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Insolvency Bitesize

This edition of Insolvency Bitesize contains its usual eclectic mix of content in what remains a varied but active insolvency market.

The Government is proposing far-reaching reform on IP regulation, which would include a new government single regulator – not an independent body (as has been previously mooted) - who would sit within the Insolvency Service, with powers to authorise, regulate and discipline individual IPs and firms providing insolvency services, and set technical, professional, ethical and educational standards. The Future of Insolvency Regulation consultation closes this month. We, along with the rest of the industry, will await the results with interest.

In this edition of Insolvency Bitesize, among other developments, we take a look at:

  • what you need to consider in light of the National Security and Investment Act, the pre-appointment steps you might want to take and possible documentary implications for insolvency sale transactions;
  • why failing to notify the Secretary of State of proposed redundancies could give rise to criminal liability; and
  • how the High Court has, for the first time, handed down some useful guidance on the operation of the new standalone moratorium procedure introduced as part of the Corporate Insolvency and Governance Act’s 2020 reforms.

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 Act: implications for insolvency share sales and business sales

The National Security and Investment Act 2021 (the “NSI Act”) came into force on 4 January 2022.  As we highlighted in our February 2021 edition of Insolvency Bitesize, it implements a screening regime for acquisitions of certain entities and assets located in, or which have a sufficient connection to, the UK. In particular, the NSI Act introduces a mandatory notification regime in respect of the acquisition of control of entities active in 17 high-risk sectors in the UK. Regulations specify the sectors and define the activities which fall within each of the sectors and the Government has published guidance to assist in their interpretation. The NSI Act also introduces a broader call-in power in respect of the acquisition of control of assets and entities which could pose a risk to national security. Parties to a transaction which may be subject to the call-in power may decide to provide a voluntary notification.

2

Administrators in scope of criminal offences for failure to notify the Secretary of State of proposed redundancies

In a recent judicial review case, the Divisional Court confirmed an earlier Magistrates’ Court decision that an administrator of a company could be prosecuted for offences under s194 of the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRA”) relating to the failure to notify the Secretary of State of proposed collective redundancies.

3

Terminating a moratorium: the High Court identifies the correct test

The High Court has dismissed a creditor's application to terminate a standalone moratorium under Part A1 of the Insolvency Act 1986 and given useful clarification on the questions a monitor should ask when considering whether to terminate a moratorium.

The standalone moratorium is a “debtor-in-possession” process where the directors remain in place subject to the oversight of a “monitor” who monitors a company’s compliance with the qualifying conditions throughout the period of the moratorium. It was introduced as part of the CIGA reforms in 2020.

4

Patisserie Valerie decision offers pragmatic route to questions of non-compliance with prescribed insolvency law procedure

The decision in a case involving the Patisserie Valerie chain’s insolvency takes a pragmatic approach to the issue of non-compliance with the requirements of Sch.B1 IA 1986 and the IR 2016.

5

Court of Appeal modifies the rule against double proof in insolvency

The Court of Appeal recently held that the application of the ‘rule against double proof’ in insolvency must be modified where the guarantor has given up its right of indemnity against the borrower. While unusual on its facts, the decision provides a helpful clarification of the scope of the rule.

6

High Court decision on meaning of “proceedings” for liquidation stay and regulatory notices

The Court of Appeal recently held that the application of the ‘rule against double proof’ in insolvency must be modified where the guarantor has given up its right of indemnity against the borrower. While unusual on its facts, the decision provides a helpful clarification of the scope of the rule.

7

Improving depositor outcomes in bank or building society insolvencies

The Bank of England, working with the FSCS, FCA and PRA, is seeking initial ideas to support its work to reduce disruption to transactional accounts and improve depositor outcomes in the event of a bank or building society becoming subject to an insolvency procedure.

8

New powers to investigate acts of directors of companies dissolved (without becoming insolvent) now in force

To minimise the potential for abuse, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 is now in force. It amends the Company Directors Disqualification Act (“CDDA”) 1986 to extend the investigative powers of the Insolvency Service to include former directors of dissolved companies (i.e., dissolved without having gone into a formal insolvency process).

 

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