Restructuring and insolvency roundup: what happened in September 2021?
In our monthly restructuring and insolvency roundup we summarise key points from legal updates and important cases.
Insolvency Service announces lift of temporary insolvency measures
In short: Temporary insolvency restrictions protections on winding-up petitions came to an end on 30 September 2021. The following new targeted measures relating to winding-up petitions have been introduced to support business and commercial tenants.
Corporate Insolvency and Governance Act 2020 (CIGA 2020) (Amendment of Schedule 10) Regulations 2021
In short: The regulations introduce new temporary measures to restrict the use of winding-up petitions in relation to small businesses and commercial tenants. These regulations came into force on 29 September 2021 and affect winding-up petitions presented between 1 October 2021 and 31 March 2022.
- The debt threshold for a winding-up petition is increased from £750 to £10,000;
- Creditors must seek proposals from the debtor business for repayment of the debt, giving 21 days for proposals before they can proceed with a winding up petition (although a creditor may apply to court for an order that they do not need to deliver a Schedule 10 Notice or give the debtor 21 days to make a satisfactory proposal); and
- There remains a blanket ban on winding-up petitions in respect of commercial rent, so commercial landlords must still demonstrate to a court that non-payment is not aligned to the financial effect of coronavirus.
Insolvency (England and Wales) (No.2) (Amendment) Rules 2021
In short: The main purpose of the Amendment Rules is to include a permanent set of rules supporting the Part A1 moratorium process within the Insolvency (England and Wales) Rules 2016 (IR 2016). These regulations came into force on 1 October 2021.
Key points: For clarity purposes, notice periods are now framed in terms of ‘business days’, not ‘days’. Secondly, the monitor is afforded more room for manoeuvre in the assessment of whether he or she should terminate the moratorium on the grounds of the company being unable to pay its moratorium debts or pre-moratorium debts not subject to a holiday by excluding those debts for the purpose of the assessment.
Navigating the perfect storm
Our latest thought-leadership piece examines the perfect storm that is brewing in the business community, as the government withdraws support measures implemented during COVID-19. Click here to read the article.
Top three cases
1. Disputing Winding-up petitions with bare assertions is not enough
Case: Fenton Whelan Ltd v Swan Campden Hill Ltd  EWHC 2470 (Ch)
In short: A debt claimed in winding-up proceedings was allegedly disputed. The court rejected all grounds of opposition and concluded that the winding-up petition should proceed.
Key takeaways: The case provides a good example of the court taking a strong approach to disputes and counterclaims brought in respect of a winding-up petition. It requires such disputes to be properly supported and substantiated with evidence. It is essential for allegations and assertions made in response to winding-up proceedings to be properly and fully evidenced.
2. Refusal of application to injunct sale by liquidator
Case: Absolute Living Developments Ltd (in liquidation) (acting by its liquidator, Louise Mary Brittain) v DS7 Ltd and others  EWHC 2311 (Ch)
In short: The court refused to grant an interim injunction preventing a liquidator from completing an agreed sale of properties. On the basis of professional advice, she had concluded that it was inappropriate to market those properties for sale as part of a wider package. The court stated that the liquidator had not taken a negligent or dishonest course in doing so.
Key takeaways: The courts are reluctant to interfere with decisions reached by office-holders without clear evidence of misconduct. The applicant argued that by failing to market two properties as part of a wider package, the liquidator failed to obtain the best price reasonably obtainable for them. However, the court was not concerned with whether the liquidator could potentially have achieved a higher price by pursuing a different marketing strategy. It instead focused on whether they had acted negligently or dishonestly. The court will usually start with the presumption that a licensed insolvency practitioner is acting professionally, honestly and competently. An officeholder will further mitigate against a finding of negligence or dishonesty when that office holder has relied on the professional advice of an expert.
3. High Court rejects challenge to Caffè Nero’s Company Voluntary Arrangement (CVA)
Case: Re Nero Holdings Ltd; sub nom Young v Nero Holdings Ltd  EWHC 2600 (Ch)
In short: The High Court dismissed a challenge brought by a landlord against Caffè Nero’s CVA which had secured support from over 90 per cent of creditors last year.
Key takeaways: There are three important points to take away from this case; (i) a nominee cannot be criticised for using an electronic voting procedure to obtain a decision from creditors on a CVA proposal; (ii) if a modification to a CVA is proposed before the end of the electronic voting period, votes already received in favour may, in certain circumstances, be counted in favour of the proposal as modified. This is subject to the modification being supported by the company and for the benefit of the creditors; and (iii) the High Court may have the power to make an order to adjourn or postpone an electronic voting procedure. However, any such application would carry risks as it would be unclear what precisely the Court could order and whether this could allow creditors to change their votes.
Must know story
How Hurricane Energy went from refused restructuring plan to bond buy-back
In short: Hurricane Energy plc recently completed a tender offer to buy back a portion of its US$230 million convertible unsecured bonds. A buy-back programme was suggested by the shareholders of the company as one of the possible alternatives to the restructuring plan attempted by them in June 2021. The court held that the plan did not satisfy the threshold conditions for cross-class cram down as Hurricane was not at risk of insolvency and there were alternative options.
Key takeaways: The Court’s judgment is helpful in showing the risks involved in achieving a restructuring plan by way of a cross-class cram down in circumstances where more than one relevant alternative may be considered as realistic outcomes. In Hurricane’s case, buying back the bonds was considered a realistic outcome. The decision also provides useful guidance for practitioners as it builds on the framework set out by Snowden J in the Virgin Active case, demonstrating how the court approaches the two threshold conditions when determining whether the conditions to exercise the cram-down mechanism have been met.
A comparison of corporate insolvencies data in August 2020 and August 2021
A comparison of individual insolvencies data in August 2020 and August 2021