Restructuring, recovery and insolvency - Lawrence Graham

Newsletter | Issue Number 41 | Spring 2013The latest news onRestructuring, recovery and insolvencyThe latest developments in:AdministrationBankruptcyAlso in this issue:Restructuring conference 2012Meet the teamCross-border insolvencyDissolution of companyLiquidation

EditorialRobert Paterson+44 20 7759 6674robert.paterson@lg-legal.comWelcome to the March issue of The Angle. So far in 2013,the restructuring and insolvency profession has enjoyed ahigh profile in light of several major retail insolvencies,including Blockbusters, HMV and Jessops (where we actedfor some high profile parties as purchasers of certainassets). As The Angle goes to print, the Republic chain ofstores has just gone into administration. It seems that 2013is going to be a busy year for us all after all.Many of you attended our 14th Restructuring andInsolvency Conference in November last year and enjoyeda packed day of presentations from our Restructuring& Insolvency team, together with guest speakers, includingbarristers from 11 Stone Buildings and the economistStephanie Flanders. See page 16 for more details.Also in this edition, at page 15, is our regular ‘Meet theTeam’ fixture featuring Brett Israel. We are pleased towelcome Brett, who joined us from Bird & Bird lastSeptember where he was a partner for 13 years. Brett’sappointment as our new Head of Group confirms LawrenceGraham’s continued commitment to our Restructuringand Insolvency team and our ongoing desire to offer you,our clients, a premium level of service in this field.2 the angle Restructuring, Recovery and Insolvency

AdministrationRetrospective lifting of theadministration moratoriumBank of Ireland (UK) plc v ColliersInternational UK[2012] EWCA 2942 (Ch)The High Court has ruled that it is able to grantpermission retrospectively to a claimant to issueproceedings against a company in administration.BackgroundAs readers will be aware, paragraph 43(6) ofSchedule B1 to the Insolvency Act 1986 (Act) providesfor a moratorium on the enforcement of security andon various legal processes against a company inadministration, and its property. Creditors require theconsent of either the administrator or the permission ofthe court in order to take action against the companyor its assets. Similar provisions apply to certain othertypes of insolvency proceedings with section 130(2)of the Act applying to winding-up orders and section285(3) of the Act applying to bankruptcy situations.Previous judgments offer conflicting views on whetherproceedings commenced without permission shouldbe treated as a nullity or whether leave should begiven for the continuation of the proceedings.In Re Saunders [1997] Ch 60, proceedings werecommenced against a bankrupt. The court ruled thatthe proceedings commenced against a bankrupt orcompany in compulsory liquidation were not a nullityand the court had jurisdiction to give retrospectivepermission for their commencement.A different conclusion was reached in Re Taylor[2006] EWHC 3029 (Ch), where the court rejectedan unopposed application in respect of retrospectivepermission to commence an action against a defen -dant who had been declared bankrupt before theissue of the claim form.FactsAndrea Zemenides+44 20 7759 6807andrea.zemenides@lg-legal.comColliers International UK PLC (Colliers) providedproperty valuations of care homes to the Bank ofIreland (UK) plc (BOI) in 2006 so that it could providefinance to the Southern Cross Group, the operator ofthe care homes. When the Southern Cross Group wentinto administration in July 2011, investigations beganinto whether Colliers had been negligent in preparingthe valuations. Colliers went into administration on28 March 2012 and the statutory moratorium com -menced. As the limitation period for BOI’s claim wasapproaching, BOI issued claim forms on 13 September2012 claiming damages for negligence, but didso without the consent of the administrators or thepermission of the court. BOI then applied to the courtfor retrospective permission to issue the proceedings.DecisionMr Justice David Richards sitting in the High Courtacknowledged there was uncertainty surrounding theissue of granting retrospective permission. He ruledthat the decision in Re Saunders was to be preferredto the decision in Re Taylor and that retrospectivepermission could be granted for the commencementof proceedings, whether under section 130(2) orsection 285(3) of the Act or under paragraph 43(6)of Schedule B1 to the Act. Permission was thereforegiven retrospectively for the commencement of thepro ceed ings on terms that BOI could not enforce anyjudgment against the company without the permissionof the court.The court noted that the requirement for permissionfor the commencement of proceedings applies to insol -vency proceedings under the control of the court, notto a company in creditors’ voluntary winding-up. It wasemphasised that the real purpose of these insolvencyprovisions is to ensure that the proceedings remainunder the supervision and control of the court to pro -tect the mechanism for the realisation and distributionof assets.CommentThe case resolves conflicting authorities on the issue ofthe jurisdiction of the court regarding statutory mo ra -toria. It clarifies the position that proceedings institutedbefore permission is granted are not a nullity and thatretrospective permission can be granted. The decisionalso suggests there is no reason why administratorscould not give retrospective consent, which wouldavoid the necessity of a court application and wouldpermit them to resolve disputes with creditors of thecompany directly.the angle Spring 20133

AdministrationAdministrator’s duty to apply to courtfor directions and the court’s power tomake a winding-up orderLavin and others v Swindell[2012] EWHC 2398 (Ch)The High Court has ruled that an administrator has aduty to apply to court for directions where the initialcreditors’ meeting fails to approve the administrator’sproposals. In exceptional circumstances, the courtalso has the power to make a winding-up order onits own initiative, without having been presented witha winding -up petition.Administrator’s duty to apply to court fordirectionsLeading authorities present conflicting views on whetherthe administrator’s duty to apply to court for directionsunder paragraph 55 of Schedule B1 to the InsolvencyAct 1986 (Act) is a mandatory or discretionary duty.One view is that this is a mandatory duty, and that “theadministrator is under specific duties to seek directionsfrom or permission of the court… where he finds thathis proposals, or any revisions of them, are notapproved at a creditors’ meeting”.The opposing view is that this is a discretionary duty,and that “it does not appear essential that he shouldseek any ruling from the court: in particular, if revisedproposals are not approved, he is surely free to con -tinue to act under the original proposals or to draw upa new set of revised proposals and summon a furthercreditors’ meeting”.Power of the court to make a winding-up orderSection 122(1) of the Act outlines the circumstancesin which the court may wind up a company and section124 of the Act states who is entitled to present apetition to the court. In the case of Lancefield vLancefield [2002] BPIR 1108, Mr Justice Neubergerstated that in an “appropriate case” the court, of its ownmotion, has the power to make a winding-up order.FactsAn administration order was made on 16 December2011 in respect of BTR (UK) Ltd (BTR), an insolventcompany trading as a secure data remover andrecycler of electronic equipment. In his proposals tocreditors, the administrator envisaged that there wouldbe insufficient funds to pay a dividend to unsecuredcreditors, so he decided to dispense with the initialmeeting of creditors.The creditors went ahead with a meeting and themajority voted to reject the administrator’s proposals.At their meeting they resolved that the administratorshould petition for the compulsory winding-up of BTR.The administrator reported the result of the meetingto the court, as required by paragraph 53 of ScheduleB1 to the Act, but did not apply for the winding-up ofBTR, claiming there were insufficient funds to bring thepetition and that the tax due on the payments to thepreferential creditors would be prejudicial to them.The creditors then brought their own application tocompel the administrator to apply for the compulsorywinding-up of BTR. They made it clear they were con -cerned that the director had caused BTR to sell assetsto ITAS Global Ltd prior to the administration and thatthis could only be investigated adequately upon theappointment of a liquidator.The court had two main issues to consider: first,whether the administrator had a duty to apply to thecourt for directions, and second whether the court hadpower to make a winding-up order without first havingbeen presented with a winding-up petition.DecisionIn respect of the first issue, the court preferred the“mandatory” view expressed above. Although para -graph 55 of Schedule B1 to the Act does not expressly4 the angle Restructuring, Recovery and Insolvency

