Insolvency Overview – Issue 7 | January 2022

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Legislation

the Rating (Coronavirus) and Disqualification of Directors (Dissolved Companies) Act 2021 received Royal Assent on December 15, 2021. In an “anti-phoenix” measure, a director will no longer be able to avoid disqualification under section 6 of the Company Directors Disqualification Act 1986 by dissolving their business before it enters insolvency proceedings. In such circumstances, if the court is satisfied that a former director of a dissolved company is unfit to participate in the management of a company, the court must disqualify him (upon motion).

The provisions relating to directors of dissolved companies come into force on February 15, 2022.

Regulatory consultation

On December 21, 2021, the Insolvency Service published a consultation titled “The Future of Insolvency Regulation”. The main proposals include:

  • Removing the regulatory powers of the four public professional bodies that currently regulate insolvency practitioners, to be replaced by a single independent government regulator.
  • A new system to license and regulate businesses (rather than individuals) that provide insolvency services.
  • A new public register of insolvency practitioners and businesses that provide insolvency services, including any regulatory action against them.
  • A formal compensation mechanism for errors made by IPs/companies.
  • Reform of the system of bond claims.

Responses to the consultation are requested by March 25, 2022.

Case law

Re Amicus Finance Plc [2021] EWHC 2340 (Ch): Following the summon judgment rendered on August 9, 2021, and following the High Court’s decision sanction Amicus Finance Plc’s restructuring plan for a solvent exit from administration – the first time a restructuring plan has been proposed as a way out of administration, and the first restructuring plan for an SME – the tribunal de grande instance rendered its reasoning. This was the second totally opposed cross-class “crush” decision and the first involving the discretion to crush a dissenting secured creditor. Among other things, Sir Alastair Norris argued that:

  • In Part 26A applications, there is a natural tendency to focus on the proposed plan of arrangement versus the class of dissenting creditors. But willing classes of creditors should not be overlooked and the regime should be considered
  • relating to them in the same way as a plan under Part 26
  • When overturning dissenting class opinions, two threshold conditions must be met before the court can exercise its discretion to sanction the scheme: (1) the no-worst case test must be met; (2) the plan must have been approved by 75% of voters in any class
  • who would receive payment in the event of immediate liquidation or who otherwise has a real economic interest in the company;
  • The “No Worse” test (under restructuring, versus the relevant alternative to the plan – here, liquidation) would normally be determined on a balance of probabilities, rather than “no prospect”. real”: a plan sponsor should not exclude any realistic possibility of a better outcome for a dissenting creditor under the realistic alternative.

Gostelow and another against Hussain and others [2021] EWHC 3276 (Ch): A trustee in bankruptcy’s application for an order for the possession and sale of a bankrupt’s family home is an insolvency application governed by Rule 1.35 Insolvency Rules 2016, and must be submitted by a Notice of Claim under IR 2016 rather than a Part 8 CPR Claim Form. Obitatethe tribunal also had jurisdiction, under Article 3.10 of the CPR, to correct procedural errors by authorizing the continuation of proceedings initiated in an erroneous form, subject to correction.

Office of the Bankruptcy and Other Arbitrator v. Shaw [2021] EWHC 3140 (Ch) determined among others this:

  • A plaintiff for a bankruptcy order bears the burden of showing his inability to pay his debts as of the date of the arbitrator’s award (under s. 263K(1)(b) IA 1986) – here , the withdrawal period of a pot of pension. A debtor seeking their own bankruptcy order may have a higher burden of proof than a creditor seeking the same order.
  • In determining whether a debtor can pay their debts, a bankruptcy arbitrator may consider, by applying a cash flow test, retirement assets in deciding whether to issue a bankruptcy order.
  • Obitateit was not proper to use the jurisdiction of the court under section 51 of the Superior Courts Act 1981 to make a non-party order against the Secretary of State for Business, at the energy and industrial strategy (on the ground that the SoS – which was not a party to the appeal – was responsible for the appointment of the arbitrator) in circumstances where Parliament ordered that no costs order be rendered against the arbitrator, the respondent to a statutory appeal, who was fulfilling his obligation to assist the court.
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