Wednesday, 30 September 2009

Evaluation of EC Insolvency Regulation - consultation period end date postponed - now 29th October 2009

A one-month extension has been given to the evaluation exercise of the EC Insolvency Regulation, which was due to close yesterday. See here for the original blog post. The deadline is now the 29th October 2009. The Insolvency Service sought views on Council Regulation (EC) No 1346/2000 of 29 May 2000 on Insolvency Proceedings (“the EC Insolvency Regulation”). As the Insolvency Service note, "The EC Insolvency Regulation was adopted by the Council of the European Union on 29 May 2000, becoming operative on 31 May 2002. The Regulation (which has direct effect in Member States) aims to provide an ordered regime governing the administration of the affairs of an insolvent whose centre of main interests is in the EU, recognising that cross border issues can arise in insolvency proceedings. Its principal objective is that insolvency proceedings should operate efficiently and effectively. It aims to achieve this principal objective by ensuring that:

• measures to be taken regarding an insolvent debtor’s assets are co-ordinated where the activities of an undertaking have a cross-border effect, and

• incentives for parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position (forum shopping), are avoided."

In relation to their consultation the Insolvency Service note, "The European Commission is required to report on the Regulation by 1 June 2012, and, in preparation, intends to launch a study of the Regulation in 2010. In order that we may be in a position to inform and influence the Commission's report, we are carrying out our own evaluation of the Regulation in advance of the Commission's study. We wish to gather information on the experiences of individuals working with the Regulation in practice to assess whether or not it meets its objectives, focusing on the following 7 main areas:

  • General experience of operating the provisions
  • Centre of Main Interests (which determines where main proceedings may be opened)
  • The interaction of main and secondary proceedings
  • The applicable law in any given case
  • The opening of proceedings
  • Group companies, and
  • General technical points."
Responses can be sent to:
Alison Dennis

Policy Unit

The Insolvency Service

21 Bloomsbury St

London

WC1B 3QW

020 7637 6234


Picture Credit: https://umdrive.memphis.edu/g-wangcenter/www/images/Strasbourg_2007/EuropeanParliament.jpg

Tuesday, 29 September 2009

UK insolvency laws - best in the world! - schemes of arrangement to have their day

The Insolvency Service will be pleased to note two recent articles in Accountancy Age and The Financial Times, which extol the virtues of English and Welsh corporate insolvency laws. The two articles highlight a species of Delaware effect in relation to the English and Welsh corporate insolvency laws. We are, it seems, luring in companies to our jurisdiction. Similar effects have been seen on the personal side of insolvency recently, as noted on this blog.

Whilst some may carp and question the efficacy of attracting such risk to our shores, others, such as the Lord Mandelson at BIS, will see this as further news that UK plc is increasingly becoming a more attractive place to do business, and indeed, fail in business.

I was particularly interested to note that:
"They say a range of European companies are considering relocating so that they can use "schemes of arrangement" or insolvency proceedings to force through debt restructurings if they cannot agree terms with all their stakeholders."
I have recently written at length on this issue for Butterworths' Journal of International and Financial Law (July 2009). See here. Schemes have for too long been neglected. It seems as if they are now to have their time in the sunlight.

Picture Credit: http://www.made-in-china.com/image/2f0j00ApEtTOQGBaHLM/Fishing-Lure.jpg

Monday, 28 September 2009

Farepak cheques on the way!

News reaches me from the BBC that the administrators of Farepak have started to send out cheques to creditors of the failed food hamper company. The article notes:
"Administrators acting for the collapsed Christmas hamper firm Farepak have started sending out cheques.

It follows legal arguments after a trust fund was set up shortly before the company went into administration.

Around 6,000 customers and agents have had their claims that they are owed money accepted by the courts.

However the court's ruling will not affect the majority of the 122,000 customers who are only expected to get five pence for each £1 owed.

The cheques are only being sent out by the administrators to those whose claims have been agreed by the court.

It was found the trust had not been set up properly and a court was asked to determine whether the trust existed and, if so, who should get the money.