Administrationrequire the administrator to bring the matter beforethe court, paragraph 55(2) of Schedule B1 to the Actcontem plates there will be a hearing and for such ahearing to take place an application is required. Thecourt there fore ruled that if the administrator does notmake the application, it should be open to a creditorto do so. The position would not be as clear if thecreditors had merely rejected proposed revisions to theadminis tra tor’s proposals under paragraph 55(1)(b) ofSchedule B1 to the Act; however this point was notelaborated upon any further.In addressing the second issue, the court consideredthe case of Lancefield v Lancefield and ruled that inexceptional cases it is within the power of the court towind up a company without a petition under paragraph55(2)(e) of Schedule B1 to the Act.His Honour Judge Behrens emphasised that a windinguppetition is required unless “the circumstances areso plain, and the inevitability, appropriateness andurgency of a winding-up order are so clear, that itwould be a denial of justice, and a waste of time andmoney, for the court to refuse to make an order thereand then”. As this case involved pre-administrationtransactions which required urgent investigation todetermine whether the unsecured creditors wouldhave had any possibility of recovery, he was satisfiedthat if a winding-up petition were presented, a windinguporder would have been made. The appointment ofthe administrator was therefore terminated and it wasordered that a winding-up order be made.CommentAlthough it is still not entirely clear what the conse -quences will be if an administrator does not apply tocourt for directions following rejection of his proposalsby creditors, the case still provides useful clarificationthat the administrator’s duty to apply to court fordirections is a mandatory one. Creditors will be contentwith the decision that if the administrator does notapply to court they have a right to apply for directionsthemselves. The court’s extension of the case law onwhen it is able to make a winding-up order itself, ratherthan upon a winding-up petition, will also be pleasingto creditors, although it should be noted that thispower will be exercised cautiously and only in excep -tional cases.This time it’s personal!Wright Hassall LLP v Morris[2012] EWCA Civ 1472This case from late November 2012 highlights theneed for administrators to ensure that personal liabilityis excluded whenever they enter into contracts onbehalf of the company in administration, and also that,where they are named parties to litigation, they checkwhether liability is intended to be personal or not. As iswell known, an administrator can be personally liablefor costs where he or she is listed as the defendanteven if it is as administrator of a company.FactsJohn Chater+44 20 7759 6943john.chater@lg-legal.comMr Morris, a partner of the Redfern Partnership,was appointed as administrator of two companies,Marketbalance Limited and Phoenix InsuranceManagement Limited. Both of these companies wereexisting defendants in proceedings brought by HavenInsurance Limited. Wright Hassall LLP, solicitors, agreedto act for the two companies in the litigation and enteredinto two conditional fee agreements. These agreementswere signed by Mr Morris but on their face made clearthat the two companies were in administration.The litigation was eventually settled for approximately£194,000 (between the two companies) and WrightHassall LLP raised two invoices in respect of their feestotalling approximately £134,000. The invoices wereaddressed to Mr Morris and Mr Heaselgrave “togetherthe angle Spring 20135

Administrationtrading as the Redfern Partnership”. The parties hada dispute regarding the amount of these invoices andMr Morris made the point that the invoices had beenaddressed incorrectly and should have been addressedto Mr Morris as administrator of each company.Wright Hassall issued proceedings against Mr Morrisand Mr Heaselgrave as partners of the RedfernPartner ship to recover the sums it considered dueunder the invoices. Mr Morris filed his defence whichstated that he had retained the solicitors in his capa -city as adminis trator of the two companies, and thatMr Heaselgrave and the Redfern Partnership had notbeen involved. The invoices were credited and newinvoices issued. The new invoices were addressedto “Mr Duncan Roderick Morris, the administratorof Marketbalance Limited and Phoenix InsuranceManagement Limited”. The claim was also amended toreflect the fact that Mr Morris was the sole defendant.Mr Morris filed an amended defence and a counter -claim (alleging a lack of reasonable skill and care onthe part of Wright Hassall) listing the defendants asDuncan Morris (as administrator of MarketbalanceLimited) and Duncan Morris (as administrator ofPhoenix Insurance Management Limited). At the initialhearing neither party focussed on whether Mr Morriswas personally liable. The judge found in favour ofWright Hassall, and ordered that costs of £74,000should be paid within 14 days. Mr Morris argued thatWright Hassall would be an expense creditor of thetwo companies.Wright Hassall issued further proceedings and soughtan order that they should be paid ahead of the otherexpense creditors. Judge Cooke identified the questionof whether the order was made against Mr Morris,personally, or against the two companies, and decidedthat the first judge’s order was against the companiesand not Mr Morris personally.Wright Hassall appealed.It argued that whilst the general rule in contract isthat an agent (Mr Morris) is not bound by a contractentered into on behalf of his principal (in this case thetwo companies), this is not conclusive, and dependson the construction of the contract as to whether thereis any personal liability in a particular case.DecisionThe Court of Appeal hearing the appeal decided that itwas clear that the action had been against Mr Morris,as administrator, and not against the companies. Thiswas evidenced by the fact that consent of the adminis -trator, or permission of the court, would have beenrequired for Wright Hassall to litigate against thecompanies in administration, and neither had beenobtained in this case.In addition, the Court of Appeal found that as theaction had been brought against Mr Morris personally,the judge could usually only have given judgmentagainst someone who was a party to the litigation,ie not the companies. They pointed out that whilstMr Morris was sued as administrator of the companies,neither side had located any authority that wouldresult in him not being personally liable.CommentThis case does not actually change the position oncosts in litigation, but it does highlight the need for anadministrator, or indeed any office holder, to ensurethat, when they enter into a contract on behalf of acom pany, they do so not in their personal capacityunless absolutely necessary. This should be made clearin the document, and if there is any doubt, a full ex -clusion of personal liability clause should be added.Whilst these have been virtually industry standard formany years, this case serves as a useful reminderas to what can happen if these protective clausesare omitted.From the facts of the case, it is equally clear thatwhere an administrator is made a party to litigation,he or she must check carefully whether they areintended to be the defendant personally or if thecompany is the defendant. If it is the company, thenthey should ensure that they are removed as a partyas soon as possible. As the Court of Appeal judgmenthighlights in this case, if you are not a party to alitigation you can’t have a judgment made against you(although you could, in certain circumstances, findyourself at the wrong end of a third party costs order).6 the angle Restructuring, Recovery and Insolvency

AdministrationAdministration expenses –is it on the list?Neumans LLP v Andronikou and others[2012] EWHC 3088 (Ch)The recent case of Neumans LLP v Andronikou andothers reviewed the question of when a liability canbe paid as an administration expense. The judge ruledthat the court did not have the jurisdiction simply toorder that a liability be treated as an administrationexpense, and that any liability incurred must fall withinone of the categories set out in rule 2.67 InsolvencyRules 1986 for it to be paid as an adminis trationexpense.BackgroundWhether certain fees rank as expenses in an insolvencyprocess is a complex area of law and there are manydifferent issues that can arise depending on the factsof a case. In respect of administration and liquidationexpenses, rule 2.67 and rule 4.218 list the categories(and order of priority) of liabilities that should rankas an expense of an administration or liquidationrespectively.There is also a principle, known as the Lundy Graniteprinciple, that has developed out of case law. This prin -ciple is that, if an insolvency practitioner incurs costsfor the benefit of a company’s creditors, then thosecosts should rank as an expense of the insolvencyprocess, including in relation to pre-existing contracts.Section 51 of the Senior Courts Act 1981 (Section 51)is also relevant to this case as it gives the High Courtdiscre tion to make such order as it thinks fit in relationto the costs of any proceedings before it.FactsThe application was brought by a firm of solicitors,Neumans LLP in respect of work they had done forPortsmouth City Football Club Limited (PortsmouthCity), prior to that company entering administration.HMRC had presented a petition for Portsmouth Cityto be wound up and Neumans were instructed toapply for the winding-up petition to be dismissed asan abuse of process. The application was dismissedbut Neumans, acting for the company, filed an appeal.Shortly afterwards the situation changed, andNeumans’ instructions were withdrawn.On 26 February 2010, a qualifying floating chargeholder appointed administrators over Portsmouth City,and HMRC’s winding-up petition was suspended forthe period of the administration. HMRC initially queriedthe validity of the administrators’ appointment andtheir winding-up petition was heard on 2 March 2010at which hearing directions were given for thedetermination of the question of the validity of theadministrators’ appointment. HMRC later acceptedthat the adminis trators had been validly appointed.The administrators’ initial report proposed a CVA butHMRC challenged the CVA on the grounds that itunfairly prejudiced its interests and there was amaterial irregularity with the creditors’ vote. Theadministrators’ revised proposals contained a provisionthat the company should exit administration via acompulsory liquidation and these proposals wereapproved. In due course, the administrators applied tocourt for an order that their appointment should cease.HMRC’s winding-up petition was restored, a winding-uporder was made on 24 February 2011 and theliquidators were appointed on 25 February 2011.Neumans were not paid for all of the work that theyhad undertaken and claimed that they were owed£267,079.45 in respect of their fees and the feesof the barristers they had instructed.the angle Spring 20137

