Friday, 29 January 2010

The Rt Hon Harriet Harman QC MP on bankruptcy during Prime Minister's Questions this week

Whilst covering Dr Gordon Brown MP this week at Prime Minister's Questions, the Rt Hon Harriet Harman QC MP strayed onto the topic of bankruptcy. In response to a statement by the Rt Hon William Hague MP on the the US bank bailout attempts, Ms Harman noted (Hansard, 27 Jan 2010 : Column 804):
"When the right hon. Gentleman was in government and sitting in the Cabinet, there were double the number of repossessions; when he was in government, there were three times as many bankruptcies; and when he was in government in a recession, there were four times as many job losses. I have to say that his reversing is even worse than mine. We are building up Britain, and the Conservatives are trying to talk it down."
Is this bankruptcy claim true? To assess this we must revisit Mr Hague's ministerial career. He was last in power in 1997. Before his party was ousted he held the following ministerial positions:
  • Parliamentary Private Secretary to Norman Lamont, Chancellor of the Exchequer, 1990-93
  • Joint Parliamentary Under-Secretary of State at the DSS, 1993-94
  • Minister of State for Social Security and Disabled People, 1994-95
  • Secretary of State for Wales, July 1995 – May 1997
So Mr Hague held ministerial office between 1990 and 1997, a period of seven years. The table included to the right, which includes figures drawn from the Insolvency Service statistics database, notes that the total number of bankruptcies over that period per year was:
  • 1990: 12,058
  • 1991: 22,632
  • 1992: 32,106
  • 1993: 31,106
  • 1994: 25,634
  • 1995: 21,933
  • 1996: 21,803
  • 1997: 19,892
The total figure for bankruptcies in 2008 (the last total year data available) was 67,428. Even in Mr Hague's worst bankruptcy year his administration achieved a relatively lowly 32,106.That is half Harriet's figure for her peak year to date. Even a brief view of the statistics reveals that Ms Harman is clearly wrong. How on earth can it be the case that the Leader of the House of Commons, whilst sanding in for the Prime Minister, can cite statistics in this manner?

Picture Credit: Insolvency Service.

A motion early in the day from Mr Gordon Banks MP on unsecured creditors

It has just come to my attention that on 13 January 2010, Mr Gordon Banks MP (pictured) tabled an Early Day Motion (EDM) in the following terms:
"That this House believes that current UK insolvency laws and regulations fail adequately to protect unsecured creditors; and urges the Government to carry out a review of these laws and regulations to identify processes to promote opportunities to deliver a greater return from insolvent estates to unsecured creditors."
The OFT are currently investigating, inter alia, this unsecured creditor issue. What is the evidential basis for this unsecured creditor failure allegation from Mr Banks? Where is his evidence? There is currently nothing on his newly created website. Let us have some support for this contention! Thankfully it is only Mr Banks' EDM that is a bit wiffy! It could be argued that this latest unsupported critique of English and Welsh insolvency laws is certainly not in evidential safe hands!

Picture Credit: http://newsimg.bbc.co.uk/media/images/42482000/jpg/_42482028_banks203.jpg

Monday, 25 January 2010

All Party Parliamentary Group on Insolvency - Officeholder Remuneration

As someone who has written at length about officeholder remuneration (see here) I am particularly pleased to note that the All Party Parliamentary Group on Insolvency (charied by Ms Natascha Engel MP) is to hold a panel discussion entitled: "Overpaid or worth the cost? Insolvency Practitioners' fees in the spotlight" The panel will include:

The event is taking place at the House of Commons on the 9 February (invite only). This will be an excellent opportunity to thoroughly discuss the important issues that arise from officeholder remuneration. It will be interesting to note if anyone from the OFT is going along?! For that matter Private Eye may also be in attendance bearing in mind their recent interest in the topic of IP remuneration!

The session will enable the IP profession, and their representatives (i.e. R3 - the Association of Business Recovery Professionals - who are providing secretarial support for the event) to show how previous press critique on IP remuneration is often misguided, ill-informed and without foundation. I am sure the issue of 'value' will feature as a topic for discussion. As I have said before on this blog, if a tax partner is charged out at £900 per hour to provide advice on a tax point to the IP of a company in administration, this may prima facie look excessive and make for good copy for our friends in the press. However, if that advice leads to a saving of £1,500,000 to the estate in tax liabilities then it is perhaps money well spent.

