Tolley’s Company Law and Insolvency - LexisWeb...

Tolley’s Company Lawand Insolvency

Bulletin EditorDr John Tribe

Kingston University

Dear Subscriber,

Welcome to the latest newsletter. On the following pages I have includedvarious primary and secondary source materials that readers will find ofinterest on the subjects of company and insolvency law. In a diversionfrom the usual practice I thought readers might also be interested in newsof a literary publication linked to our area. ‘The Devil in the Marshalsea’(Hodder, 2014, written by Antonia Hodgson) provides an interestingexposition of debtors’ prison circa 1727 against the backdrop of a murderbased thriller.

In this newsletter the analysis section contains an interesting piece byMathew Ditchburn, partner at Hogan Lovells, and Ed Boyle, director atKPMG. The authors consider the decision in Laverty v British GasTrading. They say the decision clarifies how the principle established bythe Supreme Court in Nortel should apply to certain property and otherliabilities arising following an administration appointment.

A second analysis piece continues a series of guides highlighting areas oflegislation that may not fall within the everyday work of insolvencypractitioners. Simon Thomas, a partner, and Emma Collins, a managingassociate, in the restructuring and insolvency team at Addleshaw Godd-ards LLP, offer guidance on environmental law.

In a third analysis piece highlighting areas of legislation that may not fallwithin the everyday work of insolvency practitioners, Jeremy Bark, anassociate director at Berwin Leighton Paisner LLP, gives advice on whatneeds to be considered when health and safety issues arise in an insolventcompany.

This newsletter contains six summary reports of case law apposite to thejurisdictions of insolvency law and company law.

Volume 14 Issue 5 November 2014

TCLI: Volume 14 Issue 5

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Finally, the newsletter contains details of some new legislation cominginto force in relation to Scottish insolvency provisions.

I would be pleased to hear from subscribers who have any comments orsuggestions regarding the content of this Newsletter, or any comments orqueries on company law, insolvency law and practice and procedure ingeneral in those areas. Letters which raise issues of interest may bepublished in the Newsletter. Please address letters to the editor of thisnewsletter: Dr John Tribe, Kingston Law School, Kingston University,Kingston Hill, Kingston upon Thames, Surrey, England, KT2 7LB,Email: [email protected].

Dr John Tribe

Newsletter Editor

NEWS

(1) SRA proposes to stop regulating solicitor IPsThe Solicitors Regulation Authority (SRA) is proposing that it shouldcease regulating solicitors acting as insolvency practitioners (IPs) underthe Insolvency Act 1986 (IA 1986). The SRA is one of seven bodies whichregulates solicitor IPs and currently only regulates a small number ofthem – 124 out of a total of 1,677. It believes that continuing to regulatesolicitor IPs would be inconsistent with its approach to regulation, anddoes not currently have the capability and expertise to regulate thesepractitioners in a cost-effective way. It has set out its proposal forconsultation, with comments requested by 16 January 2015.

The SRA is a Recognised Professional Body (RPB) for the purpose ofauthorising solicitor IPs. This recognition is granted under the IA 1986 tothe Law Society which has delegated its regulatory functions to the SRA.

Insolvency practice in the UK is governed by statute and supported byStatements of Insolvency Practice and an ethical guide with which all IPsmust comply. Regulation of insolvency practice is overseen by the Insol-vency Service through a Memorandum of Understanding (MoU) with theRPBs.

Before 2007, those solicitors who wished to become insolvency appoint-ment holders were required to be authorised by the Law Society/SRAunless they were directly authorised by the Secretary of State. Since 2007,solicitors can apply to any of the RPBs or the Secretary of State forauthorisation.

There are several reasons why the SRA is planning to withdraw fromregulation insolvency practice, which it originally proposed in 2008 butagreed to defer the proposal to a later date.

NEWS

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The SRA’s approach to regulation is designed for the legal servicesmarket, where the issues and risks are different from the insolvencymarket. The regulatory regime for insolvency is designed specifically forthe insolvency market. It requires the SRA to regulate solicitor IPs in away which is inconsistent with the way it regulates the legal servicesmarket, and to have a bespoke system for:

● conducting monitoring visits to solicitor IPs;

● handling complaints against solicitor IPs; and

● consideration and reporting of the outcomes of these activities.

In recent years the inconsistency between the approach required by theinsolvency regime and the SRA’s own regulatory system has led it tocontract out these activities to other RPBs in order to meet its regulatoryobligations.

The number of solicitor IPs the SRA regulates has reduced since 2008from 146 to 124, and it has only received four new applications in the lasttwo years. The small number of IPs the SRA regulates, the fact thatinsolvency regulation is not a core function of its regulation of the legalservices market, and its contracting out of key insolvency activities meanthat it has needed to rely heavily on the expertise of other RPBs.

If the SRA were to continue as an RPB, it would be important to build upits capability and expertise so it could better understand the risks associ-ated with this market. This would require it to recruit and train staff andis likely to take a considerable amount of time and resources. The SRAbelieves this could have disproportionate cost implications for firms andIPs, and therefore for consumers.

There is currently a push within the government to improve standardswithin the insolvency market. The improved standards will be achieved, inpart, through greater obligations on RPBs. If the regulatory change isimplemented, the SRA would be required to ensure it has the necessarycapability and expertise to regulate effectively in this area.

The SRA is concerned that if these proposals are implemented it wouldincrease the costs of regulation payable by the SRA to the InsolvencyService and, as a result, the costs payable by the IPs it regulates.

The SRA believes it will find it increasingly difficult to continue to meetits obligations as an RPB within a regulatory regime which is fundamen-tally different from the one which it has developed for legal services, andwhere it does not have economies of scale due to the small number of IPsit regulates. It is concerned the time necessary to improve its capabilityand expertise as an RPB, and to meet the new obligations, will distract itfrom its core activities as a regulator of legal services.

NEWS

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How to respond?Responses should be submitted:

● by email to: [email protected]; and

● by post to: Solicitors Regulation Authority, Education and TrainingUnit – Insolvency, The Cube, 199 Wharfside Street, Birmingham,B1 1RN.

(2) Creditors’ meetings should be unrestricted, saybusiness groupsThe government’s plan to ban physical creditors’ meetings unless they arerequested by 10% of creditors will lock smaller creditors out of theinsolvency process, say leading business groups ahead of a parliamentaryvote on 19 November 2014. Groups including the Federation of SmallBusinesses, the British Property Federation, Institute of CharteredAccountants in England and Wales (ICAEW), and insolvency trade bodyR3, are calling on the government to accept an Opposition amendment tothe Small Business, Enterprise and Employment Bill.

At the Bill’s committee stage two weeks ago, an Opposition amendmentwas passed which set back government plans to restrict physical creditors’meetings in insolvencies. The Opposition amendment requires just onecreditor, rather than 10% of creditors, to request a meeting. Meetings arecurrently held at insolvency practitioners’ discretion.

However, the government is expected to try to reverse the amendment atthe Bill’s report stage.

The business groups are concerned that restricting physical creditors’meetings will exclude smaller creditors from the insolvency process, makeit harder to uncover bad behaviour by insolvent companies’ directors, andhave a negative impact on the money creditors receive.

ICAEW commentICAEW Director of Professional Standards, Bob Pinder, said the pro-posed measures to remove discretion to hold meetings was micro-managing the insolvency process. IPs use their professional judgmentevery day, and should be able to choose the most appropriate mechanismto engage with creditors.

(3) INSOL Europe: European Insolvency RegulationCase Register now available in Lexis®PSLLexis®PSL have announced the launch of the new look INSOL Europe:European Insolvency Regulation Case Register on the LexisNexis platform.This unique case abstract service provides summaries of judgments, from

NEWS

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the Court of Justice of the European Union and first instance and appealcourts of the EU Member States, that consider a significant point relatingto the Regulation (EC) 1346/2000 on Insolvency Proceedings. The serviceincludes abstracts of judgments from 2001 onwards.

The abstracts are provided on behalf of INSOL Europe by nationalcorrespondents, practising or academic lawyers, covering each of the EUMember States and are academically moderated by Professor ReinhardBork, University of Hamburg, and Dr Kristin van Zwieten, OxfordUniversity. Abstracts relating to judgments of the Court of Justice of theEuropean Union are provided by the Technical Officers of INSOLEurope and are moderated by Stefan Ramel, Barrister, Guildhall Cham-bers.

Published by INSOL Europe and hosted on Lexis Library from October2014 onwards. Lexis®PSL subscribers can access the case register byfollowing this link: INSOL Europe case register.

(4) Insolvency Service publishes IVA statisticsfor 1990–2013Individual Voluntary Arrangement (IVA) failure rates increased for thoseregistered between 2001 and 2007, according to statistics showing thenumber and percentage of IVAs that have been registered in each yearsince 1990 to 2013, that have since completed, failed or are still ongoing.The statistics, which have been published by the Insolvency Service, alsoshow the percentage of IVAs failing within the first two years decreasedfor IVAs registered from 2011, compared with those registered before2008.