AdministrationAt the winding-up hearing on 2 March 2010, the courtgranted leave for Neumans to apply to court in respectof their fees. Correspondence passed between Neumansand the administrators, but eventually Neumans madean application to court for an order that their feesshould rank as an expense of the administration. Thisinitial application was then amended to include, in thealternative, an order that the fees should rank as anexpense of the CVA or of the liquidation. Neumanslater dropped its arguments in respect of the CVA.Under Section 51, Neumans argued that an ordershould be made for the administrators to pay its fees(from the assets of the company) as an expense of theadministration on the basis that such a payment wouldbe a necessary disbursement under rule 2.67.Neumans also argued, should the court’s discretion oncosts under Section 51 not apply, as set out above,their fees should be treated as an expense of theadministration, on the grounds that it was in the publicinterest to ensure that solicitors are paid when actingfor a company facing a winding-up petition.If these arguments were unsuccessful, Neumans arguedthat as the fees were incurred when appearing at thehearing of the winding-up petition, they should rankas an expense of the liquidation under rule 4.218.Whilst there had been realisations in the administra tion,those funds had been spent. Therefore, if the feeswere determined to be an administration expenseit would involve the administrators paying back someof their fees. If the fees were determined to be anexpense of the liquidation, the solicitors were unlikelyto receive anything, unless the liquidators realised anyfunds from successfully pursuing any claims that theymay have.DecisionThe court decided that Section 51 did not allow it tomake an order that the administrators pay Neumans’fees, and even if it could make such an order, it wouldnot necessarily result in the administrators incurring a‘necessary disbursement’.It was also not within the powers of the court to orderthat the administrators merely treat the solicitors’ feesas if they were an administration expense. The LundyGranite principle required that the creditors receivesome benefit from the work that was conducted priorto them being appointed. No such benefit had beenreceived by the creditors.On the basis of the decisions set out above, the judgeruled that Neumans’ fees could not be an expense ofthe administration as they did not fall within one of theadministration expense categories listed in rule 2.67.The judge instead ordered that the fees should betreated as an expense of the liquidation on the basisthat they were fees incurred by a party appearing ata winding-up hearing under rule 4.218(h).CommentThis case makes it clear that the Lundy Graniteprinciple requires that there must be a benefit tothe creditors for certain liabilities to rank as anexpense of the administration. Unless that principleapplies, liabilities will not rank as an expense unlessthey fall within one of the specific categories set out inrule 2.67 (administrations) or rule 4.218 (liquidations).It will also put solicitors on alert that they may requirea third party indemnity for any work undertaken for acompany that is the subject of a winding-up petition.8 the angle Restructuring, Recovery and Insolvency

AdministrationHelen Plews+44 20 7759 6406helen.plews@lg-legal.comNo notice, no appointmentRe Eco Link Resources Ltd (in CVL)Case No: 8326 of 2012, Birmingham DistrictRegistry (2 July 2012)In Re Eco Link Resources Ltd, the High Court ruledthat the new, flexible judicial approach to out of courtappointments of administrators did not permit theholder of a junior ranking qualifying floating charge tomake an appointment without giving due notice to theholder of a senior ranking qualifying floating charge.Eco Link Resources Ltd (Eco Link) had granted qua -lifying floating charges to two creditors. Eco Link’smembers subsequently proceeded to pass a resolutionto wind up the company, unaware that the juniorranking charge holder had already filed a notice ofappointment under paragraph 14 of Schedule B1 tothe Insolvency Act 1986 (Act), purportedly appointingadministrators. It transpired that the junior rankingcreditor had not provided the senior ranking qualifyingfloating charge holder with the required two businessdays’ notice, as stipulated by paragraph 15(1) ofSchedule B1. Were the administrators’ appointmentto be upheld, the practical effect would be to nullifythe appointment of liquidators as the administrationmoratorium would have prevented Eco Link frompassing a winding-up resolution.Following its earlier decision in Re Ceart Risk ServicesLtd (which we considered in a previous edition of TheAngle), the High Court decided to adopt a purposive,one might even say flexible, approach to statutoryinterpretation. In Re Ceart, the court suggested thatthe key to determining whether a failure to complywith the out of court appointment provisions, set outin Schedule B1, had led to the appointment beinghopelessly invalid, depended on an analysis of theconsequences of the failure. In other words, the courtshould ask itself, what was the purpose of the relevantprovision that has been breached and what did Parlia -ment intend to be the consequences of such a breach?The court in Re Eco Link concluded that the purpose ofparagraph 15(1) was to prevent the very situation thathad arisen in the case before it, namely to prevent ajunior ranking creditor from appointing an administratorwithout giving a senior creditor an opportunity to con -sent to the appointment or choose to appoint its ownadministrator instead. Were a senior ranking creditor notto be given due notice before an appointment by a juniorcreditor had been made, the senior creditor would befaced with a ‘done deal’, to the extent that he wouldhave no recourse against the appointment. This wouldmake paragraph 15(1) ineffective, which would nothave been Parliament’s intention or else it would nothave taken the time to include it in the legis lation. Thecourt therefore ruled that the appointment purportedlymade by the junior creditor was invalid and so thecompany’s appointment of a liquidator was upheld.CommentThis decision is consistent with the purposive, flexibleapproach the courts have begun adopting when con -sidering cases of this nature, but at the same timeit also reveals the limits of that flexibility. It is clearthat the court does not have the power to validate anappointment where a holder of a qualifying floatingcharge is entitled to receive notice of a proposedappointment but does not receive it. The decision willapply as much to directors and companies wishing tomake out of court appointments as it does to juniorqualifying floating charge holders and therefore hasapplication beyond the limited facts of this case.the angle Spring 20139

BankruptcyDischarge suspended?Timothy James Bramston v Abraham RafaelAryeh Haut[2012] EWCA Civ 1637Readers may recall the case of Bramston v Haut whichwas summarised in our 40th edition of the Angle andconcerned the rather unusual case of a bankruptrequesting a suspension of his automatic dischargefrom bankruptcy rather than his trustee.The suspension was granted for a period of six weeksto allow the bankrupt to put forward an IVA proposalto his creditors. A costs order was made against thetrustee on the basis that the bankrupt had requestedthat the trustee make such an application himselfunder section 279 of the Insolvency Act 1986 (Act)but the trustee had refused. The judge considered thetrustee had been unreasonable in his refusal. Thetrustee subsequently appealed the judge’s decisionand the appeal was heard on 6 November 2012 bythree judges sitting in the Court of Appeal. The appealwas allowed.FactsKanika Kitchlu-Connolly+44 20 7759 6789kanika.kitchlu-connolly@lg-legal.comIn brief summary, the bankrupt wanted to put forwardthe IVA proposal to his creditors but would not havebeen in a position to do so following his discharge.This was the bankrupt’s second proposal, the firsthaving been withdrawn following an application by thetrustee under section 363 of the Act on the basis thatthe bankrupt had failed to co-operate with the trustee,had concealed assets and had misrepresented the truestate of his financial affairs. The order was granted andthe first proposal was withdrawn. The trustee con si der -ed that the IVA now being proposed was no differentto the first and his objections therefore remained.The court, however, granted a suspension for a periodof six weeks. The trustee considered that the bankruptwanted the IVA approved so that the trustee’sinvestigations into his affairs would cease.DecisionOn appeal, the court considered that the purpose ofsection 279 was to ensure that the bankrupt con ti nuedto suffer the consequences of a bankruptcy until suchtime that he complied with his obligations and to allowthe trustee to investigate the bankrupt’s affairs. In thiscase, it was clear that the only reason the suspensionhad been granted was to allow the bankrupt more timeto deal with the IVA. The Court of Appeal consideredthat that fell outside the scope of section 279(3). Thecourt was also of the view that the trustee had notacted unreasonably in refusing to make an applicationto suspend the bankrupt’s automatic discharge. As aresult, the first instance decision could not stand andthere was no proper basis for ordering that the trusteepay the bankrupt’s costs.CommentThe judges considered that the power to suspend abankrupt’s automatic discharge from bankruptcy undersection 279 of the Act was intended to be penal and thecourt did not therefore have the jurisdiction to granta suspension in circumstances where it was beingsought by the bankrupt to put forward an IVA proposal.Am I released?Timothy Francis Hayes v Carol Linda Hayes[2012] EWHC 1240 (Ch)This case considered the issue of whether a particularcategory of debt, which generally survives dischargefrom bankruptcy, should in fact have been released inview of the specific circumstances. The court ultimatelyheld that such a debt should only be released if thedebtor can show that he would never be in a positionto repay it. This was not the case here.As a general rule, following a debtor’s automatic dis -charge from bankruptcy, he is no longer liable for hisbankruptcy debts. There are, however, certain types ofdebt from which the bankrupt is not released followingdischarge, which include debts arising under familyproceedings. In relation to such debts, the court hasa discretion as to whether to order that the debtor bereleased from the liability.FactsFollowing Mr and Mrs Hayes’s divorce in 2000,Mr Hayes was ordered to pay his wife’s costs arisingfrom the di vorce. Mr Hayes, however, failed to paythese costs which prompted his wife to serve astatutory demand followed by a bankruptcy petition.As the petition was unopposed, a bankruptcy orderwas made against Mr Hayes.10 the angle Restructuring, Recovery and Insolvency