Swindon-based Farepak collapsed in October 2006, leaving more than 100,000 people out of pocket.

Work is still continuing to secure further money for the benefit of all creditors.

Farepak became a household name across the country when it collapsed, leaving the average customer - often from low-income families - some £400 out of pocket, with some losing more than £2,000.

As well as saving for Christmas food hampers, many people had paid for vouchers they had planned to exchange for presents at High Street shops.

Auditor figures showed that 122,000 customers and agents put in claims for about £38m, but they have been told to expect just 5% of what they are owed."

This article raises a very interesting issue about the interface between the law of trusts and the law of insolvency, areas which have been touched on in this blog before. The law of insolvency can trace its early modern beginnings to the equitable jurisdiction of the Court of Chancery. It is therefore unsurprising to note that throughout the development of the subject of insolvency numerous questions surrounding the law of equity and trusts have percolated through for consideration by jurists and the judiciary, the Farepak case being a recent example. Perhaps the most important impact the law of trusts has on the law of insolvency relates to the effect of trusts on the make up of the insolvent estate, i.e. defining what is property for the purpose of distribution, and perhaps more importantly for lenders, defining what falls outside the insolvent estate. Professor Fletcher's 4th edition of his Law of Insolvency has a thorough examination at paragraphs 26-029 to 26-037.

Picture Credit: http://img.thesun.co.uk/multimedia/archive/00373/FAREPAK_373017a.jpg

Friday, 25 September 2009

HOBS: The Insolvency Act 1976 - some illumination from a Sassenach

The speech of Mr Clinton Davis MP (Hackney Central), which was delivered in the House of Commons on the 3 March 1976, is worth revisiting. It outlines the position of English, Welsh and Scottish insolvency law at a time before the Cork Report had wrought its massive changes to insolvency law and policy. Indeed, the Justice Report of 1975 and the Blagden Committee of 1957 were then the hot topic amongst insolvency law reformers. Davis' speech is worth recounting in full. He noted:
"I beg to move, That the Chairman do now report to the House that the Committee recommend that the Insolvency Bill [Lords] ought to be read a Second time. I ought to say at the outset that, regrettably, I propose to take some little time in dealing with the Bill because it is a complex matter although it covers only 10 clauses. Before coming to the clauses, I want to say something about the general background against which the Bill was introduced in the Lords and is now being considered in this Second Reading Committee.

The present system of bankruptcy law in England and Wales was established in 1883. In the meantime three different committees have considered the legislation. The Bankruptcy Acts of 1914 and 1926 followed directly from two of the reports. The third committee, the Blagden Committee, reported in 1957. It found that bankruptcy law was generally satisfactory and well suited to its purpose. It did, however, suggest amendments designed to remove as far as possible certain administrative difficulties and irregularities in bankruptcy law. Unfortunately, no Government since 1957 were able to find time to introduce the legislation suggested by Blagden—a sad but hardly unprecedented reward for a hard-working committee of this character.

I am conscious of the need for more far-reaching changes in insolvency law than is proposed in this Bill—although I hope that I shall be able to satisfy the Committee that changes which enactment of this Bill would secure would be timely and significant. It is right that I should inform the Committee that the Department has started on a review to achieve this wider objective. There can be no doubt that this is a major and daunting task. It is a task which must take into account our EECcommitments and, in particular, the draft EEC Bankruptcy Convention, at present under general consideration by the member States.

The Bill is concerned with bankruptcy, winding-up of companies and also sequestration in Scotland. Its most important object is to bring certain monetary limits into line with present-day values. It is expected that, as a result, the workload of theInsolvency Service will be brought more into line with available resources. The Bill is also expected to result in a reduction of about 100 to 150 staff over the next three years, leading to a total saving of up to £750,000 a year. As I have already indicated, effect is also given in the Bill to a number of other changes in insolvency law, which are long overdue.