In addition, the statistics show:

● IVA failure rates for 2005 and later registrations are uncertain asmany are still ongoing;

● over 5% of IVAs registered in 2005 and 8% in 2006 were stillongoing, having started around eight to nine years earlier; and

● the number of new IVAs registered each year from 1990 increasedsubstantially over the period covered, from fewer than 10,000 annu-ally up to 2003, to a peak of over 50,000 in 2010, with a particularlyrapid increase between 2004 and 2006.

To view the IVA outcomes data see: www.gov.uk/government/statistics/individual-voluntary-arrangement-outcome-statistics.

NEWS



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ANALYSIS

(1) Stuck with the bill – are administratorsresponsible for utility costs?Mathew Ditchburn, partner at Hogan Lovells, and Ed Boyle, director atKPMG, consider the decision in Laverty v British Gas Trading. They saythe decision clarifies how the principle established by the Supreme Courtin Nortel should apply to certain property and other liabilities arisingfollowing an administration appointment.

In Laverty v British Gas Trading Ltd [2014] EWHC 2721 (Ch), [2014] AllER (D) 76 (Aug) the trial of a preliminary issue was ordered, concerningthe priority to be given to the payment of certain charges owed to therespondent company for gas and electricity supplied to retail premisesafter companies in liquidation had entered into administration and afterthey had been vacated by the companies. The Companies Court held thatliability under the deemed contracts was provable, pursuant to the Insol-vency Rules 1986, SI 1986/1925, r 13.12(1)(b) as a liability to which thecompanies had become subject after the date of administration by reasonof an obligation incurred before that date.

What were the facts in this case?British Gas supplied utilities to stores owned and operated by thePeacocks group of companies. The companies went into administration in2012. Relying on a break right they had in the event of insolvency, BritishGas terminated their supply contracts with the companies, but continuedto supply gas and electricity to the Peacocks stores. As the utilities weresupplied other than pursuant to express contracts, contracts were deemedto arise under the Gas Act 1986 and the Electricity Act 1989.

Following administration, a number of the Peacocks stores were sold andothers vacated. However, the deemed contracts endured and chargescontinued to accrue on the 177 vacant Peacocks stores still being suppliedgas and electricity by British Gas.

What were the main legal arguments arising?The administrators accepted that utilities costs for gas and electricitysupplied to the Peacocks stores during the administration while thecompanies were still a trading business was an administration expense.However, they refused to pay charges that had accrued once all the storeshad been vacated, totalling about £1.2m. British Gas argued that thecharges arising under the deemed contracts were automatically an admin-istration expense, irrespective of whether the charges had been incurred asa result of something done by the administrators or for their benefit.

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The subsequently appointed liquidators of the Peacocks companiesargued that the charges were provable debts under the InsolvencyRules 1986, which meant that they ranked for dividend and were payableproportionately out of whatever remained (if anything) of the companies’assets once administration expenses had been paid in full. British Gasargued that the charges were administration expenses, payable in priorityto other debts.

In doing so, British Gas relied heavily on earlier cases concerning businessrates. These provide that, if a company took out a lease on a property butthen went into administration and stopped using the property, it is stillnevertheless liable to pay the rates as an expense of the administration.This is because the company remains in rateable occupation (ie it has aright to occupy the property) for as long as the lease exists. It has nothingto do with the conduct of the administrators in respect of the propertiesor any benefit they may be deriving from them. British Gas argued thatthe position in relation to deemed utilities contracts ought to be analo-gous to rates.

What was the decision of Judge Etherton?The judge had to decide whether the charges that had accrued after theadministration appointment and following the vacation of the Peacocksstores by the administrators were, under the Insolvency Rules 1986:

● provable debts; or

● an administration expense.

The judge held that the cost of the supply of electricity and gas is not anexpense of the administration, but rather a provable debt.

The question of what are ‘provable debts’ within the InsolvencyRules 1986 was considered in the Supreme Court’s Nortel judgment (ReNortel GmbH (in administration) and other companies and other appeals[2013] UKSC 52, [2013] 4 All ER 887) regarding pensions liabilities. Thestarting point is that all the company’s debts at the time of administrationare provable. However, ‘debt’ has quite a broad definition and includesany liability to which the company became subject as a result of anobligation entered into by the company before the administration. TheSupreme Court said that a company had incurred an ‘obligation’ if it hadtaken some steps which had legal effect and resulted in the company beingvulnerable to the liability in question.

In relation to the Peacocks companies, they had become vulnerable to theliability under deemed contracts as soon as they entered into supplycontracts with British Gas that were determinable in the event of insol-vency. This was sufficient to mean that charges under the deemedcontracts arose out of a pre-administration obligation and so were merelyprovable.

ANALYSIS



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The court held that there was a difference between the liability to paybusiness rates and the liability to pay utilities charges under a deemedcontract. A deemed contract does not terminate when the customer ceasesto have a right to occupy the premises. The terms and conditions ofdeemed contracts, including as to termination, are for the utilities com-panies to decide. All the legislation did was stipulate when deemedcontracts were to arise and, other than that, there is very little legislativecontrol over their terms. British Gas’ deemed contracts incorporated theirstandard terms and conditions, which provided that the customer wouldremain liable under the contract until they found a new customer to takeover liability for supply who was acceptable to British Gas. This wasdifferent to the liability to pay rates, which arose on a daily basisdepending solely on whether the ratepayer remained in rateable occupa-tion.

To what extent is this judgment helpful in clarifying the law inthis area?The court’s decision was very much informed by the specific facts in thiscase. Certainly in the context of deemed utilities contracts, it has clarifiedthings – deemed contracts are not automatically an administrationexpense simply because they arise after the appointment of administra-tors.

There might be a degree of sympathy for the utilities companies in thesesituations, who may find that they have no one liable to pay for supply butno easy means of disconnecting it (which usually requires someone toaccess the premises to disconnect manually, for which they will either needthe occupier’s permission or a court order). In light of this ruling, utilitiescompanies might try to persuade landlords of companies in administra-tion to sign up to new utilities contracts, failing which they will have todisconnect. It’s likely that landlords are going to be high on the utilitycompanies’ list of targets in terms of finding somebody else to take on theliability for utilities charges.

The judgment is also helpful in that it gives us some guidance in practiceon how to apply the Nortel decision to different types of liabilities beyondthe pensions regime. Everyone appreciates that Nortel is a very importantdecision but there remain a number of unanswered questions about how itshould be applied to other liabilities – including those arising out ofproperty occupation, such as health and safety and environmental liabili-ties. In that respect, Laverty is an important new piece of the jigsawindicating what type of approach might be taken in future cases.

What practical lessons can those advising take away from this case?Administrators should be wary of the possibility of liabilities arisingunder statute for unoccupied properties and that these could potentially

ANALYSIS

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be treated as an administration expense. Short of getting further guidancefrom the court as to whether these kind of liabilities are going to beconsidered as administration expenses or provable debts, or legislativechange, one practical solution in the short term may be to put thecompany into liquidation and disclaim the deemed contracts, as well asthe leases, as soon as practically possible.

Landlords need to be aware of the possibility of a more proactiveapproach being taken by utilities companies, who may disconnect servicesunless landlords enter into a new contract for supply.

(2) On the edge – environmental law forinsolvency practitionersHighlighting areas of legislation that may not fall within the everydaywork of insolvency practitioners, Simon Thomas, a partner, and EmmaCollins, a managing associate, in the restructuring and insolvency team atAddleshaw Goddards LLP, offer guidance on environmental law.

What are the main laws and regulations governing this area?There are three main sources of environmental law that an insolvencypractitioner (IP) should be aware of and which may result in personalliability for the IP. These are:

● contaminated land legislation (the Contaminated Land Regime);

● other regulatory regimes (expanded below); and

● third party civil claims.

Contaminated Land RegimeLocal authorities have a duty under the Environmental ProtectionAct 1990, Pt 2A to:

● investigate their areas for the presence of contamination;

● identify contaminated land; and

● require clean-up where appropriate.

If the authority identifies contaminated land, liability for cleaning up thecontamination rests initially with Class A persons. This can be:

● the original or subsequent polluter – Class A ‘causers’; or

● any persons who knowingly permit contamination – Class A ‘know-ing permitters’ (ie someone who is aware of contamination and whois in a position to do something about it but fails to do so – forexample, if an IP is aware that oil drums stored on a property areleaking into the ground and fails to take steps to address theproblem).

ANALYSIS



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If no Class A persons can be found, the Class B owner or occupier wouldbe liable.

IPs have statutory protection from liability under the Contaminated LandRegime unless the remediation is referable to an ‘unreasonable act oromission by the IP personally’. See below – What is the risk of personalliability for an insolvency practitioner?

Other regulatory regimesAs well as the Contaminated Land Regime, liabilities could attach to anIP under other environmental regulatory regimes in a number of circum-stances including:

● breaches of environmental permits and authorisations granted tothe company to which the IP has been appointed (which includeswater pollution offences); and

● waste management offences relating to the storage, transport ordisposal of waste.

Breach of these regimes renders the offender liable to criminal prosecu-tion under the Environmental Permitting (England and Wales) Regula-tions 2010, SI 2010/675 or in certain circumstances civil penalties underthe Regulatory Enforcement and Sanctions Act 2008 and the Environ-mental Civil Sanctions (England) Order 2010, SI 2010/1157.