BankruptcyA year after Mr Hayes was made bankrupt, he wasautomatically discharged from bankruptcy. Mrs Hayesissued a further statutory demand against Mr Hayeswhich he applied to have set aside under section281(5) of the Insolvency Act 1986 (Act) on the basisthat the debt should have been released following hisdischarge from bankruptcy. Mr Hayes’s application wasdismissed and he appealed to the High Court.DecisionMr Hayes failed in his appeal and the High Courtdecided that the debt should not be released. The firstissue for the court to consider was whether it hadjurisdiction to deal with the issue following Mr Hayes’sdischarge. The court concluded that there was nothingin the wording of section 281 of the Act which pre ven tedthe court from hearing an application post discharge.In his defence, Mr Hayes argued that, in view of hisage (61) and his lack of earning capacity, there was norealistic prospect of him ever being able to meet hisliabilities. Mr Hayes argued that he had no assets, wasunemployed and was reliant on state benefits to getby. Indeed, this litigation was being publicly funded.Unfortunately for Mr Hayes, the court rejected thisargument on the basis that it couldn’t rule out thepossibility of Mr Hayes’s financial position changing atsome point in the future. Further, the default positionunder section 281(5) of the Act is that family costsorders survive discharge and there was therefore a pre -sumption that the debt should remain in force. Althoughthe court appreciated Mr Hayes’s limited earningcapacity, this in itself was not sufficient to rebut thepresumption that the debt survived discharge.CommentIt is clear from this decision that any debtors seekingto have a debt released following their discharge frombankruptcy would have a very high threshold to over -come to convince any court that the debt should beset aside. The court made clear that there is a strongpresumption in favour of such a debt remaining inforce and there therefore needed to be convincingreasons why it should be discharged. The judge heldthat unless the court can be absolutely confident thatan applicant will never receive funds that would enablethem to pay the debt in the future, it is unlikely thatthe presumption will be rebutted. It is not easy tospeculate on what other circumstances may existwhich would be sufficient to justify releasing a debtwhich would otherwise usually survive discharge.As section 281(5) also applies to any debt arising froma liability to pay damages for negligence, nuisance,breach of contractual or statutory duty in personalinjury, it is likely that this case will also apply to thesecategories of debts.England or Germany?Sparkasse Hilden Ratingen Velbert v Benkand The Official Receiver[2012] EWHC 2432 (Ch)Several cases recently have had to consider the issueof a debtor’s centre of main interest (COMI) in orderto determine whether that debtor’s COMI is in fact inEngland and therefore whether the courts of Englandand Wales have jurisdiction to grant bankruptcy ordersagainst such individuals.FactsDie Sparkasse Hilden Ratingen Velbert (a Germanbank) applied to annul a bankruptcy order made inrelation to one of its debtors, Mr Benk, in June 2010.Mr Benk owed more than €3 million to the bank butthe bankruptcy had run its course and Mr Benk wasnow discharged from the bankruptcy with the effectthat his liabilities to the bank had been released.The bank argued that the bankruptcy order should neverhave been made, on the basis that the court had nojurisdiction because Mr Benk was a German nationalwho had petitioned for his own bankruptcy in Englandarguing that his COMI was in England. The bank arguedthat Mr Benk’s COMI had in fact been in Germany at allmaterial times, and his presence in England was fabri -cated to enable him to take advantage of the rathermore debtor-friendly bankruptcy regime in England.It should be noted that the bankruptcy order in issuewas in fact the second that had been made againstMr Benk. The first had been annulled on the groundsthat Mr Benk had provided false information supportingthe petition. At the time, the bank had requested thatbankruptcy proceedings be opened in Germany but thethe angle Spring 201311

BankruptcyGerman court declined on the basis that the Englishcourt had by that time already made a second bank -ruptcy order in relation to Mr Benk.DecisionBased on the facts before it, the court determined thatMr Benk’s COMI was in fact in Germany, both at thetime of the presentation of the second bankruptcypetition, and also when the order was actually made,and the court therefore did not have jurisdiction togrant the order. The bank considered the followingfacts to be of particular relevance:1 Habitual ResidenceIt was clear from the facts that Mr Benk was habituallyresident in Germany, although he appeared to be livingtemporarily in England.2 Professional DomicileMr Benk had been suspended from his practice ofa professional notary in Germany at the time of hispetition but the court noted that he had lodged anumber of appeals against such suspension, includingduring the time of his bankruptcy, which the courtconsidered was a clear indication that he wanted toresume his activities in Germany on his return thereafter bankruptcy. It was also clear from the facts thathe needed to continue practising as a notary as thiswas his sole source of income. Mr Benk’s professionalactivities here in England as a sports photographerwere mere “window dressing” and the court foundgaps in the evidence.3 CreditorsMost of Mr Benk’s creditors were located in Germanyalthough Mr Benk had not taken steps to notify themof his change of COMI.4 COMI of Mr Benk’s PartnerIt was clear that Mr Benk’s partner continued tosupport Mr Benk financially during his bankruptcyin England through her German accounts, using herGerman addresses for significant transactions. Shemaintained her German residence.5 Mr Benk’s IntentionsHaving observed Mr Benk as a witness, the judgeconsidered that Mr Benk never saw his presence inEngland as anything other than short term. The judge’sview was that Mr Benk’s main aim was to rid himself ofhis German debts and remain in England temporarilywith a view to returning to Germany full time followinghis bankruptcy to continue his life there, acting asa notary.CommentThe English Courts have, in several recent cases, beenforced to reconsider the basis on which bankruptcyorders have been made in relation to foreign nationalswhen either new evidence has come to light or initialevidence has been re-investigated. A significant numberof debtors, from both Germany and the Republicof Ireland, have sought to make use of the Englishbankruptcy regime which is considered to be far moredebtor-friendly than the equivalent regimes in theirrespective countries. The effect of this “bankruptcytourism” is an increased burden being placed on theOfficial Receiver and the English courts in dealing withthe bankruptcy petitions, and often subsequentannulment hearings.It is interesting to note that the judge in this case wasactually sympathetic to the issue of forum shoppingbut noted that any new COMI had to be a genuine oneand that the motive behind the acquisition of the newCOMI was irrelevant.12 the angle Restructuring, Recovery and Insolvency