The issue of rescue culture, viable businesses, saving jobs, recyling assets, and such like, must also feed into the melting pot of discussion. I am unsure of the remuneration levels claimed for the work undertaken in Re Olympia & York Canary Wharf Ltd (No.4)[1993] B.C.C. 866; [1994] 1 B.C.L.C. 702, no doubt they were rather large for this complex restructuring, but no one can doubt that the IPs involved helped facilitate the completion of a complex that is a truly remarkable monument to the rescue culture and the ethos and motivation which drives the vast majority of IPs, i.e. saving value in a constructive manner, not profiteering at the expense of an insolvent estate. Therein lies the paradox. The general public, perhaps as a result of misreporting by the press, simply fails to understand how a living can be made from an insolvent estate. There are of course anomalies to the general trend which have caused much disquiet - see: Re Cabletel Installations Lts (in liquidation) [2005] BPIR 28. Let us hope a disinterested, fair minded member of the press core is in attendance to provide a fair analysis of the discussions.

As noted above the event is invite only. Those wishing to attend who have not received an invite should contact Ms Natascha Engel's office, copying in R3's Ms Orla Hurst (OHurst@r3.org.uk).

Friday, 22 January 2010

Corporate Insolvency Reform - down under!

Whilst the OFT and Insolvency Service mull on English and Welsh corporate insolvency law reform, our friends down under have cracked on with a review of their own corporate insolvency system. The Honourable Mr Chris Bowen MP has announced the following today:
"CORPORATE INSOLVENCY LAW REFORM PACKAGE

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, has today announced a package of reforms to Australia's corporate insolvency laws.

The reform package contains a range of reforms directed at reducing the costs and complexity of insolvency administrations; improving communications with creditors; and reducing the potential for abuse of corporate insolvency law. The reforms will include the adoption of substantially all of the recommendations made by CAMAC in its Issues in external administration report.

The Government will also amend the Corporations Act to reverse the effect of the High Court's decision in Sons of Gwalia v Margaretic which determined that, in a corporate winding up, certain compensation claims by shareholders against the company were not subordinated below the claims of other creditors.

'Any direct benefits to aggrieved shareholders arising from non-subordination are outweighed by the negative impacts on shareholders generally as a result of restrictions on access to, and increases in, the cost of debt financing for companies,' Minister Bowen said.

'The Government also remains concerned that the Sons of Gwalia decision has the potential to further increase uncertainty and costs of associated with external administration.

'The decision has also been taken in light of the decision's potential negative impact on business rescue procedures.'

Minister Bowen also released a discussion paper on the operation of Australia's insolvent trading laws in the context of attempts at business rescue outside of external administration. The paper outlines possible options for reform.

'The Government is committed to ensuring that Australia's corporate insolvency laws are capable of meeting the challenges arising from the global economic downturn,' Minister Bowen said.

'Informal work-outs play an important role in business rescue and therefore the protection of the shareholders, creditors and employees of distressed businesses. The use of formal insolvency reorganisation procedures is not always appropriate.

'It is important that Australia's insolvency laws complement and assist the conduct of informal work-outs.'

Consultation process

The insolvent trading discussion paper contains an overview of the current insolvent trading laws; the options available to companies facing insolvency; and outlines the advantages and disadvantages of informal corporate work-outs.

The paper sets out three possible options: to maintain the status quo; to adopt a modified business judgement rule in respect of the director's duty to avoid insolvent trading; and to adopt a mechanism for invoking a moratorium from the insolvent trading prohibition while work-outs are attempted.

Interested parties are invited to make written submissions.

Submissions may be lodged electronically, by post or facsimile. Please direct submissions to:

Insolvent Trading Safe Harbour Options Paper
Corporations and Financial Services Division
The Treasury
Langton Crescent
PARKES ACT 2600
Fax: 02 6263 2770

Telephone inquiries may be made by calling (02) 6263 3971.

The closing date for submissions is 2 March 2010. Further information on these reforms is available at www.treasury.gov.au."

Whilst on the subject of corporate insolvency and Australia, I have recently come into the possession of the 2nd UK Edition of McPherson's Law of Company Liquidation (pictured) by Leeds University's Professor Andrew Keay. It is well worth the purchase price and is a work of extremely thorough scholarship. As well as copious references to English and Welsh authority there are numerous references made to Australian decisions. There is also a thorough sprinkling of academic articles and other sources throughout the text as well.