Third party civil claimsEnvironmental problems are regularly the subject of claims in nuisanceand negligence. There is a risk of liability to owners/occupiers of neigh-bouring properties if pollution escapes off-site and causes damage to aneighbour’s land or if there is unlawful interference with a person’s use orenjoyment of land.

Local sewerage undertakers could bring a civil claim if a public waterdrinking source is impacted by off-site migration. Angling groups couldbring a claim if fish stock is impacted by water pollution.

Third parties can claim against the original polluter(s) but can also claimagainst the owner or occupier of a property at a particular time if, and tothe extent that, any pollutants were continuing to migrate off-site. Liabil-ity is strict and it is not necessary to show any fault – although it isnecessary for a claimant to demonstrate that the defendant could reason-ably foresee the damage in question.

What is ‘reasonably foreseeable’ will differ in each case but it is likely thatan IP would be assumed to have a fairly high standard of knowledge inrelation to the site. Although courts are generally reluctant to impose

ANALYSIS

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liability on individuals in relation to company affairs they will do incertain cases. It is therefore important that IPs carry out proper duediligence on sites they deal.

Can you give any examples of the type of insolvency situationswhere environmental issues may arise?Environmental issues can arise within a wide variety of insolvencysituations ranging from historic contaminated land over which an IP orreceiver is appointed to a business which is regulated by environmentalpermits.

Examples of environmental issues would include the following:

● inheriting polluted land;

● storage tanks in poor condition;

● buildings with asbestos materials in poor condition;

● asbestos in soil;

● fly-tipping of waste; and

● waste that has been allowed to stockpile on site in breach of permitconditions.

For example, over the last 12 months we have acted for both administra-tors and liquidators of waste management companies and the administra-tor (and subsequent liquidator) of UK Coal Operations – a companywhich operated a number of deep and surface mines, governed by amyriad of different regulations and permitting regimes. In each case thestrategy was to limit the exposure to risk for the office holder so eitherpre-pack sales were put together (so that the office holder was not tradingthe business subject to the permits/regulations) or the companies wereplaced into liquidation as soon as possible in order that the liquidator hadthe option of disclaiming any onerous contracts/property. In the case ofUK Coal, a court application was made (and an order granted) such thatthe administrators were able to place the company into liquidation justthree days after the making of the administration order (by disapplicationof the IA 1986, Sch B1, paras 49 and 51 (IA 1986)). This enabled onerousproperty and contracts to be disclaimed almost immediately.

Why is this area relevant to IPs and their staff?Environmental liabilities can have far-reaching consequences, including:

● increased unsecured creditor claims in the insolvent estate;

● the potential for claims to rank as expenses (although this is onlylikely where the office holder has personally acted/omitted to act inrelation to an environmental risk);

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● potential personal liability for the IP (more on this below); and

● criminal sanctions.

A breach of certain licences/permits can be a criminal offence which mayrequire the IP to make anti-money laundering notifications and obtainclearance to act/continue to act.

What are the considerations prior to an appointment of an IP?Prior to accepting the appointment as office holder, it is important for anIP to carry out due diligence in relation to the compliance (or otherwise)of the company with:

● any environmental permits; and/or

● any historic land contamination issues.

To ensure the IP does not inherit any liability and knowingly allow this tocontinue. Where environmental risk is particularly evident, it would beprudent to commission a survey (at least on a desktop basis or otherwiseby a specialist environmental consultant or surveyor) so the risk can bequantified. However, practically this may not be possible from either atiming or cost perspective.

If the business requires an environmental permit to trade, considerationneeds to be given to the types of environmental permits held and whetherthese are sufficient for the operation of the business (both if the IPintends to trade the business or sell it) or whether these may terminate oninsolvency. If the environmental permits are held by third parties (such asother group companies or the individual directors and/or shareholders),what visibility and/or control over the permit will an IP have uponappointment? It would be usual for the permits to be held by the companytrading the relevant business. However, this is not always the case,particularly in owner-managed businesses where operations are run acrossa number of group companies and/or sole traders.

Any purchaser of the business will need to hold the relevant permitspost-sale of the business or assets so it will be important to ascertainwhether the permits held are transferable to a third party and whetherthere is any monetary value to be realised in the transfer of the permits.

It will be important to find out whether the permit holder has breachedany condition of the permit prior to appointment and whether any suchbreach is continuing.

It is possible for individuals to hold environmental permits – where an IPis intending on taking an appointment as trustee in bankruptcy of anindividual connected with a business which trades in this regulated arenait would be wise to carry out some due diligence as to whether any permitsare held by that individual. However, it is unlikely a trustee would

ANALYSIS

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continue to operate any business of that individual post-appointment sothe risk in this regard is much more limited than that of a liquidator oradministrator of a company.

What is the risk of personal liability for an IP?The risk of personal liability differs across the regulatory regimes.

Contaminated Land RegimeIPs have statutory protection from liability under the regime which istwofold:

● the IP is not personally liable to bear the whole or any part of thecost of remediation unless the requirement of the remediation isreferable to an unreasonable act or omission by the IP personally;and

● the IP will not be guilty of an offence of failing to comply with aremediation notice that has been served in relation to the land,unless the relevant remediation is required as a result of an unrea-sonable act or omission of the IP personally.

What is unreasonable is a difficult concept to determine and is consideredon a case-by-case basis. Case law indicates that a receiver cannot exercisetheir discretion in such a way as to lead the company to act unlawfully. Anexample of a situation where an IP might be considered to have actedunreasonably might be where they become aware that oil drums stored onthe property are leaking into the ground, and then failed to take action tostop the leak.

Other regulatory regimesGenerally the IP would have to act outside of their role as an agent of thecompany in order to commit an offence. This is because liability undersuch regulatory regimes will principally attach to the company which hascommitted the offence and it is unlikely the IP would act in such a manneras to breach the other regulatory regimes in their individual capacity.

However, in most regulatory legislation there are provisions whereby if anoffence is committed with the consent, connivance or neglect on the partof any ‘director, manager, secretary or other similar officer …or a personwho was purporting to act in any such capacity,’ such a person (as well asthe body corporate) can be guilty of an offence. An IP managing thecompany’s affairs could potentially come within these provisions but theprosecution would have to show that the IP had some knowledge of thecircumstances leading to the offence.

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Third party civil claimsThe court has held that for a neighbour’s claim to succeed, it is necessaryfor the claimant to show that the defendant could reasonably foresee thedamage in question. Whether damage is foreseeable will depend on thespecific incident. However, an IP is likely to be deemed to have a highstandard of knowledge in relation to the affairs of the company.

In general, the courts have been reluctant to impose liability on individu-als in the case of civil wrongs committed by corporate entities – but theywill do so if the relevant person has been personally involved with thecommission of the act leading to the claim and has assumed personalresponsibility to the claimant. An IP would therefore potentially be liablein relation to civil claims from neighbours where the IP is managing or isin control of a site and his acts or omissions cause foreseeable damage toneighbouring property.

How can an IP discover what environmental permits are held by thecompany and whether there have been any previous breaches?The environmental permits that regulate the business are likely to becentral to the operation of the business. So, in the first instance, the IPshould approach the directors/management to establish what permits areheld and whether the business has complied with the permits.

Sometimes details of environmental permits are also set out in financedocuments, so the lender may have rights under the facility documenta-tion.

Environmental permits will be visible on the public register. The publicregister will contain the following:

● environmental permits;

● waste carriers brokers and dealers;

● hazardous waste producers;

● waste exemptions;

● water discharge exemptions;

● enforcement actions; and

● scrap metal dealers.

Details of environmental reports, monitoring records, inspection reports,breaches and enforcement action can be obtained from the EnvironmentAgency via requests under the Environmental Information Regulations.

Early contact should be made with the Environment Agency and/or anyother agency which may regulate the business over which the IP isappointed (for example, the Health and Safety Executive (HSE) or local

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petroleum enforcement authority). The directors or environmental man-ager of the company will have the contact details of the regulatoryofficers that are familiar with the site.

How long does it take to transfer environmental permits to apurchaser of the business?The transfer process for environmental permits can take between two tothree months. Early contact should be made with the EnvironmentAgency to ensure the application is completed properly and any concernsthe Environment Agency may have can be promptly addressed.

The supporting documentation can include:

● certificates of technical competence that the transferee is a fit andproper person to operate the environmental activities(eg WAMITAB certificate for waste operations); and

● technical reports for the site such as drainage plans.

The joint transfer application is submitted by the purchaser and it is forthe purchaser to satisfy the Environment Agency that they are of suffi-cient standing to enable the transfer to be effected.

During the transfer process the purchaser of the insolvent company’sbusiness will invariably be trading the business and relying on the permitsstill held by original licence holder. To the extent that original licenceholder is the insolvent company, the IP will need to ensure there are thenecessary protections within the sale documentation and that they moni-tor the purchaser’s operations so that any breaches are picked up anddealt with immediately.

The ability to transfer other types of permits/regulations vary and shouldbe checked on a case-by-case basis.

What steps can an IP take to protect themselves from liability?Early and thorough due diligence prior to appointment, or upon appoint-ment where it is not possible prior to appointment, is the best protectionto ensure potential liabilities can be mitigated or avoided.