BankruptcyThe decision stands!Raithatha (as Trustee in Bankruptcy ofMichael Roy Williamson) v Williamson[2012] EWHC 909 (Ch)As set out in the last edition of the Angle, and asdiscussed at our conference in November, the appealin the controversial case of Raithatha v Williamsonwas due to be heard on 29 or 30 November 2012.The appeal has been vacated as the parties havereached a settlement. The decision that a bankrupt’spension can be subject to an income payments order(IPO), where the bankrupt has the entitlement toimmediately draw down his pension, stands.FactsThe facts of this case have been exhaustively reportedbut, briefly, Mr Williamson was a bankrupt with veryfew assets but a large pension pot. Under the pensionscheme rules he was entitled to draw his pension atthe time he was made bankrupt, but had not done so.Mr Williamson’s trustee in bankruptcy applied for, andwas granted, an order requiring Mr Williamson to drawhis pension and for the income from that pension to beincluded within an income payments order. The judgeruled that Mr Williamson had an entitlement to pay mentunder the pension scheme, notwithstanding that hehad not yet elected to draw it and that that entitlementcould be subject to an IPO. The judge considered thatthere should not be a difference between the bankruptwho had elected to draw his pension on the day pre -ceding his bankruptcy and the bankrupt who was entitledto draw his pension but had not yet opted to do so.Current positionJohn Chater+44 20 7759 6943john.chater@lg-legal.comAs the appeal has been vacated, the decision of theHigh Court stands.This case widens the ambit of the IPO provisions toallow an IPO to be granted in respect of pension rightsto which the bankrupt is entitled, but that he has notyet elected to draw.This decision will obviously have a larger effect on thosebankrupts of pensionable age and younger bankruptsare unlikely to be affected but it is another weapon inthe armoury for trustees in bankruptcy in their effortsto maximise the return to creditors. A trustee in bank -ruptcy should always check the rules of the bankrupt’spension scheme to see if the bankrupt has an imme -diate entitlement to his or her pension.He said, she saidWilliams (Trustee in Bankruptcy of JonathanJames Taylor) v Taylor[2012] EWCA Civ 1443The Court of Appeal has ruled that a judge was rightto refuse to set aside a transfer of property made by ahusband as a transaction intending to defraud creditorsunder section 423 of the Insolvency Act 1986 (Act),where the husband’s and wife’s respective witnessaccounts satisfactorily showed that the real purposebehind the transfer into their joint names had been togive effect to an existing agreement between them,rather than to enable the husband to defraud creditors.FactsAlex Jay+44 20 7759 6632alex.jay@lg-legal.comMr Taylor, a chartered accountant and companydirector, married Dr Raines in 2001. It appears thataround the time of the marriage, Dr Raines paid£120,000 towards improving a property owned byMr Taylor, at least in part to enable Dr Raines’ childrento move in. In 2002, a further sum of £120,000 waslent to Mr Taylor by his wife which was invested in hisfamily business, a company of which he was ashareholder, creditor and bank guarantor.the angle Spring 201313

BankruptcyBy April 2003 the business had failed and the com -pany was placed into creditors’ voluntary liquidation.Later that same month, Mr Taylor transferred his pro -perty into the joint names of himself and his wife, tobe held by them in equal shares. In May 2003 theyboth executed a declaration of trust over the propertywhich stated that Dr Raines had provided £120,000 toimprove the property and had lent a further £120,000to Mr Taylor as a loan for his business (this being themoney he had invested in the company the previousyear). The property was later sold. Mr Taylor’s share wasexhausted by various charges over it, and Dr Raines’ halfwas used to buy another property in her sole name.In 2009 Mr Taylor was declared bankrupt. His trustee inbankruptcy applied to set aside the 2003 transfer intothe joint names of Mr Taylor and his wife, and soughtto recover the new property bought by Dr Raines.The trustee argued that the conveyance should beset aside as a transaction at an undervalue intendingto defraud creditors under section 423 of the Act,as there were objective signs that Mr Taylor knewthat by making the transfer and executing the trustdeed, he was keeping the property out of the reachof his creditors.Despite these facts and on the strength of Mr Taylor’sand Dr Raines’ evidence, the Bankruptcy Court judgefound that the purpose of the transfer (and declarationof trust) was to give effect to arrangements alreadymade between the parties – namely the money pro vi -ded by Dr Raines to improve the property and the loanto Mr Taylor’s company. The judge ruled that the trusteehad therefore failed to prove that defrauding his creditorshad been part of Mr Taylor’s “purpose” in carrying outthe transfer, as is required under s. 423(3) of the Actfor the court to make a setting aside order.The trustee narrowly won the right to appeal againstthe dismissal of his application to set aside the pro -perty transaction. That was primarily because, froman objective standpoint, the transaction was at anundervalue because Dr Raines’ beneficial entitlement– in terms of the value of the loan and the home im -provement works – did not amount to 50 per cent ofthe property’s value.DecisionAt the appeal hearing the Court of Appeal found thatthe first judge had been right to accept what Mr Taylorand Dr Raines had said in evidence. The declaration oftrust had stated the position as the couple understoodit to have existed since the time of their marriage, andthe transfer merely formalised that understanding inlaw. The objective factors pointing towards a trans actionintended to defraud creditors were not sufficientlypersuasive so as to undermine the couple’s evidence.Thus the trial judge’s original conclusion would not bereversed and the appeal was dismissed.CommentWhat is clear from this judgment is that the establish -ment of an intention, or purpose, to defraud creditorsis primarily a matter of fact to be determined in thecircumstances of each case. The timing of the eventsof early 2003 proved to be unfortunate for Mr Taylorin that it did give the impression that the transfer mayhave been for the purpose of putting assets beyondthe reach of creditors. In the end, it was the witnesstestimony of himself and his wife that stood up to theobjective red flags that were otherwise suggestive offraudulent actions.14 the angle Restructuring, Recovery and Insolvency

Meet the teamBrett IsraelPartner+44 20 7759 6473brett.israel@lg-legal.comWhat would you be if you were not a lawyer?Some role in the music industry (though notperforming!)Beer or wine?Beer first, then wineWhat was the first CD you ever bought?“Regatta de Blanc” by The Police (though it was onold school vinyl, not CD)What book are you currently reading?“The Secret Race – Inside the Hidden World of the Tourde France” by Tyler Hamilton, a riveting expose ofLance Armstrong and the world of professional cyclingWho would play the leading man in a film ofyour life?Christopher WalkenWhat was your worst experience as a trainee?On my first international “by hand” delivery, I wasinstructed to take some documents to Malmö inSweden for a signing meeting. Unbeknownst to me,on a scheduled stopover in Copenhagen, the bagcontaining the documents was removed from the hold.It was like a scene from that old Hamlet advert whenthe carousel stopped without my bag appearing. Nota good indication of my reliabilityHave you ever had a brush with fame?Not really, but I did have a relatively humorous chatwith Noel Gallagher not too long agoWhat car do you drive?A VW Golf R32 and a Ford S-MaxWhat is your favourite quote?It is better to regret having done something than notto have done it at allWhat’s the most annoying thing about beinga lawyer?Working to unnecessarily tight deadlines that couldhave been avoided with a little bit of forethought.The life of a service provider …the angle Spring 201315

The 14th Restructuringand InsolvencyconferenceCharles Henri Carboni Administrateur Judiciare, ParisStephanie Flanders Economist and broadcasterBrett IsraelPippa HillRobert PatersonPhilip BakerHelen Plews16 the angle Restructuring, Recovery and Insolvency

