Restructuring and insolvency roundup: what happened in January 2021?

CVA declared unenforceable in Ireland

Case: Apperley Investments Limited and others v Monsoon Accessorize Limited [2020] IEHC 1207.

Summary: The Irish High Court held that Monsoon’s CVA should not be recognised and given effect in Ireland based on two key principles. Firstly, it contravened Irish constitutional law by failing to provide landlords with an opportunity to make representations. Secondly, it failed to provide an appropriate mechanism for all of the creditors to consider those representations in advance of casting their votes. The court noted that this conclusion related predominantly to the procedure adopted and the unfairness could have been avoided if appropriate steps had been taken during the CVA process. The Judge doubted this decision would have adverse repercussions for the future enforcement of CVAs in Ireland.

COVID-19 Business Interruption Landmark Judgement

Case: Financial Conduct Authority v Arch Insurance (UK) Ltd and others [2021] UKSC 1.

Summary: This test case related to the interpretation of certain Disease Clauses, Prevention of Access and Hybrid Clauses and whether they afford insurance cover for business interruption losses caused by the COVID-19 pandemic. The Supreme Court held that most of the insuring clauses provided cover for coronavirus business interruption losses. Furthermore, the Supreme Court held that the ‘but for’ causation test was not required to be satisfied in respect of these types of insurance cases. This broadens the circumstances in which cover may be available to include partial closure of businesses and mandatory closure orders (irrespective of whether they are legally binding). Valid claims and pay-outs should not be reduced simply because the loss would have happened in any event from the pandemic.

Do Office Holders owe a duty of care to prospective buyers of insolvent assets?

Case: Uralkali v Rowley and another [2020] EWHC 3442 (Ch).

Summary: A claim was brought against the former administrators of Force India Formula One after the sale of the company’s business and assets. The claimant alleged the administrators had acted negligently and breached duties of confidence. The court applied the principles from Hedley Byrne v Heller and found the administrators had neither assumed a duty of care nor responsibility for any representations made during the sale process. This case outlines the complications faced when trying to prove that office holders assume duties to prospective bidders for assets of insolvent companies.

DeepOcean – The Cross-Class Cram Down UK Debut 

Summary: This was an application by three plan companies, namely DeepOcean 1 UK Ltd, DeepOcean Subsea Cables Ltd (DSC) and Enshore Subsea Ltd for an order sanctioning three inter-conditional restructuring plans pursuant to Part 26A of the Companies Act 2006 (CA 2006).

Two out of the three schemes were voted through by the creditor classes, but the DSC scheme did not gain the necessary voting requisite of 75% by value of unsecured creditors. Trower J sanctioned the three restructuring plans finding that the statutory conditions were satisfied and thereby approved the cross class cramdown in respect of the DSC scheme. This was the third use of the new Part 26 restructuring plan and the first time that cross-class cram down was considered.

CPR 3.10 cures defective claim brought as an Insolvency Act Application

Case: Re Taunton Logs Ltd (in administration) [2020] EWHC 3480 (Ch).

Summary: The administrators issued a substantive application under the Insolvency Rules 2016 (IR 2016). Upon the respondent’s application to strike out the application, the court found that the wrong procedure had been adopted (the claim should have been brought under CPR 7) and noted the defect could not be cured under r.12.64 of the IR 2016 since this rule only applied to insolvency proceedings. However, the court noted that the correct parties had been joined in the proceedings and there was no identifiable prejudice nor was there any basis to show an intention to avoid paying the larger issue fee under CPR 7. So, the court cured the procedural error under CPR 3.10.

Hearing in the UK…or not?

Case: ING Bank NV and another v Banco Santander SA [2020] EWHC 3561 (Comm).

Summary: The defendant, Santander, sought a declaration that the English court did not have jurisdiction to hear a claim brought by ING Bank. The court considered whether the claim was governed by Regulation (EC) 1346 / 2000 on insolvency proceedings (the Insolvency Regulation), or Regulation (EU) 1215 / 2012, Brussels I (recast). The court considered that the Insolvency Regulation applied as the matter was closely linked to the Spanish insolvency proceedings and therefore ruled the English court did not have jurisdiction.

