UK: The Supreme Court on the 'creditor duty' - its existence, content and engagement

And so we have it - one of the most important company law judgments of recent years: BTI 2014 LLC v Sequana SA & Ors [2022] UKSC 25. The existence of the common law 'creditor duty' (also known as the 'rule in West Mercia' after the case West Mercia Safetywear v Dodd [1988] BCLC 250) has been confirmed and its content and application explained. A summary of the judgment is available here and here (pdf). A summary was also read out by Lord Briggs in the Supreme Court yesterday - see below (if the video does not appear below, it can also be found here): 

UK: The directors' duty to consider the interests of creditors - Supreme Court judgment this week in BTI case

After an unplanned break from blogging, I am happy to return with news that, on Wednesday this week (October 5), the UK Supreme Court will deliver its judgment in BTI 2014 LLC v Sequana SA [2022] UKSC 25. The court was required to consider, to quote directly from its summary, whether "the trigger for the directors' duty to consider creditors is merely a real risk of, as opposed to a probability of or close proximity to, insolvency".  

Hong Kong: the recognition of foreign liquidations

Judgment was given last month in Provisional Liquidator of Global Brands Grpup Holding Ltd v Computershare Hong Kong Trustees Ltd [2022] HKCFI 1789. I note the decision here because - to my mind - it is now one of the leading Hong Kong authorities on the recognition of foreign liquidations.

UK: England and Wales: Court of Appeal considers application of section 168(5) of the Insolvency Act 1986

Earlier this month the Court of Appeal gave judgment in Re Edengate Homes (Butley Hall) Ltd [2022] EWCA Civ 626. The case is of interest because of the discussion it contains concerning the application of section 168(5) of the Insolvency Act 1986. This provision provides that where "any person is aggrieved by an act or decision of the liquidator, that person may apply to the court; and the court may confirm, reverse or modify the act or decision complained of; and make such order in the case as it thinks just." Males LJ, with whom Stuart-Smith and Aplin LJJ agreed, stated (at para. [36]): 

It is not sufficient that an applicant for relief under section 168(5) is a creditor of the insolvent company. It must in addition have a legitimate interest in the relief sought. Where the application is to set aside a disposal of property by the liquidator, including the assignment of a claim, an applicant will have a legitimate interest if it is acting in the interests of creditors generally. Typically that will be the case when the effect of the relief sought will be to maximise the assets of the estate. But an applicant will not have standing if the relief sought is contrary to the interests of the creditors as a class, as it will be where that will result in a lesser recovery."

The case reached the Court of Appeal because, it seems, the trial judge was of the view that the case law authorities were inconsistent. This view was rejected by the Court of Appeal, with Males LJ observing: "the principles are clear and have been consistently applied" (para. [37]).

UK: Consultation outcome - insolvency arrangements for insurers

In May 2021 the Treasury consulted on proposed amendments to the insolvency framework governing insurers: see here (pdf). The consultation outcome has now been published: see here (pdf). The Treasury has said that it will continue to consult with the PRA, FCA and FSCS, before introducing legislation when parliamentary time allows.

Singapore: Court of Appeal on transactions at an undervalue and the principle in MC Bacon

Judgment was given by the Court of Appeal last month in Rothstar Group Ltd v Leow Quek Shiong [2022] SGCA 25: see here (pdf). The case is an important one in that is has confirmed that the grant of security for a third party's debt can in principle constitute a transaction at an undervalue. The court therefore held that the scope of what is known as the principle in MC Bacon was limited to security granted for the grantor's own existing debt.

UK: England and Wales: public companies - 'equitable considerations' and shareholder remedies

Judgment was delivered today in Duneau v Klimt Invest SA & Ors [2022] EWHC 596 (Ch). While first instance, I note it here (rather quickly) because of the very interesting discussion it contains concerning the extent to which 'equitable considerations' can arise - for the purposes of just and equitable winding-up (section 122(1)(g) of the Insolvency Act 1986) and the unfair prejudice remedy (sections 994-996 of the Companies Act 2006) - in public companies. 

UK: The Finance Act 2022

A copy of the Finance Act 2022, which received Royal Assent last month, has been published: see here or  here (pdf). The materials accompanying the Act when it was, as a Bill, before Parliament are available here.

