Friday, 30 October 2009

HOBS: Basil Montagu (1770-1851) - still cited in preference!

Whilst leafing through Louise Gullifer's latest edition of Goode on Legal Problems of Credit and Security (Sweet & Maxwell, 4th Edition, 2008) I was very pleased to note that the new editor has included a reference to Basil Montagu's 1828 book, "Summary of the Law of Set-Off" (2nd edition, 2 parts, London, 1828). I have been working on Basil for some time (see the latest effort here: Tribe, J & Graham, D. Bankruptcy in Crisis - A Regency Saga: Part 4 - Basil Montagu QC (1770-1851) (2009) Insolv.Int, vol.22, no.9, Oct, pp.132-140), so it is refreshing to see that other academics are also making use of his work. This amazing man and his work have not been forgotten!

Gullifer's endorsement (at page 273, footnote one) has not been shared by other commentators. In his magnificent legal bibliography, published in 1847, Marvin (Marvin, JG. Legal Bibliography: or, a Thesaurus of American, English, Irish and Scotch Law Books, together with some Continental Treatises, interspersed with critical observations upon their various editions and authority. To which is prefixed a copious List of abbreviations. T &JW Johnson, Philadelphia, 1847) cites two critiques of Basil's work. First, Mason notes that Basil's text is: "singularly brief and unsatisfactory." (see: Mason's Reports, vol.5, at 207). This criticism was also made apparently in the preface to: Barber, OL. A Treatise on the Law of Set-Off with an appendix of precedents. Albany, 1841.

Picture Credit: Picture in the possession of JP Tribe of a plaster medallion which is located in the Athenaeum.

Professor David Graham QC on Judge Louis Levinthal (1892-1976)

Judge Louis Levinthal (1892-1976 - pictured back row third from the left), lawyer, Zionist politician and communal leader, has been mentioned on this blog before (see here). Following a recent trip to America, Professor David Graham QC is now able to expand the story of this giant of bankruptcy scholarship.

More than ninety years ago, in 1918, an article entitled, "The Early History of Bankruptcy Law" was published in the University of Pennsylvania Law Review ([1918] vol.66, pp.223-250). The author of this fascinating comparative study was Louis Edward Levinthal who at the time was about twenty six and a member of the bar in Philadelphia.

David has for many years wanted to know who Levinthal was and how he was able to produce such a valuable article which included, in particular, information regarding medieval Jewish insolvency law and how bankrupts were treated in eighteenth century Lithuania. Thanks to the help of the Jenkins Law Library, also in Philadelphia, he is now able to discover some of the background.

Born in 1892, Levinthal was brought up in a strictly orthodox Jewish household. His father, who had recently emigrated from Lithuania, was a distinguished figure in his local community as well as on the national scene. He was not only a fervent advocate for Jewish education but was also a keen Zionist. He was the only Rabbi to attend the Paris peace conference as part of an American-Jewish delegation.

Levinthal's first article appeared in 1916 in the American Bar Association Journal, at page 182; it is entitled, "The Land Law of Turkey." It was almost certainly written at a time when many Jewish organisations and individuals were keen to acquire land in Turkish-controlled Palestine.

Levinthal already demonstrates in this article his scholarly legal talents, referring to a wealth of published material in various languages on the subject. His concluding two paragraphs are, to say the least, prescient. He observes:
"In 1913 a series of provisional laws... provided for a general survey and revaluation of all lands in the [Turkish] Empire together with a readjustment of taxes. They also extended the right of inheritance and modernised the hypothecation as security for debts.

It is questionable whether such attempts a reform can have the desired effect. They are, it is estimated, more likely to confuse the land system of Turkey, just as the existing complications in the Turkish civil, criminal and commercial courts were caused by successive attempts at modernisation. The truth is that a truly comprehensive land code, embodying and co-ordinating the whole of the existing laws of real property in a single statute, would be a great achievement. But this is more than can be expected.