Regular contact should be maintained with the relevant authorities toensure no unforeseen issue arises. In the event it does, all contact with therelevant authorities should be fully documented so an IP can demonstratethat they acted diligently and reasonably throughout.

A liquidator has the ability to disclaim onerous property and contractspursuant to IA 1986, s 178 as a final form of protection (both personallyand to the insolvent estate).

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In what circumstances can an environmental permit be disclaimed asonerous property?There has been no case law determining whether environmental permitsare disclaimable as onerous property under IA 1986, s 178. However, inCeltic Extraction Ltd & Bluestone Chemicals Ltd v Environment Agency[2001] Ch 475, [1999] 4 All ER 684, it was held that waste managementlicences (now a form of environmental permit) were and so this suggeststhat environmental permits are disclaimable.

However, there are certain categories of environmental contracts are thatare expressly stated to be excluded from the disclaimer regime under IA1986, s 178. For example, licences for operating coal mines are expresslystated to be incapable of disclaimer (being expressly excluded from thedefinition of ‘Property’ in IA 1986, s 178 by virtue of Coal IndustryAct 1994, s 36).

Care must be taken at the outset of an administration to ensure theadministrator’s proposals contain the ability to move into creditors volun-tary liquidation (CVL) to enable a swift move to liquidation to disclaimonerous property. Without this, an administrator will need to petition thecourt for a compulsory liquidation which will inevitably cause delay.

Can a Law of Property Act 1925 receiver (LPA receiver) becomeliable for contaminated land?An LPA receiver is an agent of the property owner (unless the propertyowner is bankrupt/in liquidation in which case the agency is terminated).As agent, unless the LPA receiver personally causes or knowingly permitsthe contamination, it is unlikely the Environment Agency would hold anLPA receiver personally liable for contaminated land.

Take away points

● As much due diligence as the situation allows should be carried outprior to an IP taking an appointment. If possible, an environmentalsurvey would be best alongside discussions with the existing man-agement.

● It is important to make early contact with the relevant regulators,whether this is to ascertain if there are any existing breaches or tosmooth any prospective transfer application.

● Disclaimer is a vital tool for a liquidator. If an IP is taking an initialappointment as administrator, consideration should be taken priorto appointment as to how/when the company can move to liquida-tion to enable any onerous property/contracts to be disclaimed – atthe very least providing for liquidation (both CVL and compulsory)within the administrator’s proposals.

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(3) On the edge – health and safety law forinsolvency practitionersHighlighting areas of legislation that may not fall within the everydaywork of insolvency practitioners, Jeremy Bark, an associate director atBerwin Leighton Paisner LLP, gives advice on what needs to be consid-ered when health and safety issues arise in an insolvent company.

What is the main legislation covering this area?The main legislation concerning health and safety is the Health andSafety at Work etc Act 1974 (HSWA 1974). HSWA 1974 sets out thebroad health and safety duties which may apply in a work context, theenforcement regime for ensuring duties are properly discharged and alsoenables subordinate legislation to be made.

There are more than 600 subordinate regulations which have been madeunder HSWA 1974. Quite often the regulations set out prescriptiveobligations which must be adhered to. The regulations fall broadly intothree categories and deal with:

● the way in which particular activities must be carried out;

● management of health and safety functions; and

● issues specific to the sector or industry.

As such, in any given case much of the subordinate legislation will not beapplicable. However, it is important in each case to be aware of what theapplicable legislative framework is.

In addition, the HSE also publishes approved codes of practice which arestatutory guidance covering a number of different health and safetyissues, such as water quality management. Where the guidance applies,then if it is followed, IPs duty holders can be confident that they havedischarged their obligations.

Why is this relevant to IPs and their employees?There are a number of reasons, the key ones being:

● Much of the health and safety legislation is backed by criminalsanction. Thus, a failure to discharge duties properly could result incriminal liability. As IPs take appointments personally this means itcould result in personal criminal liability, against which it is notpossible to be indemnified or insured (other than for the associatedlegal costs). The penalties can be significant – the Crown Court haspowers to impose unlimited fines and up to two years’ imprison-ment.

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● Broadly speaking duties can arise in one of three ways: by operationof legislation, contractually or by conduct. While it is important tounderstand the operation of duties imposed at law or contractually,it is particularly important for IPs to ensure that they are notbecoming subject to additional duties, either through their ownconduct or that of their employees or third parties under theircontrol, where this could otherwise be avoided.

● There can be multiple duty holders in a health and safety context,each of whom is responsible for compliance with health and safetyobligations. Thus just because one of the parties or entities appearsto be dealing with a particular issue, the IP should still be makingsure that this is not only the case but is also sufficient to dischargethe IP’s own duties.

● If there are health and safety issues which have not been properlyconsidered, this may impact upon the particular appointment in anumber of ways. For example, it may mean that:

o for any assets affected by such issues, full value cannot berealised;

o the IP and team end up having to devote significant time andresources to deal with the issue later if not properly consideredat the outset;

o the particular insolvency process is unnecessarily prolonged bythe ongoing issues;

o it could result in adverse publicity which in turn may affect thereputation of the IP concerned; and

o in a worst case scenario, it may result in the IP being pros-ecuted.

In what type of insolvency situations do health and safety issuesarise?There is no set scenario where a health and safety issue may arise or,indeed, a particular type of appointment where a health and safety issueis more likely. An issue could arise in any appointment, whether fixedcharge receiver, administrator, administrative receiver or liquidator.

As such, it is important that IPs are alive to health and safety issues in anyappointment. This should mean that they are more likely to be able toidentify and thus appropriately address the issues in a given case.

That said, there may be some circumstances where IPs, while still carefullyconsidering the health and safety position, may have reason to be moreconfident that there will be fewer issues (such as in a ‘pre-pack’ scenario)

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and others where they need to be more alive to the possibility or evenlikelihood of there being live health and safety issues.

Particular care should be taken where:

● the business or industry sector involved is inherently dangerous orrisky, such as heavy industrial, mining or energy;

● construction work is involved, particularly if the development con-cerned was not fully completed before the appointment took place;

● work involves old properties as there may be asbestos issues toaddress or concerns about the proper maintenance of the building;

● work involves multi-let or vacant properties since there may becommon parts falling under the IP’s direct control or vacant unitsfor which the IP is responsible; and

● the circumstances of how the appointment arose suggest that thereare likely to be issues.

While there is no one-size-fits-all way of identifying the types of scenarioswhich are likely to give rise to health and safety issues, by taking theseissues seriously and having a proper approach to dealing with them, theIP should be able to identify them when they do arise and deal with themappropriately.

Are there any steps that IPs can take to protect themselvesfrom liability?There are a number of things which IPs can do which should not onlyprotect themselves from liability but may also ensure that the question ofliability should not arise in the first place.

It is important that IPs and their teams are aware of their health andsafety obligations, how they can arise and what they need to do when theydo arise to properly discharge them. Ideally, this means that the IPsthemselves and those members of their teams likely to have to deal withsuch issues should receive health and safety training relevant to insolvencysituations. This should take account of the different nature of theappointments which may be taken and the duties which will, or are likelyto, arise in those circumstances.

Prior to appointmentBefore taking any appointment, the IP should carefully consider theavailable documentation to see if this highlights either specific issueswhich have already arisen or potential issues likely to arise. The IP shouldtake steps to understand the nature of any business the company isinvolved and the nature of any site owned by the insolvent company orindividual. There may also be individuals at the company available to

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speak to from whom relevant information may be obtained. This may alsoimpact upon the team which the IP assembles to deal with the appoint-ment.

In terms of documentation, there could be security reviews or otherdocuments generated by lenders which will often contain invaluableinformation. There may also be surveys and other reports available withany property deeds. Again these may contain helpful information. If theappointment arises from a court application then the documents support-ing that application may be helpful. In addition, if specific policies ofinsurance are being taken out, often the insurer will survey properties andwhere it does then a copy of any such report may be available. If so, againit is likely to contain useful information which should be reviewed andconsidered.

Where there are specific concerns about particular properties or workactivities then it may be that the IP should consider instructing a surveyoror an appropriate consultant (for example, if there were fire safetyconcerns then a fire safety consultant might be used) to investigate theconcerns and report back on them. Again, this should not only highlightany issues so that they can be dealt with in the appropriate manner but isindicative of a responsible approach if the IP is later challenged.

Share informationWhere IPs are in receipt of relevant information, then they and theirsupporting team should ensure that there is a process in place to makesure that this information is used properly and where appropriate isshared with third parties. By way of example, if the IP has read asbestossurveys indicating the presence of asbestos within a property then thewider team will need to be aware of the same, including any agents orpersons visiting locations with such presence. If the asbestos is in adangerous condition then that might preclude any access at all to theproperty or place constraints on the areas which might be inspected (andthe basis any for such inspection). Equally, if in a multi-let office blockconcerns were highlighted in relation to fire safety issues, then these mightneed to be shared with all of the tenants.

Take matters seriouslyThe most crucial step an IP can take, however, is to generally have properregard to health and safety matters and then deal properly and appropri-ately with any issues which arise in practice. The HSE enforcement policydealing with insolvency matters contains references to the fact that itwould not usually be appropriate to look to take action against IPsthemselves (there is specific reference to this in the context of receivers). Ifthe IP is taking health and safety matters seriously, then it is unlikely thatthe regulator (either the HSE or a local authority environmental health

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team) will seek to take formal enforcement action against the IP person-ally, where it has the power to do so. However, a failure to do so may havethe opposite effect.

