Restructuring and Insolvency Roundup: What happened in March 2021?

CIGA 2020 and TIPD extensions

Pursuant to the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021, SI 2021/375, provisions are made to extend until 30^th June 2021:

• the suspension of liability for wrongful trading;
• the restrictions on statutory demands and winding-up petitions; and
• the exemption of small suppliers from the prohibition on terminating supply contracts for the customer’s insolvency in England, Scotland, and Wales.

The temporary rules supporting the new moratorium procedure, as well as the relaxation of the entry requirements and waiver of the court application process where a petition has been issued, have also been extended until 30 September 2021.

The Temporary Insolvency Practice Direction (TIPD) has also been extended and came into force on 1^st April 2021. It replaces the previous TIPD which expired on 31 March 2021 but there is no change to the procedures that are currently being followed for insolvency hearings, or for the provisions in relation to administration appointments and statutory declarations.

Retrospective administration orders for defective extension

Case: Duffy and another v Mederco (Cardiff) Ltd [2021] EWHC 386 (Ch)

Summary: This case considered whether a retrospective administration order could be backdated to cure a defective administration extension dating back over a year prior. The court relied on a consistent series of cases to determine that it could not make a retrospective order backdating more than a year. However, the court held it could make an order dating back 364 days in order to validate the administrators’ conduct for those 364 days, whilst leaving a window of non-validation. On the basis that the purpose of the administration was still to be achieved, the court also allowed an extension of the administration for a further 12 months.

Defective administrators’ appointment

Case: Security Trustee Services Ltd v Seabrooke Road Ltd [2021] EWHC 436 (Ch), [2021] All ER (D) 105 (Jan)

Summary: This case highlights the importance of serving a qualifying floating charge holder (QFCH) with notice of intention to appoint administrators pursuant to paragraph 26 of Schedule B1 to the Insolvency Act 1986 (IA 1986). Here, a QFCH had not been served with a notice of intention and proceeded to appoint fixed charge receivers over the secured property. The court held that the filing of the notice of intention and the consequent interim moratorium were invalid and declared that the QFCH had validly appointed the receivers. The court also ordered that the notice of intention be removed from the court file as the failure to serve the QFCH represented both a failure to comply with paragraph 26 of Schedule B1 and an abuse of process.

Guidance on the CIGA coronavirus test

Case: Newman v Templar Corp Ltd [2020] EWHC 3740 (Ch)

Summary: This case provides some useful guidance on the application of the coronavirus (COVID-19) test as set out in CIGA 2020. The court confirmed that the ‘coronavirus test’ and threshold requirement found at CIGA 2020, Sch 10, para 5(1)(c), to consider whether coronavirus has had a financial effect on the company, is intended to be a low threshold to meet. Whilst the threshold of showing whether coronavirus has had a financial effect on the Company is low, debtors must still produce supporting evidence which clearly shows, on the face of the documents, that coronavirus has in fact impacted the company; they must not be complacent as to what evidence they produce. Here, the threshold was not met and the court allowed the winding up petition to proceed.

This decision followed the approach taken in Re A Company [2020] which established that the evidential burden of meeting the coronavirus test lies with the debtor itself and a debtor only needs to establish a prima facie case that they had been financially impacted by the coronavirus before the presentation of the petition.

Burden of proof in section 423 claims

Case: Pathania v Tashie-Lewis and another [2021] EWHC 526 (Ch), [2021] All ER (D) 47 (Mar)

Summary: The court considered where the burden of proof lies in a claim under section 423 of the IA 1986 (transactions defrauding creditors). It held that the initial burden of proof lies on the claimant, however, the burden shifts to the defendant if they advance a contrary positive case instead of merely denying a claimant’s claim. The court dismissed the claim because it concluded that it was not for the second defendant to prove that the transaction was innocent – the onus was on the claimant to show it was not an innocent transaction.

Malaysian Airlines scheme of arrangement sanctioned

Case: Re Mab Leasing [2021] EWHC 379 (Ch)

Summary: Mr Justice Snowden sanctioned the scheme of arrangement between MAB Leasing Ltd and certain of its creditors. This case demonstrates that English courts may sanction schemes proposed by foreign companies provided that sufficient connection to England is established. In this case, this condition was satisfied as the operating lease agreements were governed by English law. The court’s involvement was further supported by the scheme gaining a high level of creditor support and the fact that MAB had obtained an expert opinion which confirmed the scheme would be recognised in Malaysia. Snowden J further held that it was appropriate for the court to exercise its discretion to sanction the scheme despite there being unanimous creditor approval because failure to do so may result in further delays and expenses.

Gategroup Guarantee Ltd

Case: Re Gategroup Guarantee Ltd [2021] EWHC 775 (Ch)

Summary: The Court sanctioned Swiss airline catering provider, Gategroup’s, scheme of arrangement. The court had to be satisfied that it had jurisdiction both in relation to (i) the jurisdiction of the court in an international sense, and (ii) the composition of classes. The court declared it had jurisdiction on the basis that the company was incorporated in the UK, and that proceedings under Part 26A fall outside the scope of the Lugano Convention. The procedural requirement had also been satisfied as the meetings were duly convened and all creditors were afforded the right to be heard both at the convening hearing and the sanction hearing.

Stats focus

The Insolvency Service published its monthly company and individual insolvency statistics for February 2021.

Corporate insolvencies:

In February 2021 there was a total of 686 registered company insolvencies, comprised of:

• 591 CVLs;
• 33 compulsory liquidations;
• 56 administrations;
• 6 CVAs; and
• no receivership appointments.

In February 2021, when compared with the number of company insolvencies registered in February 2020:

• compulsory liquidations were 86% lower;
• CVLs were 38% lower;
• there were 68% fewer CVAs; and
• administrations were 62% lower.

Individual insolvencies:

• 1,389 debt relief orders;
• 898 bankruptcies; and
• there were, on average, 6,138 IVAs registered per month in the three-month period ending February 2021.

When compared with the number of company insolvencies registered in February 2020:

• debt relief orders and bankruptcies were both 42%;
• debtor applications were 40% lower;
• creditor petitions were 59% lower; and
• IVAs registered per month in the three-month period ending February 2021 were 11% higher than for the three-month period ending February 2020.