In Scottish law, the term "bankruptcy" has connotations shrouded fairly heavily in mystery for us poor Sassenachs. It can mean insolvency, notour bankruptcy, as well as sequestration. I had hoped that we might have the benefit of certain views this morning from a Scottish National Party Member of Parliament, namely the hon. Lady the Member for Moray and Nairn (Mrs. Ewing), but she must be talking about fishing. Perhaps I shall get into trouble for having said that. I am informed that the term "notour bankruptcy" has nothing to do with the denial of a right of free passage, but it defines the condition of one who had retired to the sanctuary of the Abbey of Holyrood for the purpose of avoiding imprisonment for debt. His insolvency, I am told by the Lord Chancellor, thereby became "notour" or, as we would put it, notorious. I understand that there are no tours to the Abbey now available.

The basis of the present law in Scotland lies in the Bankruptcy (Scotland) Act 1913. In November 1968 the Scottish Law Commission appointed a working party under Lord Kilbrandon to examine the relevant law in Scotland. It concluded that the 1913 Act had operated satisfactorily but suggested certain simplifications and improvements.

Although, therefore, there is some similarity between bankruptcy in England and Wales and sequestration in Scotland, there are significant differences both in law and practice but, in so far as the provisions of this Bill are appropriate for Scotland, they will take effect in Scotland as well as in England and Wales.

Bankruptcy refers only to individuals and partnerships. Insolvent companies may be compulsorily wound up under the provisions of the Companies Act 1948. In December 1973 our predecessors introduced into the House of Lords a Companies Bill to implement a number of the recommendations of the Jenkins Committee, which reviewed the 1948 Act and reported in 1962. Because the present Government wished to undertake a wider-ranging review of company law, that Bill was not proceeded with. However, some of the measures—which I hope will be regarded as relatively non-controversial—contained in that Bill have now been included in this Insolvency Bill. Another Bill was published today—the Companies (No. 2) Bill, which will also deal with certain matters extracted from the 1973 Bill, although it has certain novel features.

Unhappily the work of the Insolvency Service Division has been growing for a number of years, quite apart from the difficulties thrown up by the recession that we are now undergoing. In substantial part, this is due to the erosion in real value of the monetary limits laid down by the relevant statutes. We must try to adjust this work load to the specialised staff resources which are available. The most appropriate way of doing this is to restore the value of these limits.

An instance of the need for this change is afforded by the monetary limit for the minimum debt required to found a creditor's petition in bankruptcy. The limit, at present £50, was fixed before 1914. It is completely out of date. Today, even though he may be owed this comparatively trivial sum, a creditor can institute bankruptcy proceedings against his debtor. I hope that the increase of this, and other monetary limits, will lead to a considerable reduction in the number of more trivial domestic and consumer credit cases which give rise to bankruptcy proceedings. These cases do not usually involve the general public or a wide circle of trade creditors, there are few or no assets available to discharge costs, and the proceedings, which necessarily involve a substantial number of skilled officials, are an unnecessary drain on the public purse.

Some of the other major results of the restoration of the value of limits will be the raising of the amount of wages or salary allowed as a preferential debt to employees; an increase in the amount of necessary goods a bankrupt may retain, and in the minimum amount necessary to constitute the offence of obtaining credit whilst an undischarged bankrupt.

The position of employees so far as arrears of wages or salary is concerned will, of course, be improved when the relevant sections of the Employment Protection Act 1975 come into operation on 20th April this year. They provide that, in the event of an employer becoming insolvent, employees will receive early payment out of the Redundancy Fund of up to eight weeks' arrears of wages, payment in lieu of notice, holiday pay and so on, up to a total not exceeding £80 per week. The Secretary of State for Employment will then stand in the shoes of the employees in respect of such moneys paid out and will be entitled to claim in the bankruptcy or liquidation.