Where particular work activities are being carried out, the IP shouldensure that the appropriate steps are put in place, eg carrying out riskassessments if required or having proper method statements produced bycontractors for particular works.

Document any actionFinally, document whatever you decide to do. If an IP is faced with thethreat of enforcement action, such as a prosecution, then the moreevidence that is available to show the IP was aware of, and appropriatelydealt with, the issue the better. Even simple things such as following upimportant phone calls with a confirmatory email can make a hugedifference.

Help! An issue has arisen, what is the first thing I should I do?The first thing is not to panic. Next, as much information as it is possibleto obtain about the issue should be collated and reviewed. There are oftenseveral ways of dealing with a health and safety issue, each of whichmight be equally valid in a given situation. However, without fullyunderstanding the issue, it is hard to make a proper decision as to whatshould be done to deal with the problem and at the very least dischargeany health and safety duties owed by the IP and the wider team.Depending on the severity of the issue, the timeframe for collating theinformation may have more urgency.

Where there are applicable insurance policies in place or collateral war-ranties etc (for example, for property developments there may be abuilding warranty in place in respect of defects), then the terms of thosedocuments should be carefully considered to see what reporting obliga-tions they contain. Where appropriate, that procedure should be followed.

It may also be that primary responsibility for dealing with the issue lieswith a third party, which is a further good reason for properly consideringall the relevant information. In those circumstances, it may be that IPsfully discharge their responsibility by ensuring that they do all they can tomake the third party aware of its obligation and doing all that can bedone to ensure that the third party deals with the issue.

If the issue which has arisen is a serious one, such as an accident involvinga fatality, then it is likely that specific specialist advice will be required. Ifso, that advice should be sought as soon as possible.

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Is there anything else which may be relevant?When dealing with health and safety issues there is no single approach.There are also often conflicting tensions which may come into play. TheIP personally might wish for X to be done for liability reasons – but in thecontext of the appointment, Y might be more appropriate or creditorsmay wish Z to be done.

Equally, if an insurance claim is being made, often the focus of the insurerwill be mitigating its exposure to quantum in a civil liability context ratherthan the exposure of an IP to criminal liability.

While it is not possible to obtain indemnities or insurance to cover anypersonal fine imposed by a court, it is possible for indemnities andinsurance to cover legal costs and expenses. As legal costs in such casescan be significant, then such cover should be seriously considered.

Health and safety issues, when they arise, can frequently be complex andseem difficult to unravel. Often it is not so much that it is difficult but thatit will involve a lot of hard work to get to the bottom of the issue andwhat needs to be done.

If in doubt, seek the advice of specialist lawyers. Not only are they likelyto be able to assist in developing practical solutions to problems relevantto an insolvency scenario, but the fact that legal advice has been sought –and hopefully followed – should make it less likely that a regulator willseek to take enforcement action against an IP personally.

Take away points

● Prior taking any appointment, carefully consider the available docu-mentation (such as security reviews and lender documentation) tosee if this highlights either specific issues which have already arisenor potential issues likely to arise.

● Make sure you understand the issues arising from the health andsafety regulation which is likely to apply to the particular appoint-ment.

● Ensure that any relevant health and safety information is sharedwith your supporting team and any third parties where appropriate.

● Where you have specific concerns about particular properties orwork activities consider instructing a surveyor or specialist consult-ant to investigate the concerns and report back on them.

● Properly document any steps taken to comply with health and safetyrequirements. If you are faced with the threat of enforcementaction, then the more evidence that is available to show you wereaware of, and appropriately dealt with, the issue the better – itshould help to show you did all that was reasonably practicable.

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Jeremy Bark is part of Berwin Leighton Paisners’ regulatory group andhas expertise in a number of areas, including health and safety. His otherpractice areas include food safety, licensing and trading law. He not onlyprovides advice to clients but also acts for clients in defending enforce-ment proceedings. He regularly appears before courts and tribunalsaround the county and has obtained his criminal higher rights of audi-ence. Jeremy has a wealth of experience in advising, and providingtraining for, IPs in relation to their duties and obligations in a health andsafety cases. He has dealt with numerous cases involving complex healthand safety issues and those involving fatal accidents.

CASE LAW

(1) Singularis Holdings Ltd v Price WaterhouseCoopers [2014] All ER (D) 154 (Nov), [2014] UKPC 36In the Privy Council before Lord Neuberger, Lord Mance, Lord Clarke,Lord Sumption and Lord Collins.

Company – Compulsory winding up – Liquidator – Appellant liquidatorsseeking to obtain information from companies’ former auditors – Companyincorporated in Cayman Islands – Whether Bermuda court having commonlaw power to order production of information – If so, whether powerexercisable in circumstances.

Company – Compulsory winding up. The Privy Council, in dismissing anappeal by liquidators of a company incorporated in the Cayman Islands,held that, although the Bermuda court had a power to make an orderagainst persons subject to its personal jurisdiction in favour of foreignliquidators for production of information for the purpose of identifyingand locating assets of the company, provided they had a similar rightunder the domestic law of the court which appointed them, the materialwhich the liquidators sought in Bermuda would not be obtainable underthe law of the Cayman Islands pursuant to which the winding up wasbeing carried out there.

Facts:The appeal was closely connected with the concurrent appeal in Pricewa-terhouseCoopers (Bermuda Exempted Partnership No 7420) v Saad Invest-ments Co Ltd [2014] All ER (D) 94. The two appeals concerned relatedcompanies incorporated in the Cayman Islands, both of which had beenordered by the Grand Court of the Cayman Islands to be wound up. Bothappeals concerned attempts on the part of the appellant liquidators toobtain from the respondent, the companies’ former auditors, information,whether in documentary or oral form, relating to the companies’ affairs.In the present case, the Chief Justice made an order recognising inBermuda the status of the liquidators by virtue of their appointment by

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the Grand Court of the Cayman Islands, and exercising what he termed acommon law power ‘by analogy with the statutory powers contained ins 195 of the Companies Act [1981 of Bermuda]’ to order the auditors toproduce the same documents which they could have been ordered toproduce under s 195 of the Act. The Court of Appeal of Bermuda setaside that order and the liquidators appealed.

The issues were, firstly, whether the Bermuda court had a common lawpower to assist a foreign liquidation by ordering the production ofinformation (in oral or documentary form), in circumstances where: (i)the Bermuda court had no power to wind up an overseas company; and(ii) its statutory power to order the production of information was limitedto cases where the company had been wound up in Bermuda. Secondly,whether, if such a power existed, it was exercisable in circumstances wherean equivalent order could not have been made by the court in which theforeign liquidation was proceeding.

Held:The appeal would be dismissed.

(1) (Lord Mance and Lord Neuberger dissenting) There was a power atcommon law to assist a foreign court of insolvency jurisdiction byordering the production of information, in oral or documentary form,which was necessary for the administration of a foreign winding up.However, the limits of that power were implicit in the reasons forrecognising its existence (see [25], [33], [110] of the judgment).

The Bermuda court had a power to make an order against persons subjectto its personal jurisdiction in favour of foreign liquidators for productionof information for the purpose of identifying and locating assets of thecompany, provided they had a similar right under the domestic law of thecourt which appointed them (see [25], [33], [110] of the judgment).

African Farms Ltd, Re [1906] 1 Ch 640 considered; Norwich Pharmacal Cov Customs and Excise Comrs [1973] 2 All ER 943 considered; CambridgeGas Transport Corpn v Official Committee of Unsecured Creditors ofNavigator Holdings plc [2006] 3 All ER 829 considered; HIH Casualty andGeneral Insurance Ltd, Re; McMahon v McGrath [2008] 3 All ER 869considered; Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) vGrant [2013] 1 All ER 521 considered.

(2) The material which the liquidators sought in Bermuda would not beobtainable under the law of the Cayman Islands pursuant to which thewinding up was being carried out there. The whole juridical basis of thecommon law power was the right and duty of the Bermuda court to assistthe Cayman court so far as it properly could. It was right for the Bermudacourt, within the limits of its own inherent power, to assist the officers ofthe Cayman court to transcend the territorial limits of that court’s

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jurisdiction by enabling them to do in Bermuda that which they could doin the Cayman Islands. However, the order sought would not constituteassistance, because it was not just the limits of the territorial reach of theCayman court’s powers which impeded the liquidators’ work, but thelimited nature of the powers themselves. The Cayman court had no powerto require third parties to provide to its office holders anything other thaninformation belonging to the company. It would not be a proper use ofthe power of assistance to make good a limitation on the powers of aforeign court of insolvency jurisdiction under its own law (see [29], [32],[33], [109], [114] of the judgment).

Gabriel Moss QC, Felicity Toube QC, Stephen Robins, Rod Attride-Stirling(instructed by Blake Morgan LLP) for the liquidators.

David Chivers QC, Paul Smith and Scott Pearman (instructed by HerbertSmith Freehills LLP) for the auditors.