The meaning of ‘value’ in s284(4) of the Insolvency Act 1986

Case: Edwards (trustee in bankruptcy of Wasu) v Aurora Leasing Ltd and others [2021] EWHC 96 (Ch).

Summary: A trustee in bankruptcy argued that payments made to two recipients were void under s.284 of the Insolvency Act 1986 (IA 1986) as no value had been received in the bankrupt’s estate. The recipients contended that the exception in s.284(4)(a) applied as the sums had been received in good faith, for value and without notice of the bankruptcy petition. The court dismissed the trustee’s applications stating that it was not a requirement that the value be received by the bankruptcy estate (rather than a third party). The court held that the exception in s.284(4)(a) promotes certainty in dealings between the bankrupt and innocent third parties and it should not be interpreted too restrictively. There is no explicit quantification of ‘value’ but provided the receipt of the property or payment was not gratuitous, value will have been provided.

Government launches consultation to extend debt solutions and help vulnerable

Summary: The government has launched a consultation which is aimed at extending debt solutions and helping vulnerable individuals in financial distress by changing the eligibility criteria for a debt relief order (DRO). The government is consulting on whether (i) the total amount of debt allowable should be increased to £30,000 (from £20,000); (ii) the value of assets owned by the individual should be increased to £2,000 (from £1,000); and (iii) the level of surplus income should be increased to £100 per month (from £50). These measures could grant more individuals with access to DROs and help them get out of problem debt. The consultation closes at 11:59 pm on 25 February 2021.

Stats Focus

The Insolvency Service published its monthly company and individual insolvency statistics for December 2020.

Company Insolvencies

There were 1228 company insolvencies comprising:

• 998 creditors’ voluntary liquidations (CVLs);
• 35 compulsory liquidations;
• 150 administrations;
• 45 company voluntary arrangements (CVAs); and
• there were no receivership appointments.

When compared with the number of company insolvencies registered in December 2019:

• compulsory liquidations were 80% lower;
• CVLs were 26% higher;
• there were twice as many CVAs, though numbers were small; and
• administrations were 7% higher.

This is the first month in which overall company insolvency registrations have been higher than the comparable month in 2019 since the start of the first UK lockdown.

Individual Insolvencies

• 807 bankruptcies;
• 1,241 debt relief orders; and
• in the last three months of 2020, an average of 7,918 individual voluntary arrangements

When compared with the number of company insolvencies registered in December 2019:

• debt relief orders were 40% lower;
• bankruptcies were 26% lower;
• debtor application were 20% lower; and
• creditor petitions were 60% lower.

Q4 Analysis as reported by the Insolvency Service

Q4 2020 summary for company insolvencies

There were 3,071 registered company insolvencies in Q4 2020, an increase of 17% from Q3 2020, driven by a rise in creditors’ voluntary liquidations (CVLs) and company voluntary arrangements (CVAs). Other company insolvency procedures saw a decrease in Q4 2020 compared with the previous quarter. Despite the rise in absolute numbers of company insolvencies between Q3 and Q4 2020, the company liquidation rate per 10,000 active companies fell in the 12 months ending Q4 (29.2) in comparison to the 12 months ending Q3 2020 (32.3). This is because the numbers of all company insolvency procedures were lower in Q4 2020 than in Q4 2019 with the exception of CVAs, though CVA numbers were small relative to other procedures.

Q4 2020 summary for individual insolvencies

There were 31,059 individual insolvencies in Q4 2020, an increase of 57% from Q3 2020, driven by a rise in the number of registered individual voluntary arrangements (IVAs). The rate of individual insolvency per 10,000 adults also increased in the 12 months ending Q4 2020 (23.8) in comparison to the 12 months ending Q3 2020 (23.2). The number of bankruptcies was slightly higher in Q4 2020 than in Q3 2020, but numbers of bankruptcies each quarter since Q2 2020 have continued to be the lowest seen since 1991. The number of Debt Relief Orders (DROs) was lower in Q4 2020 compared with both Q3 2020 and Q4 2019, and was the lowest quarterly number seen in over a decade.