• Selected
• Entire List

Abstract:
What happens to a company's property when it grants a charge over it? How, if at all, is this different from what happens when a company creates a mortgage over the same assets? What is it to own something beneficially, and how is it different from beneficially holding a proprietary right in it? What role is played by floating charges, and is there really no difference between a fixed charge and a floating charge that has crystallised? And what purpose is served by the proceedings which wind up a company? This paper considers all these questions against the background of the recent decision by the House of Lords in 'Buchler v Talbot, Re Leyland Daf'.

Their Lordships issued a simple ruling dealing with a simple question, whether the expenses incurred by a liquidator in winding up an insolvent company are payable out of the assets comprised in a crystallised floating charge in priority to the claims of the charge-holder. However, this simple ruling, if taken seriously, has devastating implications for our understanding of ownership and property, of mortgages and charges, and of several important issues in insolvency law.

This paper argues that their Lordships' decision is highly questionable at almost every conceivable level. It considers the judgment by examining (a) the juridical nature of charges, (b) the functional nature of floating charges and the empirical context in which they operate, and (c) the question whether the chargee derives benefit from a properly conducted winding-up.

The paper considers the implications of their Lordships' judgment, arguing that it cuts huge swathes across property and corporate insolvency law. Without really saying so, have their Lordships abolished the distinction between mortgages and charges? Not only do they seem to assume that there is no such distinction, but the new, unified security interest envisaged by them, in leaving the beneficial ownership of the collateral in the secured creditor, resembles the sort of mortgage that used to exist at law some hundred years ago, before equity intervened to insist that it was the mortgagor's equity of redemption that constituted beneficial ownership. Since the 'chargee' is the beneficial owner of the collateral in the post-Leyland Daf world, he presumably has the right to take possession of the collateral? And should he not be able now to benefit from an increase in the value of the collateral like any (co-)owner, recovering, in the appropriate case, even more than the amount secured? (And if all he gets is what he was owed, no matter how far the value of the collateral might rise, then in what sense is he a (co-)owner, rather than merely the beneficiary of a particular priority position for repayment of a fixed amount with respect to the proceeds of sale of another's property?) If the 'chargor' now only retains an equity of redemption, then the 'chargee' presumably has the right to foreclose? If floating charge holders as a group should not be required to pay for winding-up proceedings because such proceedings only benefit unsecured creditors, then presumably their Lordships were wrong to have held recently that each such proceeding brings benefits to a wider group which nevertheless must be paid for by the creditors of that particular company?

The paper concludes by suggesting how the issues addressed by the House of Lords in Re Leyland Daf might have been more satisfactorily resolved.

Transactions at an undervalue, Priority-based and priority-independent security interests, Public functions of liquidation proceedings, Funding of collective insolvency proceedings, Enterprise Act 2002

Abstract:
Professor Sir Roy Goode's published scholarship has immensely enriched our understanding of the law. The legal community ought to be immensely grateful to Professor Sir Roy Goode for so generously deferring his retirement to produce yet another towering exposition of English corporate insolvency law.

With all due deference and in the spirit that academic scholarship is a collaborative enterprise with deep roots in constructive criticism, this reviewer respectfully suggests that some areas call for improvements as follows, namely legal errors, currency of case-law, the effect of a company voluntary arrangement ('CVA'), and doctrinal coherence.

There are a number of clear errors in the book and a number of areas would have benefited from case-law updating. The discussion concerning the position of a creditor not bound by the CVA and the case of Re TBL Realisations is unsatisfactory.

The treatment of the pari passu principle and the House of Lords decision in Buchler v Talbot concerning the nature of security interests suffers from doctrinal incoherence.

Goode repeatedly claims that the principle of pari passu distribution is central, fundamental and all pervasive. However Goode does not cite any convincing evidence. For example, Goode claims that the principle against divestiture is based on the pari passu principle, although the landmark decision in Fraser v Oystertec has disproved this position. Goode does not mention Fraser v Oystertec anywhere in his book.

Goode endorses the decision in Buchler v Talbot as plainly correct, without informing his readers that this endorsement is apparently a reversal of his long-held view stated in no less than 6 books over 2 decades. In making this endorsement, Goode also does not seem to have taken into account the full statutory regime, in particular regulation 14(6) of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 that confirms the validity of Goode's original view.

Goode says that floating charged assets, to the extent of the security interest created by the floating charge, are not the company's assets. However, this view of security interests contradicts Goode's own view in other parts of the book and his other books. The recent decision in Ultraframe (UK) v Fielding, consistent with a long line of authorities, flatly contradicts Goode's claim, and reaffirms that, both in law and in accounting terms, secured assets are beneficially owned by the chargor or mortgagor, as the case may be. Goode does not mention Ultraframe (UK) v Fielding anywhere in his book.

Goode, English corporate insolvency law, commercial law, security interests, pari passu principle

Abstract:
This piece seeks to compare and contrast the developing deepening insolvency theory in the US with the wrongful trading regime in the UK. Beneath the differences in semantic expression lies a common underlying idea. Hence the two principles share many similarities as follows. First, both principles recognise that undue prolongation of an insolvent corporation's life harms the corporation's interests and that, when the risk of insolvency looms, the management have a perverse incentive to continue trading as long as possible. Thus, both principles seek to arrest this perverse incentive and impose personal liability on those participating in the unnecessary trading. It follows that the management owe a duty to the corporation not to trade unnecessarily when insolvency is on the horizon. Second, both principles can apply to outsiders who exercise domination and control of the debtors. Third, neither principle imposes an absolute duty on the managers of an insolvent corporation to shut down and liquidate the corporation as soon as there is any insolvency risk. The New York bankruptcy court in In re Global Service Group completely misunderstood the English wrongful trading regime. Fourth, the measure of damages under either principle may be based on the corporation's increase in net deficit during the period of unjustified trading.