There is a similar right of subrogation provided in the Companies Act 1948 for any person advancing moneys to pay the wages of company employees. It has been suggested that by increasing the monetary limit for preferential wages, we are merely assisting these lenders to recover moneys advanced, to the detriment of unsecured creditors. There are, of course, several categories of preferential debts, all of which rank equally between themselves, and we take the view that it would be undesirable to make an exception of one of them, that is, wages, by not fully restoring the value of the present monetary limit. I certainly consider, however, that the whole system of preferential debt is in need of review. This will be considered during the wider-ranging review of insolvency law which we are now undertaking."
At this time peers also addressed the Blagden and Justice reports. In the House of Lords (HL Deb 05 February 1976 vol 367 cc1517-8WA) two eminent peers exchanged words on the reform documents. Lord Gardiner (pictured)

asked Her Majesty's Government:

"Whether they accept any (and if so, which) of the 69 recommendations for the improvement of the Law of Bankruptcy and Deeds of Arrangement contained in the Report of the Blagden Committee (1957) and of the 31 recommendations for the improvement of the Law of Bankruptcy contained in the Justice Report Bankruptcy (1975)."

Lord Winterbottom retorted:
"The Insolvency Bill recently introduced puts forward proposals very similar to the more urgent of those contained in the Justice Report. It also makes provision for dealing with the problem of bankrupts who do not apply for discharge which was to the forefront of the Blagden Committee's consideration. The Department has also recently stated that it is starting a wider-ranging review of insolvency law generally and matters not dealt with in the reports mentioned will be considered during the course of that review. The Government will also be engaged in negotiations concerning the Draft EEC Bankruptcy Convention. I very much regret that it would take very considerable time and research to ascertain the detailed position as to all outstanding recommendations of the Blagden Committee and the Justice Report."
The Blagden Committee report's recommendations for reform (as noted by Davis) had been a long time in coming. As can be seen from the following exchange, a full ten years before the eventual legislative reforms. On the Blagden Committee (Recommendations) Mr. du Cann

asked (HC Deb 15 March 1968 vol 760 cc386-7W) "the President of the Board of Trade what consideration his Department has recently given to the recommendations of the Blagden Committee; and what conclusions he has consequently come to about possible changes in the laws governing bankruptcy."

Mr. Darling responded, "

We hope to introduce legislation to amend the bankruptcy law in the light of the Blagden Committee's recommendations but I cannot say when it will be possible to do so." It would be ten years before this occurred.

Picture Credit: http://www.bernschwartz.org/scientists-educators/lord-gardiner-chancellor-of-open-university-london-march-15-1977-g_177.jpg

Thursday, 24 September 2009

The Baroness Vadera leaves BIS - good news for insolvency language deployment?

To those of us who like the term bankruptcy to be used in the personal sense when discussing English and Welsh insolvency law, the news that that the Baroness "green shoots" Vadera (pictured) is leaving her post as minister at the Department for Business, Innovation and Skills (BIS) will be welcomed.

Examples of her mis-use of the term bankruptcy are, unfortunately for an enobled minister of state, numerous. But one Telegraph article stands out - “Treasury wants to take the shame out of bankruptcy” (08/03/08) in which Baroness Vadera made a number of comments in her interview with the newspaper which highlighted a rather loose grasp of her ministerial brief. There are two points which stand out.

First, previous statutory attempts to encourage entrepreneurship through modifications to the bankruptcy regime, namely the reduction in the period before automatic discharge from three years to one (Enterprise Act 2002), have not encouraged entrepreneurial endeavour to any meaningful extent. This was shown in research undertaken for the then DTI that was published in 2006. The findings were reported in the Telegraph (07/02/06 and 09/08/06), and The Sunday Telegraph (08/08/06). The very paper she was giving an interview to! The real beneficiaries of this change were arguably consumer debtors.

Secondly, Baroness Vadera notes, “If a small company goes bankrupt it is advertised in all local newspapers – there is a big stigma attached.” As every undergraduate law student knows this is simply incorrect. Bankruptcy is a legal state in England and Wales into which only humans can progress. Companies can progress into other rescue or insolvency procedures such as Administration, Company Voluntary Arrangements, or Liquidation. It is these procedures that receive attention through advertisement as well as bankruptcy. Bankruptcy and stigma are still prevalent (as the 2005 research showed) but is this necessarily a bad thing? There is after all an alternative route out of personal insolvency, the Individual Voluntary Arrangement, that was specifically enacted in 1986 for the benefit of entrepreneurs and professionals.