The reform that is needed and can be attained is a general and far reaching improvement in the administration of the laws. The impression of arbitrary action on the part of the officials and the removal of financial abuses would be of real and substantial value. A reform of methods, rather than of law, is required for the reconstruction of the Turkish agrarian system."
Lou, as he was familiarly known, took top honours in his undergraduate law course at the University of Pennsylvania and went on to do postgraduate work. It is quite probable that his two bankruptcy articles were the result of his masters dissertation. Following a successful career at the Philadelphia bar, he was appointed in 1938 a judge of the newly created local Court of Common Pleas and he served there with great distinction for about twenty years.

Despite his legal commitments Lou managed to find time to serve for two years in the early 1940s as President of the American Zionist Organisation as well as performing many other communal duties. Most notably he presided at a crucial Zionist conference at the Biltmore hotel in 1942 in New York (pictured) where a more proactive policy regarding the need to establish a Jewish state was adopted. Amongst the celebrated personalities at the meeting were Chaim Weizmann, the first President of the State of Israel and David Ben-Gurion, the first Prime Minister of the State. After the war Levinthal was attached to the American commander in Germany and together with Mrs Levinthal spent much time with the camp survivors.

On his return to Philadelphia one of his colleagues on the bench was moved to write an appreciative analysis of Levinthal's qualities as a judge: "...he manages to be a very wise man without being primarily a scholar, and that is the best kind of wise man to be. He seems to have been born legal, and wise and ancient as well, and to have known what the law was before he ever studied the details; the result is a perfect balance of instinct, and knowledge that I have ever seen."

After retiring from the bench, Levinthal and his wife finally settled in Israel. For several years he served as chairman of the board of governors of the Hebrew University. David is immensely grateful for having had the opportunity to discover, through the two bankruptcy articles, the life of Levinthal, described by his brother judge, as "a good man."

Much information about Levinthal and his family can be found in the 2008 edition of the Encyclopedia Judaica and other sources including a brief obituary in the New York Times. The appreciation by his brother judge, Curtis Bok, was published in the Philadelphia periodical, The Shingle magazine, in March 1948, vol.XI, no.3, at page 51. This article also contains a picture of Levinthal.

Picture Credit: http://www.geschichteinchronologie.ch/USA/EncJud_juden-in-USA-d/EncJud_USA-band15-kolonne1633-1634-zionistenkongress-Biltmore1942.jpg

Sigma Finance appeal judgment handed down by the Supreme Court

As predicted on this blog on Wednesday the Supreme Court (pictured) has now handed down its judgment in Re Sigma Finance Corporation (in administrative receivership) and In Re The Insolvency Act 1986 (Conjoined Appeals). The judgment can be seen here.

As The Times summary of the case notes:
"...five law lords today said investors in Sigma should be treated equally and each take a proportional share of what remains...Adam Plainer, a partner at Jones Day who advised a late maturing investor, said: ""The law lords have ruled that the remaining assets should be split proportionally among all entitled creditors, which is a basic principle of UK insolvency law. [is it?? has anybody read Professor Mokal's highly persuasive work in the CLJ on pari passu? see here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=303739] When a business goes bust all creditors of the same class are usually treated equally and the law lords are saying a structured investment vehicle is no different, which is a victory for business common sense."
The Lord Mance's judgment contains a number of interesting points. He notes, "The issue on these appeals is how Sigma’s remaining assets are to be distributed...Four interested creditors have advanced various possibilities. Interested parties A and B submit that the assets fall to be distributed preferentially to the creditors in respect of the debts identified in (b), or in (a) and (b). Assuming that to be right, they differ between themselves as to priority. Mr Howard QC representing interested party A submits that the assets are to be distributed according to the dates when the relevant debts became due, while Mr Sheldon QC representing interested party B submits that all debts falling due in (or prior to) the Realisation Period are part of a single pool, within which Sigma’s remaining assets fall to be distributed pari passu."