However, deepening insolvency and wrongful trading appear to diverge in the following areas. While deepening insolvency may be invoked outside the strict confines of liquidation proceedings, a wrongful trading claim can only be brought by a liquidator. The realm of application of the deepening insolvency principle is potentially very wide, whereas the wrongful trading provision applies only to directors (including shadow directors). Furthermore, while a deepening insolvency claim belongs to the insolvent corporation, a wrongful trading claim does not, though the current English position on this is wrong.

This piece will also consider the possibility of the English court developing an English tort of deepening insolvency. At any rate, much is to be gained from comparative law studies in this area.

Deepening insolvency, wrongful trading, liquidation, duty to creditors, duty of directors

Abstract:
Just when legislations are being put in place around the world to cope with cross-border insolvency (such as the implementation of the UNCITRAL Model Law on Cross-Border Insolvency), the UK Privy Council in Cambridge Gas Transport Corporation v Official Committee of Unsecured Creditors of Navigator Holdings [2006] UKPC 26; [2006] 3 WLR 689 reminds us that the common law remains essential and is capable of development.

In summary, the Privy Council held that the Isle of Man court, having recognised a US Chapter 11 proceeding, had a broad discretion to assist in the implementation of that Chapter 11 plan, notwithstanding that this involved the transfer of shares in an Isle of Man company.

While the spirit of cooperation demonstrated by the Privy Council is commendable, its approach seems novel and may have significant implications for the management of cross-border insolvencies and for the general law. This commentary reviews the Privy Council's approach and contrasts it to an alternative approach adopted by the Canadian courts, in particular the decision of the Ontario Court of Appeal in Re Cavell Insurance Company (23 May 2006).

Universalism, Recognition and implementation of a US Chapter 11 plan, Recognition and enforcement of foreign judgments in personam and in rem, Judicial assistance in cross-border insolvency

Abstract:
The Privy Council (the court of final appeal for some Commonwealth countries) held in Cleaver v. Delta American Reinsurance that the application of the hotchpot rule in cross-border insolvency is underpinned by the principle of pari passu distribution. This paper aims to demonstrate that the rationale behind the hotchpot rule has nothing to do with the pari passu rule. In addition, it will be shown that the substantive decision in Cleaver v. Delta American Reinsurance is untenable due to a serious misunderstanding of section 1213 of the New York Insurance Law.

Pari passu, hotchpot, New York Insurance Law, pre-answer security, cross-border insolvency, bankruptcy, equality, priority, distribution policy, international insolvency

Abstract:
The Privy Council decision in Cleaver v. Delta American Reinsurance confirmed the ingrained academic view that the application of the hotchpot rule in cross-border insolvency is underpinned by the principle of pari passu distribution. This paper ventures to uproot that ingrained view and demonstrate that the rationale behind the hotchpot rule has nothing to do with the pari passu rule. In addition, it will be shown that the substantive decision in Cleaver v. Delta American Reinsurance is untenable owing to a serious misunderstanding of No. 1213 of the New York Insurance Law.

Pari passu, hotchpot, New York Insurance Law, pre-answer security, cross-border insolvency, bankruptcy, equality, priority, distribution policy, international insolvency

Abstract:
English law on anti-suit injunctions in international commercial litigation has reached its 21st century adulthood, but the law on anti-suit injunctions in international insolvency litigation is still in its 19th century infancy. This Article attempts to rationalise the full implications of the jurisprudence of anti-suit injunction in the non-bankruptcy related litigation for bankruptcy litigation, and to map out the function of anti-suit injunctions in international insolvency litigation. In addition, it will be shown that the comity theory underpinning the modern case law is unsound. Although not meant to be a comparative study proper, this Article draws substantially on the US experience, including 304 of the US Bankruptcy Code.

anti-suit injunctions, comity, international commercial litigation, international insolvency litigation, international bankruptcy litigation, transnational insolvency, transnational bankruptcy litigation, cross-border insolvency, cross-border bankruptcy, US Bankruptcy Code

Abstract:
English law on anti-suit injunctions in international commercial litigation has reached its 21st century adulthood, but the law on anti-suit injunctions in international insolvency litigation is still in its 19th century infancy. This Article attempts to rationalise the full implications of the jurisprudence of anti-suit injunction in the non-bankruptcy related litigation for bankruptcy litigation, and to map out the function of anti-suit injunctions in international insolvency litigation. In addition, it will be shown that the comity theory underpinning the modern case law is unsound. Although not meant to be a comparative study proper, this Article draws substantially on the US experience, including 304 of the US Bankruptcy Code.

anti-suit injunctions, comity, international commercial litigation, international insolvency litigation, international bankruptcy litigation, transnational insolvency, transnational bankruptcy litigation, cross-border insolvency, cross-border bankruptcy, US Bankruptcy Code

Abstract:
The current insipid economy has created many an occasion for recent case law to draw out important connections between the CVA and administration procedures, and to investigate how these operate in the shadow of the liquidation regime. It is more or less axiomatic that a CVA does not bind all creditors. Some creditors are outside its ambit by legislative default, not by judicial design. Oakley-Smith v Greenberg sheds some light on that legislative default, provides an insight into the relationship between CVA, administration and liquidation, and highlights the danger of judicial approach overly enraptured by the liquidation regime. It also provides a case study of the malign influence of the pari passu myth.