If the Baroness did in fact mean to refer to publication of an entrepreneur debtor’s bankruptcy then this is entirely different to the insolvency of a company through which that entrepreneur ran their business. Whether or not a reduction in publicity of bankruptcy will encourage entrepreneurship is doubtful. A reduction in the bankruptcy discharge period did not. Many entrepreneurs use companies to undertake business activity because of the benefits of, inter alia, limited liability. The Treasury should be concentrating its efforts on encouraging use of this legal form.

She has also spoken on the stigma of bankruptcy and football clubs, not generally sole traders or partnerships as far as I am aware. Her language deployment in her new role at the G20 will not be closely monitored, unless of course it relates to our subject area!

Picture Credit: http://static.guim.co.uk/sys-images/Guardian/Pix/pictures/2009/1/15/1232019077659/Baroness-Shriti-Vadera-001.jpg

IPs - Surges in the UK and Investigations in OZ - Mick Dundee talks to an Australian IP about the investigation

As a surge in demand for insolvency practitioners (IPs) is reported in the UK, the Sydney Morning Herald is reporting that the insolvency profession in Australia should be investigated, "citing allegations of over-charging by some liquidators and the antics of banned practitioner Stuart Ariff." The article continues:
"The case of former liquidator Stuart Ariff has also drawn attention to the profession. Last month, the NSW Supreme Court banned Mr Ariff as an insolvency practitioner for life after evidence that he charged creditors of a string of companies for overseas holidays, restaurants and hair salon appointments. He reportedly remains under investigation by ASIC. The chief executive of the Insolvency Practitioners Association, Denise North, said Mr Ariff was ''an outlier''. ''He broke the rules, complaints were made and he has been banned for life … I don't see the Ariff case as a systemic failure.''
Picture Credit: http://www.channel4.com/film/media/images/Channel4/film/C/crocodile_dundee_2_xl_01--film-A.jpg - Mick Dundee talking to an Australian IP.

Wednesday, 23 September 2009

Bankruptcy tourism in The Times - some interesting feedback

The subject of bankruptcy tourism has been touched on in this blog before (see here and here). Now The Times newspaper has published an excellent article on the subject. The piece is entitled, "Kent attracts new type of tourist: Europeans seeking easy bankruptcy." It is a must read and not just for the worried residents of Kent! As well as being intrinsically interesting in itself the online version of the article is also of note because of the readers' responses. 

Picture Credit: http://www.heavypetal.ca/uploads/archived/Deckchair-Orange-470.jpg

Tuesday, 22 September 2009

Prebble's Enron play gets positive review

On this blog I have previously mentioned Lucy Prebble's new play about Enron. It has now been favourably reviewed in the Daily Telegraph. I am off to see it with some practitioner friends in October and will provide a review here (with some of their thoughts as well on accuracy and such like). Maybe see you at the Royal Court! 

Picture Credit: http://lawyersusadcdicta.files.wordpress.com/2008/01/enron.jpg

Water Industry (Special Administration) Rules 2009 (SI 2009/2477) - now issued

The Water Industry (Special Administration) Rules 2009 (SI 2009/2477) has been issued. The rules set out the procedure for the conduct of special administration proceedings for companies that are "relevant companies" within the meaning of the Water Industry Act 1991.

Picture Credit: http://gallery.hd.org/_exhibits/natural-science/tap-with-water-flowing-9-AJHD.jpg

Monday, 21 September 2009

Insolvency rates slow according to the BBC and Telegraph

Thee BBC (here) and the Daily Telegraph (here) are reporting that the rate of corporate insolvency is slowing. Both articles refer to some recent research by Experian. These reports are in stark contrast to a piece in the Financial Times which predicts a surge due to tax claims against ailing companies. See here.