In a dissenting judgment the Lord Walker notes: "These appeals will determine how the enormous loss incurred by Sigma Finance Corporation is to be borne as between the anonymous investment banks, hedge funds and other entities which are its secured creditors. Lord Mance refers to them as victims of the current financial crisis. An alternative view would be that they are among the authors of the crisis. But that is not an issue for the Court."

He goes on, "First, I completely agree that it is necessary to construe the language of clause 7.6 of the deed “in the landscape of the instrument as a whole” (in the words of Lord Mustill in Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 384H). One of the most striking features of the landscape of the deed, to my mind, is that clause 7 does not provide for the immediate winding-up of Sigma on the occurrence of a default which amounts to an enforcement event. On the contrary, secured creditors are prohibited from taking steps to wind up the company. It is therefore necessary to repress any instinctive feeling (and it is, I acknowledge, a strong instinctive feeling) that pari passu distribution at the earliest practicable date is the most natural (one might almost say the only rational) solution."

The opinions of the former Lords of Appeal in Ordinary, now Supreme Court Justices, is the first insolvency related judgment to be handed down by the new Supreme Court. Lord Mance's lengthy erudite judgment is an exercise in close textual analysis and must be read carefully. It cannot possibly be adequately reviewed in this short blog entry, so happy reading during reading week - which has arrived just in time for full digestion!

Picture Credit: http://upload.wikimedia.org/wikipedia/commons/thumb/9/99/Middlesex.guildhall.london.arp.jpg/799px-Middlesex.guildhall.london.arp.jpg

Thursday, 29 October 2009

Welcome Mr Bill Holohan, Irish solicitor and insolvency author - our latest guest blogger.

We are very lucky to have obtained the services of Mr Bill Holohan of Holohan Associates (Dublin and Cork) as our latest guest blogger for the next six months or so. Bill (pictured) joins Professor Emily Kadens and Professor David Graham QC as a guest blogger.

Bill Holohan obtained his LL.B and BCL degrees from University College Cork before qualifying as a solicitor. Bill is one of the most knowledgeable lawyers in Ireland on Insolvency. On the personal insolvency side he has acted for the Office of the Official Assignee in Bankruptcy for twenty years, as well as assisting debtors. On the corporate side he has acted in receiverships, liquidations, examinerships, and structured wind-downs and reorganisations. He is a Founder Member and Committee Member of the Irish Society of Insolvency Practitioners and acts as a consultant to the Law Society Law School and as their External Examiner on Insolvency.

Bill has written extensively on insolvency law issues. His books include:

  • Bankruptcy Law and Practice in Ireland (Round Hall Press, Dublin 1991),
  • International Rescue of Companies (Kluwer, The Hague, 1998).
  • Insolvency Law (Cavendish Publishing, London, 2003).

We are very lucky to have Bill on board and I am sure his posts will be very informative on practical issues of insolvency law and practice. Welcome Bill!!

Record Number to Go Bust - according to the Telegraph

As the credit crunch continues to bite news reaches the bankruptcy blog from the Daily Telegraph that, "Record number of Britons to be declared insolvent, leading expert predicts." The article makes very interesting reading. It goes on to note that:
"The current number of bankruptcies stands at 107,000 but is expected to a record annual level of 130,000 by the end of the year, according to personal insolvency experts Tenon Recovery.

Mark Sands (pictured), the company's national head of bankruptcy, said: “I expected this year to be the worst on record but even I have been stunned by the level of personal insolvencies - we are sailing past the previous record and still have more than two months of the year to go.

“At this rate we expect to see as many as 130,000 personal insolvencies over the whole of 2009, an increase of 22 per cent on the levels seen in 2008.”

He added: “Even with interest rates close to zero, the effects of the downturn combined with the massive build up of consumer debt in the good years have created ‘a perfect storm’ that is sweeping more people into personal insolvency than ever before...”