Picture Credit: http://www.wildy.com/static/sweet_and_maxwell/2009/9781847033277.jpg

Insolvency not on the up and CVAs a growing trend in Kent

Some interesting insolvency stories feature in the press today. The JJB CVA has inspired one Kent (pictured) based practitioner into extolling the virtues of the procedure, whilst elsewhere, the effect of the Government's credit crunch calming activity has impacted on the proposed profits at Begbies Traynor. They may be less than £12 million according to an article in the Telegraph.

Picture Credit: http://southernwindowcleaningltd.co.uk/images/kent-map2006.jpg

Thursday, 21 January 2010

The Lord Neuberger's ILA speech on HIH has been published

The Lord Neuberger of Abbottsbury, the sometimes outspoken Master of the Rolls, (pictured) delivered a very interesting speech at last years Insolvency Lawyers Association conference. (who have a new improved website). The speech has now been published on the England and Wales judiciary website. The speech was entitled: "INSOLVENCY, INTERNATIONALISM & SUPREME COURT JUDGMENTS."

Picture Credit: http://i.dailymail.co.uk/i/pix/2009/09/09/article-1211870-0657797F000005DC-555_233x423.jpg

Wednesday, 20 January 2010

Liquidation and Directors' Disqualiication - Kotonou v Secretary of State for Business, Enterprise & Regulatory Reform [2010] EWHC 19 (Ch)

Mr Justice Norris (pictured) has handed down his decision in Kotonou v Secretary of State for Business, Enterprise & Regulatory Reform [2010] EWHC 19 (Ch) (15 January 2010). The case concerns some interesting points around the liquidation procedure, directors' disqualification and the not infrequent issue of litigants in person before the Chancery courts. The case involved a group of IT companies, a director named Kotonou, and indebtedness to the tune of over £1.7 million. As the learned judge notes, "Of this deficiency over £570,000 was due to HMRC in respect of unpaid PAYE and NIC, and £19,347 was due to trade creditors."

Directors Disqualification Elements

    "(a) That Mr Kotonou caused Olympic to trade at the risk and to the detriment of the Crown from (at the latest) July 1999 at a time when it was loss making, and balance sheet insolvent, leading to a deficiency on liquidation that was (ignoring intra group liabilities) 97% attributable to the Crown:

    (b) That Mr Kotonou caused Olympic to pay him remuneration from 1999 that Olympic could not reasonably afford and that he received £166,069 in the nine months preceding Olympic's liquidation:

    (c) That in breach of his fiduciary duty to Olympic Mr Kotonou caused Olympic to fund another group company called Netsiren Limited ("Netsiren"), even though Olympic was failing to pay its debts when due and Netsiren itself was insolvent, so that on liquidation Netsiren owed Olympic £800,000, none of which was recoverable:

    (d) That in breach of his fiduciary duty to Olympic Mr Kotonou caused Olympic to incur the costs (amounting to £310,000) of significant improvements to a property interest that belonged to Holdings:

    (e) That Mr Kotonou had allowed Resources to trade to the detriment of the Crown and to incur a tax liability of £577,000 (representing 99% of Resources' third party liabilities at the date of liquidation):

    (f) That there were sundry failures to file accounts and returns."


"I do not regard that criticism as fair, especially where the judge has not been invited to deliver a supplemental judgment to address matters upon which it is said that his reasoning is not understood. The judge had conducted a trial spread out over a protracted period with a litigant in person who would not accept the rulings of the court. The case had taken over five years to come to trial (because of many applications for adjournments by Mr Kotonou). The judge produced his judgment with commendable speed: and he produced it for the parties. It was not directed at the general reading public or an appeal tribunal who would have to consider it in wholly different circumstances. Perhaps with a little distance between the conclusion of the trial and the delivery of judgment some of the descriptions might have been toned down. But the collection of them together in Mr Jacob's skeleton argument does not present an accurate picture of the judgment read as a whole...I certainly do not accept that there is an absence of legal reasoning...He did so with perhaps greater brevity than I would regard as ideal. But the reasons do emerge. "
Olympic Association?
Finally, the case gives rise to an interesting point regarding company names. This issue is not discussed in the case, but it relates to the name of the company, Olympic Central Services Limited, and the Companies Act 2006, section 54, which notes:

"54 Names suggesting connection with government or public authority

(1) The approval of the Secretary of State is required for a company to be registered under this Act by a name that would be likely to give the impression that the company is connected with–

(a) Her Majesty's Government, any part of the Scottish administration [, the Welsh Assembly Government]1 or Her Majesty's Government in Northern Ireland,

(b) a local authority, or

(c) any public authority specified for the purposes of this section by regulations made by the Secretary of State."