Picture Credit: http://www.theautochannel.com/news/2008/08/11/096051.1-lg.jpg

Friday, 18 September 2009

The French Origins of Pari Passu Distribution - some thoughts from Professor David Graham QC and Professor Sir William Holdsworth KC

As a result of his recent jaunt to Paris, Professor David Graham QC, has become fascinated with the history of French insolvency law. His researches are beginning to bare fruit as the following extract shows relating to the procedural explanation for rateable distribution to creditors. 

Towards the end of the thirteenth century the privilege of the first one to levy execution was no longer applied in all its vigour. The proceeds of the debtor's assets was then divided, in proportion to the amount of the claims, between all the creditors, with documentary support as though they had all carried out their levies at one and the same time. 

It is arguable that the law might have gone further so that the debtor should have been dispossesed of all his possessions, so as to prevent his liquidating them in an improvident manner and favouring some creditors at the expense of others. 

It was necessary to summon the creditors by means of publicity and to group them into a syndicate or union, so as to arrive at a distribution which was collective; and the procedure had to be regulated upon a basis of the strictest equality.  This is what was done by the statutes of the Italian towns when they borrowed the complex system of execution of the Roman law in order to regulate bankruptcy. 

The above procedural explanation for equality of claims in French law is taken almost entirely from Jen Brissaud's History of French Private Law; translated from the original French, this important work was published by Little, Brown & Co of Boston in 1912. The text is supported by numerous references, but with one exception, none are thought to be available in England; hence David justifying a further trip to Paris. 

It is worth remembering that at more or less the same time the concept of ratable distribution was known and applied in England, as David has shown in his article relating to the collapse of the Scali Bank (based in Italy but with a branch in London) in about 1325. (see: Graham, D. The insolvent Italian banks of medieval London: Part 1 (2000) I.I.R, 9(2), 147-156, and, Graham, D. The insolvency Italian banks of medieval London: Part 2 (2000) I.I.R., 9(3), 213-231).

David unearthed Brissaud's book in a footnote in volume 8 of WS Holdsworth's (pictured) History of English Law, at page 228. This distinguished legal historian was, David has discovered, extremely familiar with Brissaud since not only was he part of the editorial board responsible for the translation but he provided the work with a remarkable introductory chapter. This can best be described as a modern manifesto for the study of comparative law. Written in Oxford almost a century ago it is still extremely significant and David will be returning to it at a later date when he will also describe other somewhat amusing aspects of old French insolvency law. 

Picture Credit: Professor Sir William S. Holdsworth, OM, KC, DCL, HON LL.D, FBA, (1871 – 1944).

Mr Robin Potts QC - his contribution to insolvency law and the qualities of a top chancery silk

The Times featured Mr Robin Potts QC's obituary last week. As an advocate at Erskine Chambers who specialised in company law and insolvency law, Potts contribution to the subject of insolvency was quite enormous. As well as contributing to Gore-Brown on Companies, Potts appeared in the following important insolvency cases: 

  • Re Marconi Corp Plc [2004] EWHC 857 (Ch).
  • Buchler v Talbot (Re Leyland DAF Ltd) [2002] EWCA Civ 228; [2003] B.C.C. 159.
  • Cadbury Schweppes Plc v Somji [2001] 1 W.L.R. 615; [2001] 1 B.C.L.C. 498.
  • Powdrill v Watson, Re Ferranti International Plc, Re (Re Paramount Airways Ltd (No.3), [1994] 2 All E.R. 513; [1994] B.C.C. 172.
It has been said that a great modern advocate (as opposed to style of Sir Patrick Hastings KC) should exhibit the qualitites of a chartered accountant who can read the lesson in Church. The qualities of a top chancery silk are summarised in Potts' obituary as, "high intellectual ability and a determined, even aggressive, approach." The need to avoid prolixity seems to also be hinted at. 

Picture Credit: http://images.worldgallery.co.uk/i/prints/rw/lg/1/0/Thomas-Rowlandson-Court-of-Chancery--Lincoln-s-Inn-Hall-103207.jpg
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