Picture Credit: http://www.tenongroup.com/en/about-Tenon/contacts/s/Mark-Sands.aspx

Latest edition of the BPIRs - more cases for our consumption

The latest edition of the Bankruptcy and Personal Insolvency Reports (BPIR) has been published by Jordan Publishing Ltd. The series makes essential reading for all those who are interested in our area. The editors (Professor David Milman (pictured), Paul French and David Middleton) have selected the following cases and added the following catchwords:
"1. Published Cases
[2009] BPIR 973
Bateman v Williams [2009] EWHC 1760 (Ch)
ChD, David Richards J ,22 July 2009
Bankruptcy - Family home - Sale and possession - Exoneration - Occupation rent - Insolvency Act 1986, s 323

[2009] BPIR 983
Holland v Her Majesty's Revenue and Customs and Another [2009] EWCA Civ 625,
CA, Ward, Rimer and Elias LJJ, 2 July 2009
Liquidation - De facto director - Misfeasance - Relief by the court - Insolvency Act 1986, s 212 - Companies Act 1985, s 727

[2009] BPIR 1029
Masri v Consolidated Contractors International SAL and Another [2009] UKHL 43
HL, Lord Scott of Foscote, Lord Rodger of Earlsferry, Lord Walker of Gestingthorpe, Lord Brown of Eaton-Under-Heywood and Lord Mance, 30 July 2009
Examination - Officer of judgment debtor - Civil Procedure Act 1997, s 1 - Civil Procedure Rules, Part 6 - Civil Procedure Rules, Part 71

[2009] BPIR 1047
Nationwide Building Society v Wright [2009] EWCA Civ 811
CA, Maurice Kay, Lloyd LLJ and Sir John Chadwick, 29 July 2009
Bankruptcy - Judgment creditor - Charging orders Act - Final charging order obtained between presentation of petition and bankruptcy order - Whether judgment creditor entitled to keep the benefit of the charging order - Whether charging order to be set aside - Charging Order Act 1979, s 3(5) - Insolvency Act 1986, s 346(1), (5)

[2009] BPIR 1061
Official Receiver v McKay [2009] EWCA Civ 467
CA, Mummery and Lloyd LJJ and Sir Paul Kennedy, 16 June 2009
Bankruptcy annulment - Annulment on grounds that debts have been paid - Proof of only debt withdrawn - Grounds for annulment - Applicability of precedents determined under earlier Bankruptcy Acts

[2009] BPIR 1075
Official Receiver v Mitterfellner
ChD, Chief Registrar Baister, 10 June 2009
Cross-border insolvency - EC Regulation on Insolvency Proceedings (No 1346/2000) - Whether bankrupt had centre of main interests in UK - Annulment of bankruptcy order - Consideration of factual evidence

[2009] BPIR 1093
Perpetual Trustee Co Ltd and Another v BNY Corporate Trustee Services Ltd and Another [2009] EWHC 1912 (Ch)
ChD, Sir Andrew Morritt CVO, Chancellor of the High Court, 28 July 2009
Liquidation - British Eagle principle - Pari passu rule - Contracting out

[2009] BPIR 1121
Progress Property Co Ltd v Moorgarth Group Ltd [2009] EWCA Civ 629
CA, Mummery, Toulson and Elias LJJ, 26 June 2009
Undervalue - Unlawful return of capital - Sale of shares between two companies sharing a common director and ultimate holding company - Sale negotiated by the common director - Sale at an undervalue due to miscalculation - Whether share sale amounted to unlawful distribution of the selling company's assets - Companies Act 1985, s 263

[2009] BPIR 1129
Remblance v Octagon Assets Ltd [2009] EWCA Civ 581
CA, Ward, Mummery and Dyson LJJ, 17 June 2009
Statutory demands - Setting aside - Position of guarantor where principal debtor has a cross claim - Discretion of court - Role of court in ensuring that justice was achieved in set-aside applications

[2009] BPIR 1148
Rottmann v Brittain [2009] EWCA Civ 473
CA, Ward, Keene and Lawrence Collins LJJ, 18 March 2009
Examination of bankrupt - Public or private examination - Relevance of proceedings in Germany - Right not to self incriminate