Cross-border insolvencyCross-border enforcementRubin & Another v Eurofinance SA and others[2012] UKSC 46In a complex cross-border appeal, the Supreme Courthas recently considered the implementation of theEnglish cross-border insolvency regime, in the contextof enforcing the judgments of foreign courts madewithout the requisite standing, in the joined appealsof two cases. The result is that any foreign judgmentmust have been made with the requisite standing forthe common law to apply and the various criteria setout in the other regimes available must be satisfiedbefore they can be applied to foreign judgments.BackgroundJohn Chater+44 20 7759 6943john.chater@lg-legal.comThe enforcement of judgments made against anindividual party (or ‘in personam’ as it is known)in cross-border insolvencies can take place underseveral different regimes:• A court of a foreign country has jurisdiction to give ajudgment against someone where that person waspresent in the foreign country when the proceedingswere started, if the defendant is a claimant (or hascounterclaimed) in proceedings before the sameforeign court, provided that he has submitted to thejurisdiction by appearing voluntarily at the pro ceed -ings or that he has expressly agreed to submit to thejurisdiction. Under English case law, and spe cificallyunder a rule known as the Dicey Rule, assistance maybe given by an English court to a foreign officeholderin insolvency proceedings with an internationalelement.• Under section 4 of the Foreign Judgments (Reci-procal Enforcement) Act 1933 (Foreign JudgmentsAct) the foreign court will have jurisdiction wherethe debtor submitted to English law (by appearingvoluntarily other than to challenge that English lawapplies) or where the debtor was resident in therelevant country at the time proceedings began. Fora company, this will apply if the company has anoffice or place of business in the foreign jurisdiction.• EC Insolvency Regulation on Insolvency Proceedings(Council Regulation (EC) No 1346/2000) states thatthe ‘main’ jurisdiction is the court in the countrywhere the debtor has his/its centre of main interests,or COMI as it is more widely known. The difficultiesin establishing where the COMI is have beenhighlighted in the spate of recent bankruptcy cases.• Universalism is a concept that allows insolvencypro ceedings, brought in one jurisdiction, to be recog -nised in other jurisdictions with the court applying asingle insolvency law to distributions of assets acrossthe various jurisdictions. “Modified universalism”qualifies this concept by allowing local courts toassess the fairness of the procedures being usedwith the aim of protecting local creditors. Thisapproach has been adopted by the United States.• The Model Law on cross-border insolvency wasadopted in 1997 by the United Nations Commissionon International Trade Law (UNCITRAL) and broughtinto law in Great Britain in 2006 by the Cross-BorderInsolvency Regulations 2006 (CBIR). These rulessupplement common law but do not replace it.Article 23 of the Model Law allows avoidance claimsto be brought by foreign representatives under theInsolvency Act 1986, and the reliefs available wouldbe the same as if the insolvency was a domesticinsolvency.• Section 426 of the Insolvency Act 1986 providesa statutory power to assist insolvency proceedings(both corporate and personal) in specified countries(including Australia).Which of these regimes will apply will depend on thespecific facts of the case and the countries involvedand all were considered in this case.the angle Spring 201317

Cross-border insolvencyFactsThis case involved two joined appeals and the factsof each appeal are briefly as follows:Eurofinance SA v RubinEurofinance was incorporated in the BVI and it set upThe Consumer Trust, under English law, in 2002, tocarry out a sales promotion scheme in the USA andCanada, whereby a purchaser of a product or servicewould receive a rebate of a proportion of the purchaseprice (up to 100%) after 3 years, and upon the com -pletion of certain conditions, including memory andcomprehension tests. The success of the scheme reliedon the consumers either forgetting to redeem thevouchers or failing to navigate the process. The trustceased business after the Attorney General of Missouribrought various proceedings against it under Missouri’sconsumer protection laws. When the trust ceasedtrading, the trustees held nearly $10million in funds. In2005 one of the beneficiaries applied to the High Courtfor receivers to be appointed, and separately to thecourt in New York for Chapter 11 relief from bank rupt cy.Proceedings were eventually brought by the receiver, inthe United States, for certain avoidance claims, anddefault and summary judgments were awarded.In 2008, the receivers applied as foreign represen ta ti -ves to the English courts for an order under the CBIRthat the Chapter 11 proceedings be recognised as the“foreign main proceedings”, that the receivers be recog -nised as “foreign representatives” and for an order thatthe US court’s judgment be enforced as a judgment ofthe English court. The English court recognised theChapter 11 proceedings and the receivers as foreignrepresentatives, but would not agree to enforce theorders of the American court as the judgments were “inpersonam” (against the various parties only) and theAmerican court did not have standing under English law.The receivers appealed to the Court of Appeal, whichdecided that the judgment was enforceable at commonlaw despite being outside of the usual rules. The Courtof Appeal based its decision on the decision in the caseof Cambridge Gas Transportation Corporation v OfficialCommittee of Unsecured Creditors of Navigators Holdingsplc, which extended the common law principles basedon modified universalism. This decision was appealed.New Cap Reinsurance Corp Ltd v GrantNew Cap was an Australian reinsurance companywhich had reinsured a Lloyd’s syndicate (“Syndicate”)for its losses. The reinsurance contracts were subjectto English law and contained provisions for New Capto make payments to the Syndicate for a release fromits liability under the contracts. These payments weremade by New Cap in 1999. New Cap then enteredadministration later that year and swiftly moved toliquidation. Under Australian law, the liquidation wasdeemed to start at the date of the administration.In 2002, the liquidator issued proceedings in theAustralian courts on the grounds that the paymentsmade by New Cap to the Syndicate were preferencesand therefore were voidable under Australian law. TheSyndicate refused to accept service of the Australianproceedings and the Australian court accepted thatit had not submitted to Australian jurisdiction. Theliquidator applied for leave to serve the Australianproceedings on the Syndicate’s English solicitors, aswas allowed under the relevant Australian law. TheAustralian court then issued a letter requesting thatthe English High Court ‘act in aid of and assist’ theAustralian court and that under section 426 of theInsolvency Act 1986, ruled that the sums due underthe order of the Australian court are paid or that theliquidator be permitted to bring fresh proceedings inthe High Court under Australian law. The Syndicateargued that such an application would require theliquidators to follow the procedure set out in theForeign Judgments Act. In due course judgment wasgiven in favour of the liquidator.The High Court decided that the Foreign JudgmentsAct did not apply in this situation but the court couldrecognise and enforce the Australian order undercommon law and under section 426 of the Insolvency1986. The Syndicate appealed.The Court of Appeal decided that orders made inforeign insolvency proceedings fell within the ForeignJudg ments Act, which precluded the court fromexercising any common law remedies but did not stopthe court acting under section 426 of the InsolvencyAct 1986. This decision was then appealed.It is accepted in both of these two appeals that thejudgment debtors were not present or resident inthe United States or Australia respectively.18 the angle Restructuring, Recovery and Insolvency

Cross-border insolvencyDecisionFirstly the Supreme Court pointed out that the ECRegulation will not apply in these cases as neither ofthe debtors has their COMI in the European Union. Inaddition, there was no evidence that section 426 ofthe Insolvency Act 1986 gave the court the power toenforce a foreign judgment, although this was not partof the judges’ final reasoning in either case.The court decided (by a majority) that the common lawrules will only apply in the limited circumstances set outabove. Therefore, where a judgment is made againstspecific parties, the foreign court must have had juris -diction based on the criteria set out above in the DiceyRule for the English courts to have power to enforceunder common law. The court could see no reasonwhy judgments relating to avoidance claims broughtin foreign jurisdictions should be treated differently.On the facts in the Eurofinance case, there was nostanding for the order of the US court, and therefore, theEnglish court could not recognise it under common law.However, in relation to the New Cap case, the Syn di -cate had submitted proofs of debt and had been anactive creditor, and this amounted to submitting to theAustralian insolvency proceedings. The court felt thatthe Syndicate should not be able to benefit from thoseproceedings without also being subject to the ordersmade under them. Therefore, it was decided that theAustralian court had had jurisdiction to make the order.Modified universalism was referred to merely as a‘trend’, and on this issue the court considered the PrivyCouncil’s decision in the Cambridge Gas case. Themajority of the court felt that this decision was wronglydecided, and that the common law rules should not bevaried in the way the Cambridge Gas case suggested.The court also considered the case of HIH Casualtyand General Insurance Limited ([2008] UKHL 21),on the question of whether the English court had thepower to direct that items in England should be sentto Australia for distribution, a jurisdiction that did notapply the pari passu principle. The House of Lords inthe HIH case decided that the remission should occur.The court felt that the first decision in Rubin v Euro -finance was not a natural development of the law inthis area, but was in fact, a departure from the settledposition.The court considered the CBIR and decided that, asthe regulations were silent on the issue, they did notapply to the enforcement of foreign decisions againstthird parties. In contrast the reciprocity conveyed bythe Foreign Judgments Act applied to civil and com -mer cial matters, and the court could see no reasonwhy this would not include insolvency proceedings.CommentThis is a significant decision in the context of crossborderinsolvency and at its most basic suggests thata foreign judgment will only be enforceable by theEnglish courts if it falls within the well establishedparameters. The wording of the judgment suggeststhat any future development in respect of insolvencyjudgments will require legislation and is unlikely to bedeveloped by the courts.The court’s approach to modified universalism is aninteresting one, as they did not come out either for oragainst the principle but dismissed it as a trend. Thejudgment could be viewed as emphasising the factthat the principle can only be effective to the extentthat it can operate within the current framework.Some of the reasoning used in respect of bothEurofinance and New Cap will be difficult to applyto other cases as much of the wording used is ina narrow context and specifically based on theseparticular cases. Interestingly, the court consideredthat by submitting a proof of debt the Syndicate hadsubmitted to Australian jurisdiction.The decision in the judgment has not been withoutcriticism and there were two dissenting voices in thecourt, arguing for different reasons that CambridgeGas was not necessarily wrongly decided.the angle Spring 201319