In Part I of this paper, Mokal and Ho argue that in Greenberg v Oakley-Smith, Pumfrey J at first instance and the Court of Appeal, (a), violated the clear statutory implication that creditors not allowed to vote at the meeting to approve a Company Voluntary Arrangement (CVA) are not bound by it, (b), were wrong to hold that since the Greenbergs would have consented to the CVA if allowed to do so, that they would not be prejudiced if later, in effect, forced to participate in it, and, (c), that the Court of Appeal was wrong to hold that the parameters of what the Greenbergs could recover should be set by what they would have received either as parties to the CVA or in an immediate liquidation.

In the concluding Part, Mokal continues the argument by suggesting that the two courts also shared a fundamental misunderstanding about the structure of the liquidation regime, i.e. that it is based on the pari passu principle. The malign influence of this misunderstanding caused the courts to hold that there was no relevant difference between the CVA creditors on the one hand, and the Greenbergs on the other. Mokal argues that, properly understood, the several substantive relevant differences between the two should have figured prominently, as factors additional to those discussed in Part I, in the courts' exercise of their discretion as to what the Greenbergs should recover.

English insolvency law, pari passu, Company Voluntary Arrangement, administration, liquidation, tort creditors, formal equality, judicial cramdown

Abstract:
A debt subordination may in general take two forms, viz., contractual subordination and turnover subordination. A contractual subordination occurs where, by agreement between a debtor and a creditor, debts owed to the creditor are to rank below other debts of the debtor. A turnover subordination (which may or may not involve a trust) requires the junior creditor, on the insolvency of the debtor, to turn over to the senior creditor all recoveries received by the junior creditor in respect of the junior debt. Where a trust is utilized, this technique is also called trust subordination.

The English Court of Appeal decision in Re SSSL Realisations has confirmed that is valid, binding and enforceable. If necessary, the court would enforce it by injunction. Furthermore, a properly drafted trust subordination will not become a security interest.

While championing the enforceability of contractual subordination especially in case of insolvency, the Court of Appeal made no mention of some age-old arguments that contractual subordination is of doubtful validity because it infringes the principle of pari passu distribution. In light of this decision, it is no longer credible to claim that the pari passu principle is fundamental in insolvency practice.

This decision also confirms that a subordination agreement is unlikely to be liable to disclaimer by a liquidator of the subordinated creditor.

The court also took the opportunity to restate how the rule in Cherry v. Boultbee interacts with corporate insolvency law. In brief, the rule in Cherry v. Boultbee holds that that a person cannot share in a fund in relation to which he is also a debtor without first contributing to the whole by paying his debt. While the court made a commendable effort to restate this equitable rule, some aspects of the restatement are dubious. In particular, it failed to consider the rule's compatibility with the contractual setting and failed to engage fully the very authorities it purportedly relied upon. Instead, it rolled out self-serving numbers to underscore its answer to a purportedly unprecedented question of principle.

English insolvency law, pari passu, debt subordination, contractual subordination, trust subordination, Cherry v. Boultbee, retainer, insolvency set-off

Abstract:
Lifland J's decision in Re Bear Stearns High-Grade Structured Credit Strategies Master Fund (Bankr.S.D.N.Y. September 5, 2007) clearly comports with the intent and structure of chapter 15 that the determination of the existence of a foreign main or non-main proceeding is a definitional matter, not a discretionary matter. If a foreign proceeding is neither main nor non-main, it is not entitled to recognition under chapter 15. The same outcome would obtain in England under the Cross-Border Insolvency Regulations 2006. Nevertheless, recognition and assistance under s 426 of the UK Insolvency Act 1986 remain possible - Re Basis Yield Alpha Fund (Master) is a case in point.

Regardless of the position under the EC Insolvency Regulation, the presumption in chapter 15 that a company has its COMI at the place of its registered office is only meant for speed and convenience of proof where there is no serious controversy. It does not have special evidentiary value and does not shift the burden of proof. It is the foreign representative who must prove the location of COMI in all cases. It is suggested that the English court should also adopt the same approach under the Cross-Border Insolvency Regulations 2006.

Cross-border insolvency, international insolvency, UNCITRAL Model Law on Cross-Border Insolvency, chapter 15 of the Bankruptcy Code, centre of main interests

Abstract:
Liquidation proceedings have never been treated in English law as an exclusively private matter between the debtor and its creditors. The society has always been treated as having an important stake in them. Hence it is not surprising to find that the fraudulent trading regime is one of the procedures that exist for the protection of the general public, not in the interests of the creditors or shareholders of the particular company which is in liquidation. Recently the English Court of Appeal found Bank of India (BOI) liable for fraudulent trading under section 213 of the UK Insolvency Act 1986 in relation to BCCI which collapsed in 1991. On one view, the Court of Appeal in effect made BOI vicariously liable for the wrong committed by its employee. Beyond its immediate sphere of application, the Court of Appeal's reasoning has ramifications for other insolvency procedures intended to serve the community's interests as a whole.

The legal regime applicable today to the insolvency of EU credit institutions is very different to that applicable to BCCI. The EU has devised a new regime of universal insolvency proceedings applicable to EU (and EEA) credit institutions including their branches. If BCCI were to collapse today, it could only be subject to Luxembourg winding-up proceedings and Luxembourg law as the lex concursus would determine the effect of the fraudulent transactions considered in this case.

Fraudulent trading, vicarious liability, fraud

Abstract:
This paper seeks to demonstrate that, insofar as English insolvency proceedings are ancillary to foreign insolvency proceedings, the so-called pari passu principle would not constitute hurdles to English assets being handed over to a foreign insolvency official for distribution according to the foreign insolvency regime.