[2009] BPIR 1157
Re Stanford International Bank Ltd [2009] EWHC 1441 (Ch) [2009] EWHC 1661 (Ch)
ChD, Lewison J, 3 July 2009, 9 July 2009
Cross-border insolvency - Receiver appointed by Texan court - Liquidators appointed by Antiguan court - Whether either entitled to recognition in Great Britain under the Cross¬Border Insolvency Regulations 2006 - Cross¬Border Insolvency Regulations 2006, Arts 2(g), 2(i), 2(j), 16.3, 17
Cross-border insolvency - Centre of main interests - Meaning of centre of main interests for purpose of the Cross-Border Insolvency Regulations 2006

[2009] BPIR 1191
Stone & Rolls Ltd (In Liquidation) v Moore Stephens (A Firm) and Another [2009] UKHL 39
HL, Lord Phillips of Worth Matravers, Lord Scott of Foscote, Lord Walker of Gestingthorpe, Lord Brown of Eaton-under-Heywood and Lord Mance, 30 July 2009
Negligence - Auditor - Ex turpi causa

[2009] BPIR 1291
Supperstone v Hurst (No 5) [2009] EWHC 1271 (Ch)
ChD, Bernard Livesey QC sitting as a High Court judge, 9 June 2009
Bankruptcy - Applications without merit against trustee in bankruptcy and his firm by bankrupt and bankrupt's wife - Extended civil restraint orders - Factors to consider in making order - Whether to extend order to prohibit communication with the trustee in bankruptcy and others - Civil Procedure Rules, r 3.11 - Practice Direction to Civil Procedure Rules r 3.11

[2009] BPIR 1304
Syska and Another v Vivendi Universal and Others [2009] EWCA Civ 677
CA, Mummery, Longmore and Patten LJJ, 9 July 2009
EC Regulation on Insolvency Proceedings - Arbitration proceedings - Effect of insolvency of one of parties to arbitration on continuance of arbitration - Choice of governing law."
Picture Credit: http://www.lancs.ac.uk/fass/pic_library/law/davidmillmanpic.jpg

Wednesday, 28 October 2009

Supreme Court judgment due on Thursday in In Re Sigma Finance Corporation (in administrative receivership) and In Re The Insolvency Act 1986 (Conjoine

The Supreme Court website (Justices pictured on the right) notes that the judgment in In Re Sigma Finance Corporation (in administrative receivership) and In Re The Insolvency Act 1986 (Conjoined Appeals) is due to be given at 9:45am on Thursday 29 October 2009. The Sigma case has been mentioned on this blog before. The case involves issues around the construction of a trust deed,priority of payment and pari passu distribution. Half of 3-4 South Square seem to have appeared in the case. Tomorrow will bring news of which counsel has argued most effectively!

Picture Credit: http://washingtonbriefs.files.wordpress.com/2009/10/ukjustices1.jpg

Tuesday, 27 October 2009

Constitutional Reform and Governance Bill second reading - Bankruptcy Restriction Orders can cause pauper peers to be expelled from the House of Lords

Profligate peers in the shape of destitute Dukes, broke Barons, cash strapped Countesses, monetarily challenged Marchionesses, impecunious Earls, valueless Viscounts and a Marquess lacking means, (not forgetting bust Baronets, needy Knights, and debtor Dames) have featured on this blog before, as has the concept of disqualification from Parliament due to bankruptcy. These issues have come up again in light of the second reading of Constitutional Reform and Governance Bill. This has revealed that a peer will be disqualified from the House of Lords (pictured) if, inter alia, they are subject to a Bankruptcy Restriction Order (BRO). A recent press release on the subject notes:
"Government proposals to end the hereditary principle in the House of Lords will be debated today as the Constitutional Reform and Governance Bill has its second reading...

This is the latest stage of constitutional reform and contains a series of measures aimed at rebalancing the relationship between Parliament, the government and the public.

