion of the sale to a connected party either: (i) the administrator must obtain the approval of creditors by way of a simple majority of the creditors based on the value of their claim(s) in the administration; or (ii) the buyer must obtain an independent written opinion from an independent evaluator as to whether the proposal is reasonable. The draft regulations are intended to increase transparency and confidence for creditors in administration sales to connected parties. They are expected to come into force on 30 April 2021.
The Insolvency Service published its monthly company and individual insolvency statistics for January 2021.
In January 2021 there was a total of 752 registered company insolvencies, comprised of 613 CVLs, 45 compulsory liquidations, 73 administrations and 21 CVAs. There were no receivership appointments. The overall number of registered company insolvencies in January 2021 was 50% lower than in the same month in the previous year.
In January 2021 there was a total of 752 registered company insolvencies, comprised of:
- 613 CVLs;
- 45 compulsory liquidations;
- 73 administrations;
- 21 CVAs; and
- there were no receivership appointments.
In January 2021, when compared with the number of company insolvencies registered in January 2020:
- compulsory liquidations were 85% lower;
- CVLs were 39% lower;
- there were 34% fewer CVAs; and
- administrations were 57% lower.
- 1,167 debt relief orders;
- 818 bankruptcies; and
- there were, on average, 6,950 IVAs registered per month in the three-month period ending January 2021.
When compared with the number of company insolvencies registered in January 2020:
- debt relief orders and bankruptcies were both 47%;
- debtor applications were 43% lower;
- creditor petitions were 68% lower; and
- IVAs registered per month in the three-month period ending January 2021 were 17% higher than for the three-month period ending January 2020.