English insolvency law, English insolvency proceedings, ancillary proceedings, pari passu principle

Abstract:
Mistaken receipts and misdirected funds expose banks to multi-faceted liability and generate some of the most knotty legal issues, in particular restitution for unjust enrichment and dishonest assistance in breach of trust or fiduciary duty. The recent Court of Appeal case of Abou-Rahmah v Abacha [2006] EWCA Civ 1492 shows that these knotty issues are here to stay. Anchoring on Abacha, this commentary seeks to review and evaluate the legal developments, and to highlight the areas in serious need of judicial clarification. For comparative purposes, reference will be made to the position under New York and California law.

To the extent that one could extract something concrete from the decision, Abacha appears to stand for the following propositions.

First, for the purposes of the liability for dishonest assistance in a breach of trust or fiduciary duty, dishonesty is measured by an objective standard, so the defendant's conduct would be considered dishonest if it was so regarded by the standards of honest and reasonable men. The application of the objective dishonesty test leads to asking two questions in the following order: First, what is the defendant's actual knowledge of the relevant transactions? Second, in light of the defendant's knowledge, would a reasonable person regard the defendant's conduct as dishonest?

Second, anticipatory change of position is a valid defence to an unjust enrichment claim.

Third, a defendant could not assert change of position if his conduct was commercially unacceptable.

Questions that remain to be answered abound, including the following:

· Is "commercial acceptability" a benchmark against which the test of dishonesty is measured?

· Granted "dishonesty" is an objective standard assessed in light of the defendant's actual knowledge, is it not beneficial to renounce "dishonesty" and revert to "knowing assistance"?

· When receiving funds transferred to it for its customer's account, does a bank receive the funds beneficially?

· Does a non-beneficial receipt negate enrichment for the purposes of an unjust enrichment claim?

· What has non-beneficial receipt got to do with the change of position defence?

· What is the relationship between ministerial receipt and change of position?

· If ministerial receipt and change of position are distinct defences, do they share the same disqualifying criteria?

· To what extent are a bank's general suspicions about its customer's money-laundering activities relevant to establishing dishonesty and disqualifying the change of position defence? Does the policy of deterring money laundering justify a court taking a broad sword to these issues?

Dishonest assistance in a breach of trust or fiduciary duty, aiding and abetting, knowing assistance; mistaken payment; misdirected funds, change of position, money laundering, beneficial receipt

Abstract:
Recent credit difficulties have revealed the potential inadequacies of UK insolvency regimes applicable to credit institutions, prompting the UK regulatory authorities to consult on the possibility of insolvency reform. This article discusses the recent credit crisis, considers the US bank insolvency regimes and reviews some of the proposals for reform of the UK bank insolvency procedures.

bank insolvency, UK insolvency reform

Abstract:
This paper takes the opportunity presented by the House of Lords' decision in Phillips v Brewin to examine the law governing the reversal of transactions at an undervalue entered into by a company which then becomes insolvent. The paper discusses the sequence in which issues related to ascertaining whether a transaction had been at an undervalue are to be approached, the proposition that contracts somehow "linked" with each other can be taken together as constituting a single "transaction" , and the prior question about when such contracts should be considered "linked" in the first place. Finally, the paper detects something of a tendency in the case law to use the notion of a transaction at an undervalue to brush aside inconveniences arising from the peculiarities in the way certain cases have been pleaded. Notably, it suggests that Phillips v Brewin might not have involved any transaction at an undervalue at all.

This is a somewhat updated version of the published article.

English law, corporate insolvency, bankruptcy, fraudulent preference law

Abstract:
This paper explains the operation of English set-off rules in an insolvency scenario, including cross-border insolvency.

Set-off, insolvency set-off, cross-border insolvency

Abstract:
The European Court of Justice ('the ECJ') held in European Commission v AMI Semiconductor Belgium, its very first decision concerning the operation of Council Regulation (EC) 1346/2000 on Insolvency Proceedings ('the Insolvency Regulation') that the principles laid down in the Insolvency Regulation apply with equal force to proceedings brought before the Community courts (as opposed to national courts), despite the fact that the Insolvency Regulation contains no reference to the Community courts. This ECJ decision concerns principally Articles 4(2)(f), 16 and 17 of the Insolvency Regulation.

Council Regulation (EC) 1346/2000 on Insolvency Proceedings

Abstract:
A debt subordination may in general take two forms, viz., contractual subordination and turnover subordination. A contractual subordination occurs where, by agreement between a debtor and a creditor, debts owed to the creditor are to rank below other debts of the debtor. A turnover subordination (which may or may not involve a trust) requires the junior creditor, on the insolvency of the debtor, to turn over to the senior creditor all recoveries received by the junior creditor in respect of the junior debt. Where a trust is utilised, this technique is also called trust subordination.

A trust is not a charge. They are mutually exclusive. Despite the fact that a trust may perform a security function, "a trust by way of equitable charge" is never a trust. It is merely a charge masquerading as a trust. The trust subordination in Re SSSL demonstrates this proposition vividly.

In line with the general policy considerations in favour of the enforcement of contractual subordination, the decision in Re SSSL helpfully confirms that a subordination agreement is unlikely to be liable to disclaimer by a liquidator of the subordinated creditor.

A proper reading of the decision in Re SSSL confirms yet again that British Eagle is wholly unconcerned with the principle of pari passu distribution. Hence the standard de rigueur caution against the enforceability of subordination agreements on British Eagle/pari passu grounds is simply misconceived. Decades of concern over the British Eagle/pari passu violation is in fact a schism over an ism that is now an anachronism.