Amongst the provisions in the Act, the following are - for me - particularly noteworthy: sections 7 and 8 (replacing the current system of basis periods, and introducing a new method through which self-employment income/profits are allocated to tax years); sections 53 to 66 (the framework introducing the new Economic Crime (Anti-Money Laundering) levy); section 85 (providing HMRC officers with the power to seek the winding-up of a company, in the public interest, to protect the public revenue); and section 96 (the introduction of a new disclosure requirement, for large businesses, in respect of the 'uncertain tax treatment' of items in a tax return). 

Jersey: amending insolvency law

The Companies (General Provisions) (Amendment No. 6) (Jersey) Order 2022 was made yesterday and amends an existing one - the Companies (General Provisions) (Jersey) Order 2002 - by, amongst other things, inserting a new provision concerning liquidator's qualifications. At the head of the new Order it is said that it comes into force on 1 February. This would appear to be a mistake because, under Article 5, the Order comes into force at the same time as the Companies (Amendment No. 8) (Jersey) Regulations 2022, and these Regulations - worth noting in their own right because of the changes they make to insolvency law - come into force on 1 March 2022.

UK: England and Wales: does a statutory trust arises in respect of segregated monies?

Judgment was given last Thursday by ICC Judge Burton in Re Allied Wallet Ltd [2022] EWHC 402 (Ch). The case concerned an application by liquidators for the directions of the court in respect of the interpretation and operation of the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. More specifically: did a statutory trust arise in respect of certain monies held by a company where the Regulations required their segregation?  Yes was the answer. 

Update (9 March): While ICC Judge Burton found that a trust arose, he noted at the end of his judgment that his view was in conflict with Ipagoo LLP, Re (Electronic Money Regulations 2011 and Insolvency Act 1986) [2021] EWHC 2163 (Ch), the judgment in which arose between hearing the application and the circulation of his draft judgment, and which was binding on him. The Court of Appeal has now expressed its position: no trust arises (see Baker v Financial Conduct Authority (Re Ipagoo LLP) [2022] EWCA Civ 302).

Isle of Man: call to replace 1934 Winding-up Rules with "modern, workable code"

In a recent judgment - Ltd Liability Companies Act 1996 and Companies Act 1931 and Broadsheet LLC and Roger Harper (CHP21/038, 31 January 2022) (here, pdf) - the court described the Companies (Winding-up) Rules 1934 (here, pdf) as "archaic" and called (again) for them to be replaced with a "modern, workable code".

UK: FCA consultation - guidance for firms seeking to limit their liabilities through compromises

The Financial Conduct Authority has published, for consultation, proposed guidance for firms seeking to limit their liabilities through compromises including schemes of arrangement, restructuring plans and voluntary arrangements: see here (pdf). In the consultation paper, the FCA explains (at para.1.2):

With this guidance we aim to help firms understand what information we need and how we approach compromises in line with our statutory objectives to protect consumers and the integrity of markets, with a view to reducing the number of proposed compromises that we do not consider to be appropriate. We also remind firms of their regulatory obligations, in line with Principle 11, to notify usimmediately and provide relevant information at an early stageif they are considering proposing a compromise. Where firms determine there is no better alternative outcome for consumersthan to propose a compromise, the guidance will help firms to propose acceptable compromises that are compatible with our rules, including the Principles for Businesses, and statutory objectives. In particular, if firms do propose a compromise in respect of redress liabilities, they should ensure it is the best proposal that the firm can make, which includes the firm providing the maximum amount of funding for the compromise so that consumers receive the greatest proportion of what is owed to them."

UK: Supreme Court hearing this week - Stanford International v HSBC

This week, on Wednesday, the UK Supreme Court hears an appeal from Stanford International Bank Ltd v HSBC Bank Plc [2021] EWCA Civ 535, [2021] WLR(D) 214. Proceedings will be broadcast: watch here. The issue before the court, to quote directly from its summary, is this: "Does an insolvent company suffer any loss if payments are made out of its bank accounts which discharge a debt owed by that company in an equivalent amount?"

India: MCA proposes changes to the Insolvency and Bankruptcy Code 2016

The Ministry of Corporate Affairs is consulting on changes to the Insolvency and Bankruptcy Code 2016: see here (pdf).