Lords' provisions contained in the bill will bring to an end the system of by-elections in the second chamber, which allows for the remaining 90 hereditary peers to be replaced by other hereditary peers when they die. They also provide for new powers to:

  • allow members of the House of Lords to resign from the House
  • give the House the power to expel or suspend peers found guilty of misconduct
  • disqualify members of the Lords found guilty of a serious criminal offence, or who are subject to a bankruptcy restriction order."
This is an interesting development which extends s.427 IA86 effects to BROs.

Picture Credit: http://atlasshrugs2000.typepad.com/.a/6a00d8341c60bf53ef0111686031d2970c-800wi

In re Ludlam (Bankrupts), Chancery Division, October 26, 2009 - Civil Restraint Order

The Times has reported an interesting case which concerns a bankrupt and a civil restraint order. The case is: In re Ludlam (Bankrupts), Chancery Division, October 26, 2009, before Mr Edward Bartley Jones QC (pictured). The report notes:
"For an extended civil restraint order to be issued, making someone a vexatious litigant, three unmeritorious claims or applications were the bare minimum to satisfy the requirement of persistence.

Mr Edward Bartley Jones, QC, sitting as a deputy Chancery Division judge, so stated on August 6, 2009, in a reserved judgment when making extended civil restraint orders against John Michael Ludlam and Caroline Lesley Ludlam.

HIS LORDSHIP said that, for an extended civil restraint order to be made, it was a pre-condition that the relevant person had “persistently issued claims or made applications which are totally without merit”: see paragraph 3.1 of Practice Direction C in Part 3 of the Civil Procedure Rules.

When considering the making of such an order generally, the court was to engage in a graduated, and proportionate response to the identified abuse, which made it logical for the statutory scheme to have a higher precondition threshold for the making of an extended order as opposed to a limited or general order.

..."

Picture Credit: http://www.13oldsquare.com/edward_bartleyjones.htm

Mr Justice Warren's judgment in: Power & Anor v HM Revenue and Customs & Anor [2009] EWHC 2580 (Ch) (23 October 2009)

"Mann J explained why, in his view, no trust (including a Quistclose-type trust) was created over monies paid to Agents prior to the cessation of trade on 10 October 2006. I agree with his analysis and conclusion. He also explained why he considered that there was a strong argument that monies paid to Farepak (including for this purpose monies paid to Agents), at a time when Farepak has decided to cease trading and at a time when it had indicated that payments should not be received, would be held by Farepak on a constructive trust from the moment they were received. Again, I agree with his analysis and conclusion. He further explained why he considered that the declaration of trust should be rectified to cover the FFG Current Account. Once again, I agree with his analysis and conclusions."
Picture Credit: http://i.dailymail.co.uk/i/pix/2006/11/farepak071106_228x452.jpg

Monday, 26 October 2009

Do not go to Skeggy! You might get bankrupted (according to the Times)

Bankruptcy tourism has been mentioned on this blog a couple of times before. The incidence of this relatively new pattern of bankruptcy usage may be one reason why The Times is today reporting that, "Seaside towns’ rising tide of personal insolvencies." The article notes, inter alia:
"It is a place best known as the inspiration for a host of Philip Larkin poems, its industrial heritage and unique cream telephone boxes. But today Hull is awarded a new title — the country’s insolvency capital.

Last year the northern city had the highest rate of personal insolvencies, at 26.6 bankruptcies per 10,000 adults, according to research from Wilkins Kennedy, the accountant. It was one of several coastal and seaside towns uncovered as the places where people were most likely to declare themselves bust. Plymouth registered 26 personal insolvencies per 10,000 adults, Poole, in Dorset, 22.4 and Bournemouth, its neighbour, 22.1.

Overall, the average rate of personal insolvencies in coastal towns was almost one third higher last year than the national average at 20.6 per 10,000 adults, compared with 15.7 across the country. Coastal cities accounted for seven of the ten towns and cities with the highest bankruptcy rates in the UK.

Among the UK’s 50 largest towns and cities, Cardiff is the only coastal city with a personal insolvency rate lower than the UK national average."