Cross-border insolvencyCross-border support(1) Stephen John Akers and (2) MarkMcDonald (Joint Liquidators of ChesterfieldUnited Inc and Partridge ManagementGroup SA) v Deutsche Bank AG[2012] EWHC 244 (Ch)The High Court has confirmed that foreign liquidatorsrecognised under the Cross-Border Insolvency Regu -lations should be able to take advantage of the powersavailable to a domestic liquidator under the InsolvencyAct 1986 (Act). Specifically in this case, an orderunder section 236 of the Act was granted to foreignliquidators as it was deemed necessary to allow themto investigate possible claims.FactsAlex Jay+44 20 7759 6632alex.jay@lg-legal.comThe joint liquidators of Chesterfield United Inc (Ches ter -field) and Partridge Management Group SA (Partridge)applied to the court for an order under Articles 21(1)(d)and 21(1)(g) of the UNCITRAL Model Law (theUNCITRAL Model Law) on Cross-Border Insolvency,which in England and Wales is found in Schedule 1to the Cross-Border Insolvency Regulations 2006,requiring Deutsche Bank (based in London) (Deutsche)to disclose certain documents to the liquidators.Both Chesterfield and Partridge were special purposevehicles which had been incorporated in the BritishVirgin Islands in 2008, and were ultimately ownedby individuals linked to Kaupthing hf (Kaupthing),the Icelandic bank. The two companies had invested€450 million in Credit Link Notes issued by Deutschebetween August and October 2008. The financial valueof these investments was linked to the success ofKaupthing. As a result of the failure of an Englishsubsidiary of Kaupthing, which went into administrationon 8 October 2008, both companies lost their entireinvestment and went into liquidation themselves.The liquidators questioned whether the investmentsentered into by Chesterfield and Partridge had, inreality, made any commercial sense for these com -panies, and also what their purposes and objectiveshad been in making these investments. The liquidatorswere concerned that the transactions may have formedpart of a wider attempt by Kaupthing to manipulatethe credit market, following a report from the IcelandicParliament which raised issues to that effect.The joint liquidators’ appointment had already beenrecognised by the English court under the UNCITRALModel Law. The liquidators requested that the Englishcourt exercise its discretion to order Deutsche todisclose documents relating to the circumstances ofthe investments, so that they could investigate whetherthere may be a claim. Deutsche had already dis closedsome documents to the liquidators, but refused todisclose others, specifically:• Certain internal Deutsche documents;• Documents concerning any underlying credit defaulttransactions which were connected to the CreditLink Notes purchased;• Documents concerning how Deutsche dealt withrelevant conflicts of interest;• Documents explaining the Deutsche’s decisionto categorise both companies in this case as‘professional clients’ for regulatory purposes; and• Documents highlighting in what capacity Deutschegave any advice, either to the companies in thiscase, or to Kaupthing itself.In seeking these documents, the joint liquidators reliedon two provisions contained in Article 21(1) of theUNCITRAL Model Law, as follows:“Upon recognition of a foreign proceeding, whethermain or non-main, where necessary to protect theassets of the debtor or the interests of the creditors,the court may, at the request of the foreign repre sen -tative, grant any appropriate relief; including: …(d) providing for the examination of witnesses, thetaking of evidence or the delivery of informationconcerning the debtor’s assets, affairs, rights,obligations or liabilities; … and(g) granting any additional relief that may be availableto a British insolvency officeholder under the laws ofGreat Britain, including any relief provided under para -graph 43 of Schedule B1 to the Insolvency Act 1986.”20 the angle Restructuring, Recovery and Insolvency

Cross-border insolvencyDeutsche argued that the liquidators had to rely onArticle 21(1)(d), rather than section (g) (both sectionsshown above), which limited the information requiredto be disclosed. Deutsche also argued that theinformation sought by the liquidators exceeded thatwhich would be needed to reconstitute the companies’knowledge of the transaction, and that the liquidatorswere simply ‘fishing’ for information.The liquidators said that they could rely on bothsections (d) and (g) of Article 21(1), and the effectof section (g) was that they could utilise the powersavailable to a domestic English liquidator under theAct, and in particular section 236.DecisionThe court held that the narrower provision in section(d) of Article 21 was merely intended to set an inter -national minimum standard that would be availableto a foreign liquidator under the UNCITRAL Model Law.However, if the relevant local law, in this case the lawof England and Wales, made provision for any additionalrelief, a foreign liquidator should not be preventedfrom taking advantage of that. Consequently, it heldthat the liquidators could utilise the powers availableunder section 236 of the Act to obtain documentationand information.The judge also held that although the documentssought by the liquidators exceeded what was strictlynecessary to reconstitute the companies’ knowledge,an order under section 236 was not restricted by that.The judge said that the test was what was “reasonablyrequired”, bearing in mind the competing interests ofthe liquidators and Deutsche, and the liquidators couldlegitimately seek documentation in order to establishwhether a claim existed. The judge also commentedthat, within limits, section 236 can properly be usedfor so-called ‘fishing’ for documen tation, as a liquidatormay need to do so in order properly to investigate.The court did, however, agree to Deutsche’s requestfor a formal written undertaking to keep the discloseddocuments confidential.CommentWe operate in an increasingly international climate,and consequently are seeing an upturn in the useof cross-border insolvency powers. We expect thattrend to continue, and this case underlines the Englishcourt’s willingness to support foreign liquidators seek -ing to carry out investigations in England and Wales,using English law insolvency powers. It also highlightsthe wide scope of the investigatory powers available toliquidators, to obtain documentation for the purposesof assessing whether claims are available to them orthe company over which they are appointed.the angle Spring 201321