Subordination agreement, trust subordination, British Eagle, pari passu principle, disclaimer

Abstract:
As a means of effecting cross-border restructuring, a scheme of arrangement under section 425 of the UK Companies Act 1985 suffers from a serious defect in that it may not be binding on 'foreign creditors' in the following sense. As the question of whether an obligation has been discharged is governed by its proper law, creditors whose claims are governed by foreign law may, notwithstanding a section 425 scheme compromising their claims, enforce their claims against the company in a foreign court. Two methods have often been used in practice to overcome this defect so that the scheme is effective according to the law of the place in which the company's assets are located. First, if there are assets in the United States of America, the company may seek a permanent injunctive relief under section 304 of the US Bankruptcy Code in order to protect those assets. Second, if there are assets in jurisdictions (such as Australia and the Cayman Islands) that have an equivalent restructuring regime, parallel schemes of arrangement may be put forward in those jurisdictions.

The recent decision of the Ontario Superior Court of Justice in Re Cavell Insurance Company opens up another avenue by which a section 425 scheme may be binding on foreign creditors, namely by enforcing the English scheme overseas as a judgment.

Re Cavell also supports the position that an English court order sanctioning a scheme of arrangement is a judgment within the Council Regulation (EC) 44/2001.

Scheme of arrangement, Council Regulation (EC) 44/2001, judgment

Abstract:
It is second nature to almost every insolvency practitioner that parties cannot by agreement subvert the fundamental principle of pari passu distribution of an insolvent's assets. It thus follows that, for example, there cannot be a valid contract that a man's property shall remain his until his bankruptcy, and on the happening of that event go over to someone else, and be taken away from his creditors. Similarly, contractual set-off provisions resulting in a distribution of an insolvent's property in a manner contrary to the pari passu principle are invalid. It has been said that the above propositions are limited to liquidation or bankruptcy because the pari passu principle is concerned to ensure an equitable distribution of the insolvent's estate among its creditors and liquidation or bankruptcy is the only collective insolvency process which involves the distribution of assets among the general body of creditors. Put simply, it is second nature to almost every insolvency practitioner to lump the principle against divestiture and the principle of pari passu distribution into one interchangeable mass.

However, the recent decision in Fraser v. Oystertec has conclusively proved that almost every insolvency practitioner's second nature is wrong. The principle established in ex p. Mackay and British Eagle has nothing whatsoever to do with the so-called fundamental principle of pari passu distribution, and hence its operation is not limited to formal insolvency proceedings. This decision may also have cast some doubt on the operation of contractual set-off and netting even prior to any formal insolvency proceedings.

Principle against divestiture, pari passu principle, British Eagle

Abstract:
The proliferation of rules aimed at the management of cross-border insolvencies has not been coupled with sufficient attention to the choice of law rules relating to the avoidance of antecedent transactions as legal acts detrimental to all the creditors. This article is the first of its kind in considering the current state of play under English choice of law rules in insolvency transaction avoidance and proposes the path forward. The proposals seek to reorient the jurisprudence on extraterritorial application of domestic statutes, reflect the philosophical underpinnings of universalism and draw on the US conflicts experience.

cross-border insolvency, international insolvency, insolvency clawback, avoidance of antecedent transactions, choice of law, conflict of laws

Abstract:
Insurance companies, domestic and foreign, have increasingly resorted to solvent schemes of arrangement under section 425 of the UK Companies Act 1985 as a quicker exit strategy to finalise their run-off while they are still solvent. Regardless of the real motives beneath a solvent scheme, which may range from the cynical to the benevolent, the scheme explanatory statement almost always contains the ritual incantation of the following advantages seemingly enuring to the benefit of the policyholders: early payment of claims, finality, cheap and cheerful out-of-court adjudication procedure, and saving of run-off costs. However, the court in the recent landmark case of Re British Aviation Insurance Company ('BAIC') unhesitatingly punctured the hype of these advantages and used them as a factor against sanctioning the solvent scheme. In addition, more importantly, BAIC shows that contingent creditors may have to be put in a different class for voting purposes, failing which the court has no jurisdiction to sanction a solvent scheme.

While case-law seems to have confirmed the English court's jurisdiction to sanction schemes promoted by EEA insurers, the court's reasoning in this respect is frighteningly dubious.

Accordingly, this article seeks to evaluate the well-reasoned judgment in BAIC, its ripple effect on subsequent case-law, and the jurisdictional issues in relation to EEA insurers' schemes.

English scheme of arrangement, solvent scheme, insurer's scheme, insurance insolvency, insurance run-off, EEA insurer, EEA insurance company, jurisdiction to wind up foreign insurance company, Council Directive 2001/17 on the reorganisation and winding-up of insurance undertakings

Abstract:
Pursuant to Article 15 of Council Regulation (EC) 1346/2000 on Insolvency Proceedings (the 'Insolvency Regulation'), when a company is subject to formal insolvency proceedings in a European Union Member State and there are pending litigation proceedings in England, it is a matter of English law whether the litigation can continue. Mazur Media v. Mazur Media is the first English decision that gives some guidance on how the English court should proceed in these circumstances. It is also the first English decision that considers the interface between the Insolvency Regulation and Council Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the 'Judgments Regulation') and how the tort of conversion is to be treated under the Judgments Regulation. While helpful in certain respects, this decision is nevertheless questionable on many fronts. Particularly semi-competent is its appreciation of the significance of foreign insolvency proceedings.