Bankruptcy tourism may be one driving factor between the local incidence of higher bankruptcy use in sea side towns. As the article notes the incidence of older individuals may also have an impact. Either way, the findings of this survey may have a negative effect on so called "Staycations", especially those by the sea. Any trips to Skegness (pictured) may have to be postponed!

Picture Credit: http://expressionschool.co.uk/newsdesk/photos/skegnessPA310305_330x450.jpg

Friday, 23 October 2009

Lomas & Ors v RAB Market Cycles (Master) Fund Ltd & Ors [2009] EWHC 2545 (Ch) (21 October 2009) - Mr Justice Briggs discussing admin expenses

Mr Justice Briggs has handed down his judgment in Lomas & Ors v RAB Market Cycles (Master) Fund Ltd & Ors [2009] EWHC 2545 (Ch) (21 October 2009). The case concerns the potentially long running Lehman Brothers administration. The learned judge had to consider an application for directions pursuant to paragraph 63 of Schedule B1 to the Insolvency Act 1986. In particular the judgment notes that, "The Administrators invite the court to determine how they should treat certain cash received by Administrators of Lehman Brothers International (Europe) (LBIE) after having entered administration in consequence of corporate events or actions which affect securities held by LBIE as custodian under its standard form International Prime Brokerage Agreement (Charge Version) ("the Charge IPBA")" The judgment features a particularly interesting passage on administration expenses. The judge notes at paragraph 98:
"The question of what constitutes an administration expense is now governed by rule 2.67(1) of the Insolvency Rules 1986 (as amended). Both Mr Trower and Mr Sher submitted that the payments which the Administrators considered that they should make in the present circumstances fell within sub-rule (f), as being "any necessary disbursement by the administrator in the course of the administration …". Mr Trower submitted that although for the purposes of liquidators' expenses, the decision of the House of Lords in Re Toshoku Finance UK plc [2002] 1 WLR 671 had removed what was previously thought by some to be a general discretion in the court to identify particular debts as expenses, the flexible approach to that question in the context of administration adopted by Sir Donald Nicholls V-C in Re Atlantic Computer Systems plc[1992] Ch 505, at pages 527-8, remains good law.

  1. At paragraph 38 of his opinion in Toshoku, Lord Hoffmann said this, in relation to Sir Donald Nicholls' analysis in Atlantic Computer Systems:
  2. "The second point is the proposition that whether debts should count as expenses of the liquidation is a matter for discretion of the court. In my opinion there is no such discretion. Rule 4.218 determines what counts as expenses, subject only to the limited discretion under section 156 of the 1986 Act to re-arrange the priorities of expenses inter-se. The court will of course interpret rule 4.218 to include debts which, under the Lundy Granite Co principle, are deemed to be expenses of the liquidation. Ordinarily this means that debts such as rents under a lease will be treated as coming within paragraph (a), but the principle may possibly enlarge the scope of other paragraphs as well. But the application of that principle does not involve an exercise of discretion any more than the application of any other legal principle to the particular facts of the case."
  3. In my judgment that dictum is no less applicable to administration expenses than it is to liquidation expenses, subject to two caveats. The first is that the court habitually deals flexibly with applications for permission by, for example, secured creditors of a company in administration to enforce their security, or by landlords to forfeit a lease of property to the company. In such circumstances it is commonplace for the creditor to be restrained, for the better functioning of the administration, provided that the administrator discharges what would otherwise be unsecured liabilities, as they arise. The imposition by the court of such a condition for the refusal of permission to the creditor to enforce his security or forfeiture could convert a debt which might otherwise not be an administration expense into one that was.
  4. Furthermore, under the Lundy Granite principle itself, the retention by administrators of property for the benefit of the administration may mean that liabilities incurred by reason of that retention, although unsecured, become administration expenses. Mr Trower pointed me to the obiter dicta of Mr Warren QC in Re Japan Leasing (Europe) plc [1999] BPIR 911 as a further example of the application of the same principle, where administrators adopted an agency contract of the company by accepting a payment proffered to it as agent, with the consequence that obligations to pay money arising under that contract after its adoption fell to be paid as administration expenses. Japan Leasing was of course decided prior to Toshoku, and before the substantial alignment of the administration expenses regime with that applicable to liquidation."
Picture Credit: http://farm4.static.flickr.com/3618/3412822648_401e461e5a.jpg