Dissolution of companySuing a non-existent companyPeaktone Ltd v Joddrell[2012] EWCA Civ 1035The Court of Appeal has ruled that restoration of adissolved company to the register of companies retro -spectively validates an action commenced by or againstthe company during the period of its dissolution.BackgroundAndrea Zemenides+44 20 7759 6807andrea.zemenides@lg-legal.comUnder the Companies Act 1985 (CA85), there weretwo ways to apply to the court for reinstatement ofa company to the Register of Companies:• Section 653 CA85 contained a limited power forthe court to order the restoration of a company,exercisable up to 20 years after the dissolution.The order had the effect that the company was“deemed to have continued in existence as if itsname had not been struck off”.• Section 651 CA85 contained a general power forthe court to make an order declaring the dissolutionof a company as void, exercisable within two yearsafter the dissolution. This had the effect that the“proceedings may be taken as might have beentaken if the company had not been dissolved”.Parliament has recently assimilated the two previouslyexisting routes to the restoration of a dissolved com -pany into a single procedure. Under section 1032 ofthe Com panies Act 2006 (CA06), applications forrestoration of a company may only be brought withinsix years from the date of dissolution of the company,however, if the purpose of restoration is to bring apersonal injury claim it may be brought at any time.The effect which applied to an order under section 653CA85 now applies in every case, as under s1032(1)“the effect of an order by the court for restoration tothe register is that the company is deemed to havecon tinued in existence as if it had not been dissolvedor struck off the register”.Section 1032(3) CA06 permits the court to “give suchdirections and make such provision as seems just forplacing the company and all other persons in the sameposition (as nearly as may be) as if the company hadnot been dissolved or struck off the register”.FactsIn August 2009, once his employment with PeaktoneLimited (Peaktone) had ceased, Mr Joddrell issuedproceedings against his former employer in respect ofa personal injury claim for loss of hearing as a conse -quence of his employment. Mr Joddrell tried to servePeaktone with the proceedings at Peaktone’s formerregistered office, but was notified that Peaktonehad been struck off the Register of Companies anddissolved.In order to commence proceedings, Mr Joddrell ob -tained a court order from the Companies Court torestore Peaktone to the Register, but did not disclosethat he had already purported to commence pro -ceedings against Peaktone nor did he seek anydirections in relation to this.Peaktone applied to have the claim struck out on thegrounds that there had been an abuse of process.Peaktone alleged that the proceedings were a nullitywhen issued as Peaktone no longer existed and thatproceedings had not been properly served as Peaktonehad already been dissolved at the time of attemptedservice.DecisionThe Court of Appeal ruled that section 1032(1) CA06operates to retrospectively validate an action commen -ced by or against a company during the period of itsdissolution and also retrospectively to validate any pro -cedural issues, for example the service of pro ceedingsat the registered office of the company before itsdissolution.Lord Justice Manby stated that it was clear Parliamenthad chosen to use the same retroactive language usedin section 653 CA86, so was seeking to carry forwardthe principle of retroactivity, intending it to apply to awider range of situations.CommentThe court has made clear that section 1032(1) CA06is a powerful tool with far-reaching effects. Restorationof a company to the Register is useful for lenders if, atthe time of dissolution, a company had an asset thatcan be charged or repossessed. Although searches ona proposed defendant should be undertaken beforeproceedings are issued to ensure that it is still trading,the case provides a claimant with some comfort that aclaim will not necessarily be obstructed if proceedingsare issued against a dissolved company.22 the angle Restructuring, Recovery and Insolvency

LiquidationHelen Plews+44 20 7759 6406helen.plews@lg-legal.comMoving from administration to CVLRe Globespan Airways Ltd; Cartwrightv Registrar of Companies[2012] EWCA Civ 1159The Court of Appeal has overturned the High Court’searlier decision in Re Globespan Airways Ltd, and ruledthat where an administrator files a notice under para -graph 83 of Schedule B1 to the Insolvency Act 1986(Act) to move the company from administration to CVL,the adminis tra tion is automatically extended until theRegistrar of Companies processes the notice so as toensure that there is no gap between the administrationending and the liquidation commencing.Regular readers of the Angle will recall that we lookedat the High Court’s ruling on this case last year. Byway of a reminder, administrators were appointed overGlobespan Airways Limited (Globespan) on 17 Decem -ber 2009. On 13 December 2010, three days beforethe administration was due to end automatically, theadministrators sent a form 2.34B notice to the Registrarof Companies under paragraph 83 of Schedule B1 tothe Act to have the administration converted into a CVL.Such a notice may be sent where:• the administrator has set aside sufficient funds topay secured creditors in full; and• there are sufficient funds to allow a distribution tounsecured creditors.Paragraph 83(6) states that the liquidationcommences upon the notice being registered by theRegistrar. Although in this case the notice was receivedby the Registrar prior to the administration ending, onthe day the administration automatically terminated,the Registrar wrote to the administrators rejecting thenotice. The Registrar claimed the notice had not beencorrectly completed because the addresses of theproposed liquidators were not stated, despite thesebeing the same as the administrators’ addresses,which were stated on the notice. The letter reachedthe administrators almost two weeks after the admin -istration had expired.The administrators re-issued the notice on 6 January2011. Unfortunately this too was rejected as theRegis trar claimed to have no record of the adminis -tration. The administrators issued the same noticea third time, which this time was accepted, and theRegistrar accordingly updated the Companies Houserecords to show the liquidation commencing on4 February 2011. This meant that there was a periodof several weeks when the company was neither inadministration nor liquidation. By the time the4 February 2011 notice was delivered, the adminis -trators’ appointment had terminated meaning that,on the face of it, the notice was invalid.The former administrators applied to court and thecourt ruled that the original notice submitted was valid.The judge then considered the purpose of paragraph83, being to provide a quick, inexpensive and seam -less way of moving a company from administration toCVL. To give effect to this purpose, and to prevent theundesirable consequences of a gap occurring betweenthe two procedures, the High Court considered it wasnecessary to interpret the paragraph as meaning thatthe notice should be registered on the day of receiptregardless of how long it takes the Registrar to processthe registration. Therefore the Registrar was ordered toamend the Companies House records to record thenotice as registered on 14 December 2012. Thismeant there would be no gap between the ad minis -tration ending and the CVL commencing.Court of Appeal decisionThe Registrar appealed the decision and indicatedthat until it was resolved, it would continue to dealwith registration of paragraph 83 notices as before.The Court of Appeal allowed the Registrar’s appeal andagreed that the date of conversion from administrationto CVL should be the date the Registrar registers thenotice. To get around the problem of Globespanspending several weeks in limbo, being neither inadministration nor liquidation, the court suggestedthat, upon filing the notice under paragraph 83, anextension of the administration was automaticallytriggered which would last until the date on which theRegistrar actually registered the notice. This way therewould be no ‘gap’ between the administration endingand the liquidation commencing.CommentBy faithfully sticking to a literal reading of the legis -lation, while at the same time adopting a creativeapproach with regard to Parliament’s implicitintentions, the Court of Appeal was able to find aninnovative solution to the practical problem of delaysbetween the Registrar receiving paragraph 83 noticesand actually registering those notices. The ‘implied’extension of administrations, which will arise wherethe term of the administrator’s office would otherwiseexpire before registration of the notice can be com -pleted, should not be relied upon as an alternative tofiling a paragraph 83 notice in good time, but it doesmean that, in cases such as this, there will be conti -nuity of the office holder’s appointment.It is critically important, however, that the notice issent to Companies House before the 365th day ofthe administration; if not the extension won’t apply,the CVL will not be valid and the administration willhave terminated.the angle Spring 201323

Contact detailsBrett IsraelHead of Restructuring and InsolvencyT: +44 20 7759 6473E: brett.israel@lg-legal.comRobert PatersonSenior AssociateT: +44 20 7759 6674E: robert.paterson@lg-legal.comAlex JaySenior AssociateT: +44 20 7759 6632E: alex.jay@lg-legal.comJohn ChaterAssociateT: +44 20 7759 6943E: john.chater@lg-legal.comAndrew WittsPartnerT: +44 20 7759 6728E: andrew.witts@lg-legal.comIain ThomasPartnerT: +44 20 7759 6460E: iain.thomas@lg-legal.comPippa HillAssociateT: +44 20 7759 6784E: pippa.hill@lg-legal.comKanika Kitchlu-ConnollySenior AssociateT: +44 20 7759 6789E: kanika.kitchlu-connolly@lg-legal.comHelen PlewsAssociateT: +44 20 7759 6406E: helen.plews@lg-legal.comIain ShurwoodPartnerT: +44 20 7759 6778E: iain.shurwood@lg-legal.comDavid HaywardPartnerT: +44 20 7759 6526E: david.hayward@lg-legal.comClive ChalkleyAssociateT: +44 20 7759 6499E: clive.chalkley@lg-legal.comLawrence Graham LLP4 More London RiversideLondon SE1 2AUT: +44 20 7379 0000F: +44 20 7379 6854Lawrence Graham LLPUnit 2, Level 6The Gate DistrictDubai International Financial CentreDubai, United Arab EmiratesT: +971 4 437 5100F: +971 4 437 5101Lawrence GrahamPanoramaMC 98000 MonacoT: +377 93 10 55 10F: +377 93 10 55 11Lawrence Graham (CIS) LLP36th FloorZapadFederation TowerMoscow, 123317RussiaT: +7 495 799 5501F: +7 495 799 5502Lawrence Graham LLP133 Cecil Street #17-02T: +65 6521 3555F: +65 6521 3560India deskSunil KakkadT: +44 20 7759 6584the angle is designed toprovide a summary of recentdevelopments in corporaterecovery and restructuringlaw. It does not purport to becompre hensive or a substitutefor specialist legal advice inindividual circumstances