Council Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, Council Regulation (EC) 1346/2000 on Insolvency Proceedings, conversion, forum non conveniens

Abstract:
The UK Insolvency Act 1986, s 127 provides that in a winding up by the court any disposition of the company's property made after the commencement of the winding up is void unless the court otherwise orders. The court recently held in Re Tain Construction that the policy of s 127 is to prevent the circumvention of the pari passu distribution of assets which is at the foundation of insolvency law. Accordingly, in deciding whether to validate a transaction, the court must have regard to this policy. Furthermore, a s 127 claim is susceptible to the change of position defence. While the substantive decision is correct, its reasoning is highly unfortunate and misguided almost on all counts.

As illustrated by the reasoning in Re Tain Construction, there is a total lack of understanding of the basis of the s 127 regime in particular and the pari passu principle in general. It does not help that writers persist in pursuing the victory of pari passu through capitulation, and in Re Tain Construction the court's insistence on the relevance of the pari passu principle is flatly contradicted by the facts of the case.

It is submitted that the s 127 regime performs three functions, none of which has anything to do with the pari passu principle: preservation of the insolvent estate, sustaining the order of priority of insolvency distribution, and enabling the debtor to proceed with its business during the gap period between the presentation of the winding up petition and the making of winding up order. In other words, it perfects the regimes of preference and transactions at an undervalue, while at the same time ensuring that the debtor's business is not paralysed by the filing of a winding up petition.

While the right of recovery under s 127 is restitutionary, the reason for restitution is policy-based. This policy motivated restitution may only be overridden through the validation machinery. The general defence of change of position has no place in this regard.

disposition of property after winding-up petition, pari passu principle, restitution, change of position

Abstract:
Can a payment in satisfaction of an antecedent debt be both a preference under section 239 of the UK Insolvency Act 1986 and therefore a transaction at an undervalue pursuant to section 238 of the UK Insolvency Act 1986?

Describing it as an interesting question of law on which there was no direct authority, the English High Court in Barber v CI answered in the affirmative. In this commentary, we evaluate that decision and submit that it is difficult to defend. Two main propositions emerge from our analysis: First, a transaction can never properly be reversed or adjusted pursuant to section 238 simply because it is liable to being challenged on some other legal ground (including section 239). And second, a transaction which is intrinsically at an undervalue is always properly susceptible to a successful section 238 challenge even though its constitutive facts also give rise to another cause of action (for example, a common law restitutionary claim arising from a mistaken payment).

Preference, Transaction at an Undervalue, Fraudulent Conveyance, Overlap between Sections 238 and 239 of the UK Insolvency Act 1986, Defences, Authorities on US Bankruptcy Code

Abstract:
The court in Re Ballast [2006] EWHC 3189 (Ch) rejected the proposition that an insurer via subrogation has a proprietary interest in the insured's cause of action, but its reasoning is strewn with confusion and fails to appreciate the impact of insolvency set-off on the principle of indemnity.

All the reasons the court gave in Re Ballast for rejecting proprietary subrogation are in fact compatible with proprietary subrogation.

Academic criticisms against proprietary subrogation failed to pay sufficient regard to the principle of indemnity.

Lord Templeman's preference in Napier v Hunter [1993] AC 713 for proprietary subrogation is correct and is consistent with plenty of North American case-law.

subrogation, set-off, principle of indemnity, liquidation, insolvency, unjust enrichment

Abstract:
Restructuring often requires refinancing which in turn requires amendments to existing agreements, such as amending the definition of 'secured liabilities' in a debenture and extending a loan facility's maturity date. The legal effect of these amendments gives rise to a common question: whether the amendments are a mere variation of the existing agreements or a rescission of the existing agreements and entry into new ones. The answer to this question could determine a host of issues, such as the statutory requirements to register charges, the discharge of guarantees and tax reliefs. Recent case-law has correctly shown that while the variation/rescission distinction depends on the intention of the parties, intention is not the sole determining factor. The answer to the variation/rescission question has to be context-sensitive.

Novation, variation of contract, contractual amendment, rescission

Abstract:
Using the decision in Oakley v Ultra Vehicle Design as a case study, this paper considers the precise demarcation and interface between Council Regulation (EC) 1346/2000 on Insolvency Proceedings ('the Insolvency Regulation') and Council Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters ('the Judgments Regulation').

In relation to insolvency-related issues, the subject-matter jurisdiction of the Insolvency Regulation and the Judgments Regulation is mutually exclusive and complementary. There is no gap in subject-matter jurisdiction between these measures; what is excluded in one measure is correspondingly included in the other measure. In order to determine into which jurisdictional regime the subject-matter of an insolvency-related dispute falls, one begins by determining whether it is an insolvency matter within Article 1(2)(b) of the Judgments Regulation. One never begins by considering whether the dispute is raised in the context of a proceeding within the Insolvency Regulation, which would lead to a blank.

Regulation (EC) 1346/2000 on Insolvency Proceedings, Council Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters

Abstract:
Timing is crucial for insolvency set-off as a bright line demarcates permissible pre-petition debts from impermissible post-petition debts. In the present case, electronic funds transfers were begun pre-petition and completed post-petition. The US bankruptcy court held that these transfers were impermissible post-petition claims. The court's reasoning is suspect and if the English court has occasion to decide the same issue, it would probably reach a different conclusion. The US bankruptcy court also misunderstood English insolvency set-off rules.

Bankruptcy set-off, insolvency set-off, contingent claims, electronic funds transfers, post-petition debts, mutuality for set-off, section 553 of the US Bankruptcy Code, Lehman bankruptcy

Abstract:
The recent decision in Exeter City Council v Bairstow (Re Trident Fashions [2007] EWHC 400 (Ch) (02 March 2007) confirms the correct approach to insolvency expenses: what constitutes an insolvency expense is purely a matter of statutory construction, a process enlightened by the Lundy Granite principle in respect of certain pre-insolvency claims such as rent.