(2) Sands v Layne [2014] All ER (D) 141 (Nov), [2014]EWHC 3665 (Ch)In the Chancery Division before David Donaldson QC (Sitting as aDeputy High Court Judge).

Bankruptcy and Insolvency – Bankruptcy – Practice and procedure –Application to rescind order setting aside bankruptcy order – Bankruptcyorder being made against first defendant – Order being set aside by HighCourt judge by consent on basis first defendant offering security – Trustee inbankruptcy applying for order that consent order should be rescinded onbasis alleged debts owed to unsecured creditors which not brought to court’sattention – District judge ruling that no jurisdiction to order rescission oforder made by High Court – Matter being transferred to Chancery Division– Whether jurisdiction to order rescission of order made by High Court –Whether interests of other unsecured creditors being relevant decisionwhether to rescind – IA 1986, s 375.

Bankruptcy and Insolvency – Bankruptcy. The first defendant owed adebt to the second defendant local authority. By a consent order, a judgeset aside a bankruptcy order made against the first defendant on the basisthat security had been offered by way of a charge on his home. Theapplicant trustee in bankruptcy applied for an order that the consentorder should be rescinded, pursuant to s 375 of the IA 1986, relying onalleged debts owed to unsecured creditors, which had not been brought tothe court’s attention. A district judge ruled that he had no jurisdiction toorder rescission of an order made by the High Court and the matter wastransferred to the Chancery Division. That court, dismissing the applica-tion, held that, applying Appleyard v Wewelwala [2013] 1 All ER 1383,s 375(1) of the Act did not empower review of an order made by a judgeof the High Court on appeal under s 375(2) of the Act. In so far as other

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unsecured creditors might be affected by the provision of the security to apetitioner, it was neither necessary nor appropriate for their interests to beaddressed in the context of the issue of whether, where security wasoffered and rejected, a bankruptcy order should be made or refused.

Facts:Section 271 of the IA 1986 provides, so far as material: ‘…(3) The courtmay dismiss the petition if it is satisfied that the debtor is able to pay allhis debts or is satisfied (a) that the debtor has made an offer to secure orcompound for a debt in respect of which the petition is presented, (b) thatthe acceptance of that offer would have required the dismissal of thepetition, and (c) that the offer has been unreasonably refused …’.

Section 375 of the Act provides, so far as material: ‘(1) Every court havingjurisdiction for the purposes of the Parts in this Group [sc. individualinsolvency matters] may review, rescind or vary any order made by it inthe exercise of that jurisdiction. (2) An appeal from a decision made in theexercise of jurisdiction for the purposes of those Parts by a county courtor by a registrar in bankruptcy of the High Court lies to a single judge ofthe High Court; and an appeal from a decision of that judge on such anappeal lies to the Court of Appeal’.

The judgment is available at: [2014] EWHC 3665 (Ch).

The first defendant (C) was a tenant of the second defendant localauthority (the authority) in respect of commercial premises (the premises)between 2001 and 2007. The lease was surrendered with substantialarrears of rent outstanding. The authority obtained default judgment (thejudgment) in respect of the arrears and costs. In addition to that debt,liability orders (the orders) were made in respect of unpaid business ratesand council tax. In March 2011, the authority served a statutory demandin the sum of £57,361.09 in respect of the judgment and orders. The debtremained unpaid and formed the basis of an amended petition forbankruptcy against C. Subsequently, a bankruptcy order was madeagainst C. C applied for permission to appeal against that order and forthe bankruptcy order to be set aside, contending that, had he been invitedto, he would have explained to the court that he wished to offer security,namely equity in his present home and that his assets exceeded hisliabilities. By a letter (the letter), he formally offered to execute such acharge in return for the authority’s agreement to rescind the bankruptcyorder and/or consent to his appeal. A consent order was made in the HighCourt setting aside the bankruptcy order on the basis, that C’s interest inhis home stood charged with payment of £61,000, to be paid by monthlyinstalments ending in April 2016. The charge was registered, and C paidthe agreed instalments. The applicant trustee in bankruptcy applied for anorder that the consent order should be rescinded, pursuant to s 375 of theIA 1986. The applicant made mention of the fact that he had outstanding

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fees of about £6,000, earned before the bankruptcy order had beenrescinded. There had been a delay of almost a year before the presentapplication was made. The district judge ruled that he had no jurisdictionto order rescission of an order made by the High Court and he trans-ferred the application to the High Court.

The applicant submitted that C and the authority ought to have drawn thecourt’s attention to the existence of unsecured creditors, whose claimspresently exceeded £300,000, and/or notified the applicant so that hecould defend their interests, if, as the figures suggested, the provision ofthe security would prejudice them. Accordingly, the issues for considera-tion were: (i) whether s 375(1) of the Act, as the applicant contended,empowered review of an order made by a judge of the High Court onappeal under s 375(2); and (ii) whether the interests of other unsecuredcreditors were relevant to a decision under s 271(3) of the Act. Considera-tion was given to the decision of Appleyard v Wewelwala [2013] 1 All ER1383 (Appleyard).

Held:The application would be dismissed.

(1) Case law made clear that s 375(1) of the Act, though framed inunrestricted terms, did not provide a litigant with an unlimited right to asecond bite at the cherry. The court might only review, rescind or vary itsprior order if it considered that the order ought not to remain in force inthe light either of changed circumstances or in the light of fresh evidence,whether or not it might properly have been obtained at the time of theoriginal hearing (see [13] of the judgment).

Appleyard held that it would be surprising if s 375(1) of the Actcontemplated review, at first instance, of the exercise of appellate juris-diction since, on its language, it would then permit a bankruptcy registrar,for example, to review the decision of a High Court judge on appeal. Thecourt was unable to say that that decision was clearly wrong in its result.Accordingly, it was appropriate that it should be followed and applied.Applying settled law, the application had to fail in limine (see [14], [15] ofthe judgment).

Appleyard v Wewelwala [2013] 1 All ER 1383 applied; Debtor, a (No 32/SD/1991), Re [1993] 2 All ER 991 considered; Ahmed v Mogul EasternFoods [2005] All ER (D) 56 (Oct) considered.

(2) In so far as other unsecured creditors might be affected by theprovision of the security to a petitioner, the Act provided a targetedremedy in what it considered suitable cases, and it was neither necessarynor appropriate for their interests to be addressed in the context of abilateral dispute between the petitioning creditor and the debtor and inparticular the issue whether, where security was offered and rejected, a

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bankruptcy order should be made or refused. That had to apply as muchto an appeal as to a hearing at first instance (see [22] of the judgment).

An important question was whether the applicant had standing to bringthe present application. The position and status of a trustee in bank-ruptcy predicated and was the result of an adjudication by the court onthe list between the creditor and the debtor created by the petition. Itwould therefore be illogical that he should participate in that adjudica-tion. There was no reason why the position, in result, should be anydifferent on an appeal. The purpose of the appeal was to decide whetherthe bankruptcy order should stand. If the order fell and there was nobankruptcy, all consequences dependent on it, the trusteeship and thevesting, disappeared with it. In the ultimate analysis, the applicant hadhimself no interest in the outcome. The applicant’s standing to bring thepresent application could not be superior. Even if that were wrong, thecourt, before granting such an application, might and should have regardto events occurring since the date of the order which it was sought torescind. In the present case, there had been a delay of almost a year beforethe application was made. If the applicant had enjoyed any standing inthe matter, it would have behoved him to act with far greater zeal andexpedition. Taking account of all those matters, the application would bedismissed (see [23]–[26] of the judgment).

James Couser for the applicant.

The first defendant appeared in person.

Paul French for the authority.

(3) Re Buccament Bay Resort Ltd; Re HarlequinProperty (SVG) Ltd [2014] All ER (D) 32 (Oct), [2014]EWHC 3130 (Ch)In the Chancery Division, Companies Court before Nicholas Strauss QC(sitting as a deputy judge of the High Court).

Company – Winding up – Foreign companies – Jurisdiction – Companiesbeing incorporated in foreign jurisdiction – Petitioners seeking to wind upcompanies in respect of alleged debts owed – Preliminary issue arising –Whether English court having jurisdiction to hear petition to wind-upcompanies.

Company – Winding up. The Chancery Division, dismissed the petition-ers’ application to have a winding-up petition heard in the UK, in respectof the respondents’ foreign companies, which were part of a group thatdeveloped and operated luxury Caribbean resorts. The court ruled that,notwithstanding that a reasonably substantial connection with Englandhad been satisfied, the English court had no jurisdiction for a winding-up

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order in circumstances where, among other things, most of the com-panies’ assets were mainly in a foreign jurisdiction, and where the ordersought would prove ineffective.

