Insolvency Bitesize

In this first ‘new look’ Insolvency Bitesize, we reflect on what some of the key legal and market themes might be in the year ahead.

  • Increasing pressure on directors: the roll-off of Covid-19 related government schemes and reliefs; the fall-out from Carillion and other large corporate failures; the expected decision by the Supreme Court in Sequana on directors’ duties; and HMRC’s increased powers to pursue corporate tax claims – director behaviour influences how situations unfold and these are all set to have an impact;
  • Issues for distressed M&A: possible case law on market standard intercreditor distressed disposal provisions; connected party insolvency sale regulations by the summer; and the National Security and Investment Bill by the autumn – distressed M&A transactions could take longer, be more costly to complete and risk facing increased scrutiny. We take a look at the Bill in this edition;
  • Further developments in CVAs, schemes and restructuring plans: post Brexit issues on jurisdiction and recognition; creditor challenges to restructuring proposals; further use of the cross-class cram down mechanism; and questions on whether the restructuring plan might be a viable alternative to a CVA in the right circumstances – the uses of new and repurposed restructuring tools will continue to evolve, such innovation being the hallmark of the UK restructuring and insolvency market over the last decade;
  • Increasing role of Government and regulators in restructurings: restructurings involving government-backed debt; HMRC as secondary preferential creditor; and stakeholders getting to grips with the broad powers of the Pensions Regulator under the Pension Schemes Act – dealing with Government and regulators will add additional complexity to restructuring and insolvency transactions; and
  • Growth in insolvencies and disputes: temporary restrictions on creditor winding-up petitions coming to an end; landlords regaining use of powerful rent recovery tools; and many businesses struggling with the financial effects of Covid-19 – it seems almost inevitable that there will be an uptick in insolvency filings eventually, and with that there will be an increasing number of insolvency-related disputes.

Against that backdrop, this edition focusses on a broad range of recent insolvency developments. We kick-off with a piece featuring the National Security and Investment Bill and show how it might affect insolvency sale transactions. We cover recent decisions on the extent of an administrator’s duty of care to bidders, the impact a deed of priority had on the enforceability of a floating charge for the purposes of Paragraph 16 of Schedule B1 and highlight the court’s continued development of its approach to dealing with procedural failures when appointing administrators out-of-court. We take a broad overview of insolvency developments in the financial services sector and then conclude this edition by highlighting how even post Brexit, COMI will remain a key part of the UK insolvency lexicon.

We hope you find this edition useful. As ever, please get in touch with any questions you may have.

Topics covered in this report

1

National Security and Investment Bill: distressed M&A

The National Security and Investment Bill introduces a far-reaching and standalone national security screening regime. It puts in place a mandatory notification obligation for acquisitions of control through the holding of particular thresholds of shares or voting rights in entities in the most sensitive sectors of the economy. It also specifies a voluntary regime for a range of other transactions where control is acquired at an asset level. The hybrid notification regime is accompanied by an expansive “call-in” power to enable the Government to review non-notified transactions up to five years post-completion and the power to impose serious sanctions for non-compliance. The Bill represents a radical upgrade of the UK foreign investment regime.

2

No duty of care owed to bidders on routine administration sales

The High Court decided in Re Force India Formula One Team Ltd [2020] EWHC 3442 (Ch) that administrators do not owe a duty of care to bidders when undertaking a routine sales process.

3

Looking beyond the chargor and chargee relationship when relying on an “enforceable” floating charge to appoint administrators

The decision in Re ARL 009 Ltd [2020] EWHC 3123 (Ch) highlights the need to look beyond the chargor/chargee relationship when asking whether a floating charge is “enforceable” for the purposes of a secured creditor appointing administrators out-of-court.

4

Administration appointment valid despite failure by directors to notify QFC holder

The decision in Re Tokenhouse VB Ltd [2020] EWHC 3171 (Ch) provides useful clarity on the approach the court should take when dealing with procedural issues around administration appointments.
5

Administration appointment valid despite failure by subsequent QFC holder to notify a prior QFC holder

The failure of a qualifying floating charge holder (“QFCH”) to serve notice of intention to appoint administrators on a prior QFCH – as required by Paragraph 15 of Sch.B1 IA 1986 – was an irregularity which could be remedied by an order under Rule 12.64 IR 2016. The irregularity did not render the administrators’ appointment void ab initio: Re NMUL Realisations Ltd [2021] EWHC 94 (Ch).
6

Insolvency developments in the financial services sector

The High Court held in Re Beaufort Asset Clearing Services Ltd (in special administration) [2020] EWHC 3627 (Ch) that the court had the power to compulsorily wind-up an investment bank which had been in the investment bank special administration regime since 2018, where the special administrators had sufficiently achieved the special administration objectives under reg.10 of the Investment Bank Special Administration Regulations 2011. Although those regulations did not say so expressly, the court held that it had inherent power to make an order for the winding up of a company which was in special administration and it was entirely appropriate to make such an order in this case. Linklaters advised the special administrators to Beaufort.

7

Brexit: navigating familiar but different jurisdictional waters

The Retained EU Insolvency Regulation gives the English court additional grounds to open compulsory liquidation, voluntary liquidation, administration or CVA proceedings where the insolvency proceedings are opened for the purposes of rescue, adjustment of debt, reorganisation or liquidation and the debtor has a UK COMI or UK establishment.

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