The much touted 'expenses principle' enunciated in Re Atlantic Computer Systems [1992] Ch 505 is unsustainable.

Non-domestic business rates are payable as administration expenses under rule 2.67 of the Insolvency Rules 1986. However, this might render rescue more difficult to achieve in some cases. Legislative reconsideration is called for.

Administration expense, insolvency expense, liquidation expense, rates, rescue culture

Abstract:
The concept of 'possession' in 196 of the Companies Act 1985 must be interpreted to cover possession of intangible assets.

The concept of taking possession in s 196 must be interpreted in a way that reflects security enforcement.

Taking possession of floating charge assets, possession of intangible assets, preferential creditors

Abstract:
The lynchpin of the reasoning in Re Oasis Merchandising Services [1998] Ch 170 - the ownership of claims brought by an insolvency officeholder being dependent on the distinction between the company's assets and the officeholder's statutory rights - is erroneous in principle and contrary to authorities.

In light of Smith (Administrator of Cosslett (Contractors)) v Bridgend County Borough Council [2001] UKHL 58, claims under ss 127, 213, 214, 238, 239 and 245 of the Insolvency Act 1986 (and their resulting proceeds) belong to the company in administration or liquidation.

There is no inherent logical divide between a pre-insolvency debenture's scope and the fruits of an officeholder's claims.

Liquidation, Officeholders' Claims, Statutory Claims, Claims Belonging to the Company

Abstract:
The court in Hammonds (a firm) v Pro-Fit USA [2007] EWHC 1998 (Ch) mistakenly rejected the proposition that the established practice of dismissing winding-up petitions on grounds of disputed debts and cross-claims applies to administration applications.

disputed debts, cross-claims, administration, winding-up petition, abuse of process, purpose of administration

Abstract:
The Scottish decision in Morris (Liquidator of Bank of Credit & Commerce International), Re Petition of The Bank of England is correct that an ancillary winding-up makes good sense and may disapply local procedural rules that do not serve any practical purpose. Owing to a misunderstanding of the English authorities and the principle of pari passu distribution, the Scottish court wrongly concluded that local substantive rules may not be disapplied.

cross-border insolvency, principle of pari passu distribution, dis-applying local rules, ancillary winding-up, cross-border cooperation

Abstract:
In the Samsun case, there has been a uniform recognition of a Korean rehabilitation proceeding as a foreign main proceeding under the UNCITRAL Model Law on Cross-Border Insolvency in the UK, US and Australia. These jurisdictions have also granted a uniform stay on enforcement of security interests in order to promote the purpose of the Korean rehabilitation. The case is concrete testament to the potential of the Model Law in managing transnational insolvencies.

UNCITRAL Model Law on Cross-Border Insolvency, Korean rehabilitation proceeding, recognition of Korean insolvency proceeding

Abstract:
A review of the English court's jurisdiction to sanction a scheme of arrangement promoted under Part 26 of the Companies Act 2006, including a scheme promoted by a foreign company.

scheme of arrangement, insolvency, restructuring, cross-border scheme of arrangement, winding-up jurisdiction

Abstract:
A company voluntary arrangement ('CVA') under Part I of the Insolvency Act 1986 ('IA') is a statutory contract into which terms may be implied on ordinary contractual principles. Although some cases proclaim that the court has no power to vary the terms of a CVA or authorise a breach of the CVA terms, they have overlooked Re TBL Realisations which suggests the opposite. Re Beloit Walmsley [2008] EWHC 1888 (Ch) has recently injected more disorder and sets a dangerous precedent for using CVAs to prefer a particular class of creditors.

company voluntary arrangement, corporate insolvency, CVA

Abstract:
The decision in Re Sovereign Marine & General Insurance ('WFUM') [2006] EWHC 1335 (Ch) is the latest installment of the debate on whether the English court has jurisdiction to sanction a solvent scheme of arrangement proposed by an EEA insurer. Charting a completely different course of reasoning to that in Re La Mutuelles du Mans Assurances IARD ('MMA') and Re DAP Holding NV ('DAP'), the court in WFUM held that the English court has jurisdiction to sanction two solvent schemes proposed by two insurers incorporated and regulated in France and Ireland respectively.

Although the WFUM decision also contains widespread implications for the constitution of classes for a scheme of arrangement, this commentary only deals with the jurisdictional debate. While WFUM is testimony to what many have already known, that the reasoning in MMA and DAP is simplistic in the extreme (to put it mildly), the reasoning in WFUM itself leaves much to be desired.

English scheme of arrangement, solvent scheme, insurer's scheme, insurance insolvency, insurance run-off, EEA insurer, EEA insurance company, jurisdiction to wind up foreign insurance company, Council Directive 2001/17 on the reorganisation and winding-up of insurance undertakings

Abstract:
(i) Council Regulation (EC) 1346/2000 on insolvency proceedings (‘EU Insolvency Regulation’) was based on the model of modified universalism, but its current practice militates towards pure universalism.

(ii) Universalism coupled with the policy of ensuring the proper functioning of the EU internal market may lead to interpretative conclusions that depart substantially from legislative words.

(iii) The policy of preventing forum shopping by concentrating all insolvency-related actions in one jurisdiction might simply encourage a ‘front-end’ shopping for insolvency forum.