Facts:The respondents (BBL and Harlequin) were two companies, which werepart of the Harlequin group which developed and operated luxuryCaribbean resorts. Both companies were owned and controlled by D, andhad been incorporated in Saint Vincent and the Grenadines (SVG). Theproceedings concerned debts which allegedly arose out of a developmentin SVG called ‘the Buccament Bay Resort’. The petitioners were allinvestors who had paid deposits of 30% of the purchase price of indi-vidual hotel rooms sold as freehold investments, subject to a managementagreement, under which they were to receive 10% of the purchase price forthe first two years after completion of the hotel and, thereafter, 50% ofthe net rental income from the room. The petitioners contended that theyhad not received title to their hotel rooms. As against BBL, the petitionersclaimed a total of £1,191,831.98 in respect of the non-return of outstand-ing deposit moneys, and in the case of Harlequin Property they claimed atotal of £599,135.05 in respect of money due under finance agreementsand in respect of the non-return of outstanding deposit moneys. Statu-tory demands had been served in respect of those debts. Some claims weresettled. The petitioners sought to present a winding-up petition againstthe companies in the English court. They contended that the Englishcourt had jurisdiction on the grounds that, among other things: (i) s 221of the IA 1986 related to the principal place of business; (ii) both BBRand Harlequin had acted via their sole director to sign all their contractsin the United Kingdom; (iii) all moneys payable under the investorcontracts routed via another company in the Harlequin group in the UK;(iv) SVG operated under the Commonwealth structure of law with thePrivy Council as the last resort of appeal, therefore, the system andjudicial approach would be the same; and (v) the sole director of both ofthe above companies lived in Essex and had current proceedings in theUK High Court relating to the present matter. The companies contendedthat the English court should not accept jurisdiction for the petitions, asSVG was the more appropriate forum with an adequate winding-upprocess; the activities of both companies were overwhelmingly in theCaribbean; an English winding-up order would not be enforced in theSVG courts and the procedures to facilitate cross-border insolvencyprocedures would be unavailable there. The companies further contendedthat a liquidator appointed by, or under an order of the English courtswould have considerable practical difficulties in relation to assets in SVG,especially if his authority as liquidator was not recognised and, in thecircumstances, SVG was the appropriate forum. A preliminary issueaccordingly arose for determination.

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The issue was whether the English court should exercise its jurisdiction tohear winding-up petitions based on undisputed or largely undisputeddebts, when neither of the companies was incorporated in England andWales.

Held:The application would be dismissed.

By s 221(1) of the IA 1986, the court had jurisdiction to wind up anunregistered company which was unable to pay its debts. The court’sjurisdiction under that section was not limited to companies which had aprincipal place of business in the UK. The English courts had to makewinding-up orders against foreign companies. The three core require-ments were: (i) that there had to be a sufficient connection with Englandand Wales which might, but did not necessarily have to, consist of assetswithin the jurisdiction; (ii) that there had to be a reasonable possibility, ifa winding-up order was made, of benefit to those applying for thewinding-up order; (iii) one or more persons interested in the distributionof assets of the company had to be persons over whom the court couldexercise a jurisdiction. In addition to the three requirements, the courtwould always consider whether there was a more appropriate jurisdiction(see [18]–[20] of the judgment).

In the present case, there was no justification at all for a winding-up order.It was true that the companies’ evidence was, in certain respects, unsatis-factory in relation to their activities in the UK, nevertheless, it was clearthat all the assets, except from the claim against the auditors, weresituated in SVG, and there was undisputed evidence that SVG had aperfectly satisfactory winding-up process which was available to thepetitioners. There was undisputed evidence that an English liquidatorwould be likely to face considerable and possibly insuperable difficulties ingaining control of the company’s assets. The court could see no advantagein winding-up proceedings in the UK, rather than in SVG. Applyingsettled principles, while the first core requirement, a reasonably substan-tial connection with England, was satisfied, as was the third, the secondwas not. No reasonable possibility had been shown of the petitionersderiving benefit from a winding up. Further, it was clearly a case in whichSVG was by far the more appropriate forum. Accordingly, it was not acase in which the court should allow a petition to wind up the companiesto go forward (see [21] of the judgment).

Real Estate Development Co, Re [1991] BCLC 210 applied; Latreefers Inc,Re, Stocznia Gdanska SA v Latreefers Inc [1999] 1 BCLC 271 applied;Banco Nacional de Cuba v Cosmos Trading Corpn [2000] BCC 910 applied;Rodenstock GmbH, Re [2011] All ER (D) 62 (May) applied; Company, a(No 003102 of 1991), Re, ex p Nyckeln Finance Co Ltd [1991] BCLC 539

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distinguished; Atlantic & General Investment Trust Ltd v Richbell Informa-tion Services Inc [2000] BCC 111 considered.

Richard Jones QC (instructed by Regulatory Legal Solicitors) for thepetitioners.

Ceri Bryant QC and Chantelle Staynings (instructed by ELS Legal LLP)for the companies.

(4) R v Aviss [2014] All ER (D) 175 (Oct), [2014] EWCACrim 2210In the Court of Appeal, Criminal Division before Sir Brian Leveson(President of the Queen’s Bench Division), Laing and Davis J (judgmentdelivered extempore).

Bankruptcy – Offence – Making material omission in statement – Defend-ant bankrupt failing to disclose existence of creditors – Defendant appealingagainst conviction – Whether judge erring in directions given to jury.

Bankruptcy – Offence. The Court of Appeal, Criminal Division, dis-missed the defendant’s appeal against his conviction for ‘a bankruptmaking a material omission in a statement’. The court held, among otherthings, that the judge had given the jury full and impeccable writtendirections and the jury had had ample evidence on which to find thatthere had been pre-existing debts owed.

Facts:In March 2007, the defendant commenced a claim for more than £1.6m inthe High Court against a firm of chartered accountants (the claim). InAugust 2008, he purported to assign his interest in the claim to anotherman, PA. The deed of assignment stated that if the claim was successfulPA was to receive £40,000 with any balance being paid to the trustees ofthe defendant’s family. The deed also referred to a number of creditorswhose claims were to be settled from the moneys received. In September,the defendant was adjudged bankrupt as a result of unpaid taxes. He wassubsequently required to attend on the Official Receiver (OR) for inter-view. The defendant did not disclose the existence of the High Courtproceedings and did not tell the OR about any of his creditors, apart fromcreditors who had nothing to do with the present proceedings. He signed adocument which stated that he was not aware of any other creditors. Asthe deed of assignment to PA purported to take place between thepresentation of the bankruptcy petition and the making of the bank-ruptcy order it was rendered void with the effect that the High Courtclaim remained in the defendant’s estate and vested in the OR as trustee.A year later the defendant’s bankruptcy became known to those acting inthe proceedings and the OR declined to proceed with the claim. Thedefendant was interviewed under caution and maintained that he had

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failed to mention the High Court claim and his creditors to the OR as hehad genuinely believed that he did not have to, his interest in the claimhad been assigned to someone else. The defendant was charged with twocounts of a bankrupt making a material omission in a statement, the firstcount related to his failure to disclose creditors to the OR. There werefour creditors named in the indictment. In respect of one of the creditors,BDB, the defendant accepted that they were indeed creditors and that hehad simply forgotten them in the bankruptcy proceedings. He denied thatthe other creditors were creditors at all. The defendant was convicted oncount one. He appealed against conviction.

He contended first that the judge had erred in failing to give a Browndirection, as referred to in R v Brown [1984] Crim LR 167 (Brown), inwhich it was held, in essence, that in order to properly convict the jury didnot just need to agree that the defendant had failed to disclose that he hadcreditors but it needed to agree as to the identity of the creditors. Second,he contended that the judge had failed to distinguish between a legallyenforceable agreement which would engaged the IA 1986, and a meremoral obligation which would not (the second argument). The judgeshould have directed the jury regarding the terms of the deed of assign-ment and invited them to consider whether, taken at face value, it simplycontained a moral obligation or might have done so, if so the jury wasrequired to acquit him and should have been so directed.

Held:The appeal would be dismissed.

The judge had given the jury full and impeccable written directions. Hehad, in effect, been instructing the jury to be sure of all four creditors. If aBrown direction had been needed he had effectively circumvented that bywhat he had said. In fact the judge had not needed to give a Browndirection. He could simply have indicated to the jury that it had to besatisfied that the defendant had failed to disclose creditors. It had notbeen a necessary or essential ingredient of the offence to identify who thecreditors were.

R v Brown [1984] Crim LR 167 considered; R v Hancock; R v Warner; R vMichael [1996] 2 Cr App Rep 554 considered.

The second argument had been difficult to follow, not least because theterms of the deed did not themselves constitute an obligation on the partof the defendant to pay anyone at all. The terms were relied upon by theprosecution to prove a pre-existing debt and, on the face of it, had donejust that. The jury had had ample evidence on which to find that there hadbeen pre-existing debts owed. In any event the jury had needed only to besatisfied in respect of one of the creditors. There was absolutely no doubtat all that BDB was a creditor and in evidence, the defendant hadadmitted as such.

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Francis FitzGibbon QC (assigned by the Registrar of Criminal Appeals) forthe defendant.

Rufus D’Cruz (instructed by the Crown Prosecution Service) for the Crown.

(5) Ludsin Overseas Ltd v Maggs [2014] All ER (D) 09(Nov), [2014] EWHC 3566 (Ch)In the Chancery Division before Mr John Baldwin QC (Sitting as aDeputy Judge of the Chancery Division).

Insolvency – Statutory demand – Debt – Security – Claimant servingstatutory demand on defendant debtor following money judgment in favourof claimant – Defendant applying to set aside statutory demand – Deputyregistrar setting aside statutory demand on ground property’s value provid-ing full security for debt – Claimant appealing – Whether deputy registrarerring in setting aside statutory demand – Whether fresh evidence to beadmitted showing property not fully securing debt – Whether appeal shouldbe allowed.