UK: A new regime for insolvency practitioner regulation - consultation begins

A consultation was launched by the Government today seeking views on a new regime for the regulation of insolvency practitioners: see here. The proposed new regime would see the creation of a new regulator, within the Insolvency Service, in place of the current four recognised professional bodies, with a remit extended also to firms offering insolvency services.

UK: England and Wales: equitable constraints and unfair prejudice

Last week - a week ago today, in fact - the Court of Appeal delivered its judgment in Loveridge v Loveridge [2021] EWCA Civ 1697. I note the decision here because of the discussion it contains regarding the scope of equitable constraints in the context of claims for unfair prejudice under section 994 of the Companies Act 2006. One of the alleged equitable constraints related to the circumstances in which a director could be required to repay a loan received from the company. Mrs Justice Falk (with whom Nugee and Bean LJJ agreed) stated (at para. [95]): 

"As Lord Hoffmann explained in O'Neill v Phillips at p. 1099F-G, 'a balance has to be struck between the breadth of the discretion given to the court and the principle of legal certainty'. In circumstances where a loan is interest free and legally repayable either immediately or on demand, it seems to me that the court should be very reluctant to impose equitable constraints that, if recognised, would fetter the exercise of directors' duties and could in reality significantly impair the value of the chose in action that the loans represent".

UK: England and Wales: appealing a decision to defer a company's dissolution

Written judgment was delivered yesterday by ICC Judge Barber in Kumar v Secretary of State for Business, Energy and Industrial Strategy [2021] EWHC 2965 (Ch), following a decision made in September 2021. The judgment is of interest because it appears to be the first authority to consider the process for appealing a decision to defer a company's dissolution under section 205 of the Insolvency Act 1986. 

The company's dissolution had been deferred until 13 May 2025 (dissolution would ordinarily have occurred on 2 February 2021). Judge Barber held that the deferral no longer served a useful purpose: the original purpose - to investigate the company's affairs - had concluded and had needed only several months. It was also held - in the absence of express, statutory guidance - that Mr Kumar (the company's sole director and sole shareholder) had standing to bring the appeal under section 205. 

UK: England and Wales: regulatory action by FCA did not require insolvency court permission

Judgment was given today in Financial Conduct Authority v Carillion Plc [2021] EWHC 2871 (Ch). The question before the court was whether regulatory action by the FCA against a company in liquidation, under section 91 and/or section 123 of the Financial Services and Markets Act 2000, constituted "action or proceeding" such that it required the permission of the insolvency court under section 130(2) ("consequences of winding-up order") of the Insolvency Act 1986. The trial judge, Mr Justice Michael Green, held that such permission was not required. 

UK: The Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021

The Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021 were laid before Parliament a few days ago and come into force on 12 November: see here or here (pdf). The accompanying explanatory memorandum is available here (pdf). The Rules provide further detail for the operation of the special administration procedure established in the Payment and Electronic Money Institution Insolvency Regulations 2021. 

UK: England and Wales: insolvency - the rule against double proof and a novel situation

The Court of Appeal gave judgment today in Lehman Brothers Holdings Scottish LP 3 v Lehman Brothers Holdings Plc & Ors [2021] EWCA Civ 1523. The decision is noteworthy because of the way in which the court, in the novel situation before it, developed the rule against double proof - sometimes known as the rule against double dividend: see Lord Walker in Re Kaupthing Singer and Friedlander Ltd [2011] UKSC 48. 

As Lord Justice Lewison explained (para. [172]): "Where (a) the surety has paid part of the debt owed by the principal debtor to the creditor and (b) the surety has given up any right to indemnity from the principal debtor, with the consequence that he has no entitlement to prove for anything, then the creditor must give credit for the payment in the insolvency of the principal debtor. It is the second condition that makes all the difference. There is nothing in the Insolvency Rules which deals with the rule against double proof. Consequently I do not consider that a modest development of the rule intrudes upon legislative competence".

And, as Lady Justice Asplin added (para. [178]): "I too consider, instinctively, that if a surety pays part of a guaranteed debt, and releases his right of indemnity from the principal debtor, the amount which the creditor is entitled to recover in the principal debtor’s insolvency must be reduced as a result of the payment and as a result, the creditor can only prove in the principal debtor’s estate for the lesser sum".