EU Insolvency Regulation, cross-border insolvency, universalism, forum shopping, setting aside antecedent transactions, recognition of insolvency judgments

Abstract:
The US Bankruptcy Court in In re Betcorp held that an Australian solvent liquidation was entitled to recognition and assistance under Chapter 15 of the US Bankruptcy Code. However, the court's reasoning is highly questionable. In particular, it seemed to have overlooked the true nature of an Australian members' voluntary liquidation and the Australian legislative history when implementing the UNCITRAL Model on Cross-Border Insolvency in Australia.

An English court would most probably reach a different result under the UK Cross-Border Insolvency Regulations 2006.

UNCITRAL Model on Cross-Border Insolvency, Chapter 15 of the US Bankruptcy Code, Australian members' voluntary liquidation, solvent liquidation, UK Cross-Border Insolvency Regulations 2006

Abstract:
US Bankruptcy Court in In re Betcorp held that an Australian solvent liquidation was entitled to recognition and assistance under Chapter 15 of the US Bankruptcy Code. However, the court's reasoning is highly questionable. In particular, it seemed to have overlooked the true nature of an Australian members' voluntary liquidation and the Australian legislative history when implementing the UNCITRAL Model on Cross-Border Insolvency in Australia.

An English court would probably reach a different result under the UK Cross-Border Insolvency Regulations 2006.

UNCITRAL Model on Cross-Border Insolvency, Chapter 15 of the US Bankruptcy Code, Australian members' voluntary liquidation, solvent liquidation, UK Cross-Border Insolvency Regulations 2006

Abstract:
The decisions in Castle Holdco and Grand Prix show some creative uses of Chapter 15 of the US Bankruptcy Code to facilitate cross-border restructurings, from which one may derive the following propositions.

First, an English scheme of arrangement prior to its sanction by the English court is entitled to recognition under Chapter 15.

Second, a BVI plan of arrangement prior to its approval by the BVI court is also entitled to recognition under Chapter 15.

Third, when granting a discretionary relief under section 1521 of the Bankruptcy Code, the US bankruptcy court may cloak the relief with extra-territorial effect.

Fourth, when applying Chapter 15, the US bankruptcy court would be minded to serve the cause of the Model Law with a comity-flavoured mindset.

However, the Grand Prix decision appears to have suffered from an overly keen judicial desire to facilitate a private litigation settlement, at the expense of eloquent reasoning. In Bear Stearns, the court emphasised that the Chapter 15 recognition process is not a rubber stamp exercise even when no objection is filed. In Grand Prix, the court specifically approved the Bear Stearns approach, but its actual decision seems ironically to reflect the rubber stamping exercise proscribed in Bear Stearns. If comparable circumstances arise under UK Cross-Border Insolvency Regulations 2006, it is suggested that the English court should treat this unsettling aspect the Grand Prix decision with great caution.

Cross-Border Insolvency, English scheme of arrangement, British Virgin Islands plan of arrangement; cross-border enforcement; UNCITRAL Model Law on Cross-Border Insolvency

Abstract:
In explaining the concept of centre of main interests (COMI) within the UK Cross-Border Insolvency Regulations 2006 (CBIR), the Englush court in Re Stanford International Bank over-emphasised third-party ascertainability due to an apparent lack of appreciation of the different functions performed by the COMI concept under the CBIR and the EC Insolvency Regulation.

In cases of fraud, the court’s approach to the COMI presumption risks the court concreting the fraudsters’ house of cards.

The Stanford decision also unnecessarily jars with case-law under Chapter 15 of the US Bankruptcy Code.

UNCITRAL Model on Cross-Border Insolvency, Chapter 15 of the US Bankruptcy Code, UK Cross-Border Insolvency Regulations 2006, centre of main interests, UK Cross-Border Insolvency Regulations 2006, recognition of US receivership, fraud, Ponzi scheme

Abstract:
The patois “prepack” in UK corporate insolvency practice is a shorthand description of a strategy to sell an insolvent debtor’s business, typically involving the following scenario: A sale of all or part of the debtor’s business is struck in principle between the relevant parties prior to the commencement of a formal insolvency proceeding (usually administration) so that as soon as the relevant insolvency officeholder is appointed, he will use his power to procure an immediate execution of the pre-agreed sale. The debtor will then be liquidated. In the recent case of Re Kayley Vending [2009] EWHC 904 (Ch), the court gave some helpful guidance on the prepack practice. It is no exaggeration to say all insolvency practitioners should familiarise themselves with the decision.

UK corporate rescue, prepack, prepackaged administration, administrators' preappointment costs

Abstract:
The rule in Cherry v. Boultbee is susceptible to contractual exclusio. The Court of Appeal’s explanation in Re SSSL Realisations (2002) [2006] EWCA Civ 7 of the calculation methodology is challengeable on grounds of mathematics, principles and authorities. The English court should consider adopting the Australian interpretation of the rule in Cherry v. Boultbee.

insolvency set-off, double-proof, equitable rule in Cherry v Boultbee, retainer, guarantor's indemnity claim

Abstract:
This paper takes the opportunity, presented by the House of Lords' decision in Phillips v Brewin Dolphin, to examine the law governing the reversal of transactions at an undervalue entered into by a company which then becomes insolvent. The paper discusses the sequence in which issues related to ascertaining whether a transaction had been at an undervalue are to be approached, the proposition that contracts somehow "linked" with each other can be taken together as constituting a single "transaction", and the prior question about when such contracts should be considered "linked" in the first place. Finally, the paper detects something of a tendency in the case law to use the notion of a transaction at an undervalue to brush aside inconveniences arising from the peculiarities in the way certain cases have been pleaded. Notably, it suggests that Phillips v Brewin Dolphin might not have involved any transaction at an undervalue at basall.

bankruptcy; undervalue transactions