Interesting Press Release from R3: Memorandum of Understanding on redundancy and information sharing amongst relevant agencies

The Association of Business Recovery Professionals (R3) has issued an interesting press release on a memorandum of understanding entitled, "Government and Insolvency Trade Body sign agreement to help people facing redundancy." The release notes:

"Jobcentre Plus, the Insolvency Trade Body, R3 and the Insolvency Service have joined forces to develop a system to share information about possible job losses in struggling companies, helping to ensure that people threatened with redundancy are offered support quickly and efficiently.


The organisations signed a Memorandum of Understanding on 22nd October 2009 detailing how they will work together to share intelligence and knowledge, providing even better access to support, information and advice for anyone facing redundancy.


The Memorandum outlines how Insolvency Practitioners dealing with struggling businesses will work with Jobcentre Plus offices to develop a tailor-made plan for each situation. This will help to ensure that those affected by redundancy will be given rapid access to information and services that will help them claim benefits, identify new job opportunities or get access to training.


Jobcentre Plus’s Rapid Response Service is already offering its specialised help to large and small organisations and has helped over 2,500 organisations since it was re-launched in November. However, working more closely with R3 and the Insolvency Service will enable Jobcentre Plus to help more companies, more quickly so that people who have lost their jobs find new roles or training courses as quickly as possible.


Welcoming the agreement, Employment Minister, Jim Knight MP, said:

“It is important that we don’t just wait for someone to lose their job before we start to help them. The pre-redundancy service Jobcentre Plus offers has helped thousands of people get new jobs quickly – stopping a short term difficulty becoming a long term problem.


“It is essential that we work with R3 and the Insolvency Service to make sure even more people get help before they are out of work. I am hugely grateful to Phil Wilson and R3 in facilitating this agreement.”

The agreement has been developed by Jobcentre Plus, R3, The Insolvency Service and Sedgefield MP Phil Wilson, who set out practical steps each organisation could take to help employees when they face redundancy and strengthen their relationship.


Phil Wilson MP said: “I saw first hand in my constituency the need for Jobcentre Plus, administrators and the Insolvency Service to join up and help workers who are being made redundant. People in this situation are often confused and lack confidence in what to do next. Thanks to this memorandum, the Insolvency Practitioners will be able to signpost people towards the professional help offered by Jobcentre Plus. It is an excellent step forward and I would like to congratulate the work R3 and Jobcentre Plus have put in to getting this far.”


Peter Sargent, President of R3 commented:

“R3 welcomes the opportunity to be involved in helping to develop links between our members and local Jobcentre Plus offices. We know that the impact of redundancy on people can be devastating and we want to make sure that we do everything we can to lessen that”.


The agreement will be signed by Jim Knight MP, Minister for the Department for Work and Pensions, Ian Lucas MP, Minister for the Department of Business, Innovation and Skills, Phil Wilson MP for Sedgefield, Peter Sargent, President of R3, Stephen Speed the Chief Executive of the Insolvency Service and Sue Veszpremi, Head of Employer Engagement at Jobcentre Plus.


Speaking ahead of the signing, Ian Lucas MP, Minster for the Department for Business, Innovations and Skills said:

“In these difficult times it’s important that Government works with the insolvency profession to help people cope with the effects of redundancy and get back into work as soon as possible. This memorandum is an important part of that process and builds on the work the Government has already done to help workers and families cope with the economic downturn.”

The signing took place at the R3 Head Offices, 8th Floor, 120 Aldersgate St, London, EC1A 4JQ on the 22nd October 2009 at 8.00 am."

Picture Credit: http://imglib.lbl.gov/ImgLib/COLLECTIONS/BERKELEY-LAB/images/96B05396.lowres.jpeg
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