Insolvency – Statutory demand. Following a money judgment in itsfavour, the claimant creditor served a statutory demand on the defendantdebtor and obtained an interim charging order over the defendant’sinterest in a property (the property). The deputy registrar set aside thestatutory demand, having found that the property’s value was such thatthe debt was fully secured. The claimant appealed. The Chancery Divi-sion, allowing the appeal, held that fresh evidence that after some sixmonths’ marketing of the property, no one had been prepared to offer acertain price for it was highly persuasive if not conclusive evidence that itwas not currently worth the price which it would have to achieve if theclaimant’s debt were to be fully secured. Accordingly the statutorydemand should not have been set aside.

Facts:In an earlier judgment, a judge found the defendant debtor was liable tothe claimant for fraudulent misrepresentation and granted judgmentagainst the defendant and others in the sum of £1.4m plus interest andcosts. An appeal against that judgment was dismissed and the claimantsubsequently served a statutory demand on the defendant for the unsatis-fied part of the judgment, then some £350,000 (the debt). The claimantobtained an interim charging order over the defendant’s interest in aproperty (the property). A final charging order was made, but was rankedbehind: (i) a legal charge over the property in favour of the defendant andhis wife’s mortgagee; and (ii) a final charging order in favour of anotherjudgment creditor (DPM). The defendant applied to set aside the statu-tory demand. By the time the matter came for hearing, it was commonground that the debt was over £300,000 and that it was not fully secured

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unless the property was worth more than just over £2.9m. In February2014, an appointed expert (G) valued the property at £3.35m. The deputyregistrar accepted that valuation and set aside the statutory demand onthe ground that the claimant had the benefit of a security which was agreater value than the debt. The deputy registrar also made an order forcosts, including for interim payment (the judgment). Prior to handingdown the judgment, but after a draft had been circulated to the parties,the claimant made further representations to the deputy registrar on newmatters which had come to light (the fresh evidence). The fresh evidenceincluded that DPM had been granted an order for the sale of theproperty, with vacant possession to be given by a specified date. Based onvaluation evidence adduced by DPM, the floor price, before which, DPMwould have to seek permission before effecting a sale was £2.5m, thuslower that the £2.9m valuation required for the claimant’s debt to be fullysecured. The deputy registrar found that the only valuation evidencebefore him was that of G, that the DPM valuation was not in evidenceand that there was no reason to depart from his judgment. He furtherfound that it would not be right to adjourn the application to set aside thestatutory demand until the property was sold. The claimant appealed.

The claimant submitted that the deputy registrar had mistakenly treatedthe open market valuation given by G as the appropriate valuation forassessing whether or not the debt had been adequately secured; thevaluation of the property on the basis of a forced sale was the correctbasis. Consideration was given to r 6.5 of the Insolvency Rules 1986,SI 1986/1925; to whether the fresh evidence, including a statement from asolicitor on behalf of the appellant, addressing G’s report and the DPMissue, ought to be admitted; and to whether the appeal should take theform of a review or rehearing. The claimant submitted that after some sixmonths of marketing at asking prices between £2.5m to £1.7m, no onehad come forward with an offer to purchase the property at a price whichprovided any security for its debt. It contended that the proper conclusionof the court, considering the fresh evidence, was that the debt was notsecured and that the statutory demand should not have been set aside.

Held:The appeal would be allowed.

The interests of justice demanded an approach to the matter of theadequacy of the claimant’s security with the most up-to-date and reliablefacts available, so long as those facts were really probative of the matter inissue and whether they showed the property to be worth more or less thanthe sum opined by G and acted upon by the deputy registrar. The mostimportant matter was whether or not the debt was adequately secured atthe present time. If it was, the statutory demand should be set aside. If itwas not, the statutory demand should remain. The fact that no one had

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been prepared to offer £2m for the property despite about six months’marketing by a well-known and reputable agent was highly persuasive ifnot conclusive evidence that it was not currently worth £2.9m, the pricewhich it would have to achieve if the claimant’s debt were to be fullysecured. That evidence was far more persuasive than G’s opinion inFebruary. In those circumstances, permission would be granted to adducethe fresh evidence and, in the interests of justice, the appeal wouldproceed by way of a rehearing. The evidence on that rehearing satisfiedthe court that the statutory demand should not have been set aside (see[22]–[24] of the judgment).

Gregory Banner (instructed by Wallace LLP) for the claimant.

Jonathan McNae (instructed by Jeffrey Green Russell Ltd) for the defend-ants.

(6) Re Husky Group Ltd [2014] All ER (D) 319 (Oct),[2014] EWHC 3003 (Ch)In the Chancery Division, Birmingham District Registry before JudgePurle QC.

Company – Liquidator – Transaction at an undervalue – Company assigningtrademarks to parent company – Liquidator contending transaction atundervalue – Liquidator applying for relief – IA 1986, ss 238, 423.

Company – Liquidator. The proceedings concerned an assignment oftrademarks by a company to its parent company. The claimant liquidatorof the company applied to the court for relief under s 238 of the IA 1986,contending that the transfer of a trademark had been a transaction at anundervalue at a material time. Relief was also sought under s 423 of theAct. The Chancery Division granted the relief sought where the factsbrought the case fairly and squarely within s 423 of the Act. Further,relief was also granted on the ground that the parent company had failedto satisfy the court that the company had been solvent at the relevanttime.

Facts:The proceedings concerned an assignment of trademarks for £1 by acompany (the company), which was in liquidation, to its parent company(Jupiter). The claimant liquidator of the company applied to the court forrelief under s 238 of the IA 1986, contending that the transfer of thetrademark was a transaction at an undervalue at a material time. It wasaccepted that the transaction was at an undervalue. Accordingly, the onuswas on Jupiter, as a connected party, to demonstrate that the companyhad been solvent at the material time. Relief was also sought under s 423of the Act, which was headed ‘transactions defrauding creditors’.

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The issue was whether the application should be granted. Considerationwas given to a letter from Jupiter’s solicitors (the letter), which, in terms,sought to justify the transaction, contending that it had been for veryclear business reasons.

Held:The application would be granted.

In the present case, the trademarks had been owned, beneficially by thecompany, which had also been a trading entity, and had been transferredfor £1 to Jupiter in order to give effect to the sound commercial reasonsset out in the letter. That brought the case fairly and squarely within s 423of the Act and the liquidator was entitled to succeed on that groundalone. In those circumstances, it was strictly unnecessary to consider thequestion of insolvency, because it was only relevant to s 238 of the Act.However, for the sake of completeness, Jupiter had not satisfied the courtthat the company had been solvent at the relevant time and the liquidatorwould be granted relief on that ground also (see [29], [30], [52], [53] of thejudgment).

Paul Dean (instructed by Freeths LLP) for the liquidator.

David Turner (instructed by Ashteds Solicitors) for Jupiter.

LEGISLATION

(1) Common Financial Tool etc (Scotland)Regulations 2014, SSI 2014/290SSI 2014/290: Mandatory use of a single Common Financial Tool (CFT)will help ensure consistency and transparency for determining the level ofcontribution a debtor might pay in respect of Scottish statutory debtsolutions from 1 April 2015. The CFT is provided for in the Bankruptcyand Debt Advice (Scotland) Act 2014. Trust deeds granted before 1 April2015 are not affected. (Updated from draft 7 November 2014.)

There is currently no single tool used to assess the appropriate contribu-tion in bankruptcies, and only one third of bankruptcies in Scotlandresult in a contribution from income being made. The main tools cur-rently used are the StepChange tool and the Common Financial State-ment (CFS).

Following a consultation on bankruptcy law reform in February 2012,respondents were strongly in favour of a single tool to be used by allmoney advisers in Scotland in assessing contributions, for all thoseassessing debt relief or debt management products.

These Regulations make provision for the CFT being established byreference principally to the CFS published by the Money Advice Trust aswell as the following:

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● fixing the debtor’s contribution as the whole of their surplus income(an amount to be determined by an assessment of their income andexpenditure, using the CFT);

● allowing the money advisor to take household (and individualdebtor’s) income and expenditure into account when assessing thedebtor’s income and circumstances, as permitted by the CFS; and

● amending the Protected Trust Deeds (Scotland) Regulations 2013,SSI 2013/318, to adjust provisions relating to the CFS to takeaccount of the CFT now provided for in these Regulations.

(2) Bankruptcy and Debt Advice (Scotland) Act 2014(Consequential Provisions) Order 2014, SSI 2014/293SSI 2014/293: References to bankruptcy legislation are updated from1 April 2015. The provisions have been amended following the introduc-tion of the Bankruptcy and Debt Advice (Scotland) Act 2014 (BDA(S)A2014). (Updated from draft 7 November 2014.)

The Order makes consequential amendments in response to BDA(S)A2014. The following amendments have affect from 1 April 2015:

● a debtor contribution order is introduced to replace existingarrangements for income payment orders and agreements; and

● new arrangements for the discharge of a debtor who has beensequestrated are introduced.

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Tolley’s Company Law and Insolvency - LexisWeb...

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