The company name does smack of association with the upcoming sporting event in the east end of London, but this was of no relevance to the facts under discussion.

Picture Credit: http://1.bp.blogspot.com/_YrPhWhp-AW0/Sw2E_cVw5wI/AAAAAAAAAyE/5CzAkA3gHaI/s400/alastair.jpg

Tuesday, 19 January 2010

Britain as a Bankruptcy Brothel according to the Times: The IS as brothel keeper and IPs as harlots?

An interesting piece has been published in the Times (not least because of the feedback comments). The article is entitled: " Abuse of pre-pack deals ‘could turn Britain into an insolvency brothel’" I am sure my practitioner blogger colleagues will have some things to say on this article as well as my academic colleagues who have an interest in the subject (i.e. Professor Finch, Dr Frisby and Dr Walton).

The article does raise an interesting point. If Britain is to become an insolvency brothel does that make the Insolvency Service (IS) a modern day brothel keeper in the vein of Hogarth's Harlot's Progress? (pictured) Also, is it the Insolvency Act 1986 or the Insolvency Practitioners (IPs) who administer the procedures that are the practitioners of ill repute or the facilitating brothel keepers? Answers on a postcard (or comment box!).

Either way the article does raise an interesting point about abuse of the English and Welsh insolvency system (the article uses the term bankruptcy in the American sense for some reason). An early bankruptcy case might prove instructive. In Re A Debtor [883 of 1927.] [1928] Ch. 199, Lord Harnworth MR noted:
"Those who are engaged in bringing bankruptcy proceedings must take care that their proceedings do not constitute an abuse of the process of the Court...there is a principle which must be jealously guarded - namely, that the process of the Bankruptcy Court must not be abused. A number of cases have established that..."
It seems some foreign commentators already feel English and Welsh insolvency laws have been brought into disrepute. On the home front Professor David Graham QC has had two letters in the Times on this very subject in recent years. Whilst we can be pleased that a species of reverse Delaware effect is occurring, we do need to ensure that those with responsibility for showing how effective and well managed English insolvency laws are (i.e. the Insolvency Service and R3) are able to rebut any spurious allegations that are ill-informed and misguided.
Picture Credit: http://contexts.org/economicsociology/files/2009/01/a_harlots_progress_plate1.jpg

Insolvency Research Position

An insolvency research position at Kingston University (pictured) has been advertised on www.jobs.ac.uk. The advert notes:
Kingston University

Researcher - CILP

Kingston University - Faculty of Business and Law, Kingston Law School

Vacancy Number: 10/017

Grade: 8

Full Time Salary £34,764 - £37,970 per annum inc (pro rata)

Hours: 27.75 hours per week

Special Conditions: Fixed Term, initially to July 2010 however this may be extended

Closing Date: 12 noon on 11 February 2010

Interview Date(s): 3 March 2010

Applications are invited for a researcher position in Kingston Law School. This post-holder will work primarily with academic staff attached to the School’s Centre for Insolvency Law and Policy (CILP) on insolvency projects.

Candidates will hold a postgraduate qualification and/or a doctorate in any area of legal scholarship but should have an interest in some of the following areas:

  • criminal law and justice,
  • public law and human rights,
  • employment law,
  • environmental law,
  • international trade,
  • law & economics and international development,
  • regeneration and social justice, and
  • socio-legal studies.

This post is fixed term initially but may be extended.

Informal queries about CILP can be directed to John Tribe j.tribe@kingston.ac.uk.

EXTERNAL PUBLICATION STANDARD TEXT

For further information and to apply online, please visit our website at www.kingston.ac.uk/jobs.Alternatively you can email recruitment@kingston.ac.uk for an application pack, or if you do not have access to the internet, please call the recruitment line on 020 8417 3153, quoting reference 10/017. If you are a textphone user, please dial 18001 to access the Typetalk service, followed 020 8417 3153."

Picture Credit: http://www.unaku.co.uk/imgs/image001.jpg

Insolvency Event: IALS Lecture - Dr Walton on Pre-Packs - 3 February at the IALS

The University of Wolverhampton's Dr Peter Walton is due to give a lecture on the latest developments in Pre-Pack Administrations at the Institute of Advanced Legal Studies (IALS - pictured), School of Advanced Study, University of London. Here are the details:
"IALS is pleased to announce the following events:
Wednesday 3 February 2010, 6pm to 7pm

Latest Development in Pre Pack Administration

DR PETER WALTON, University of Wolverhampton

Website: www.sas.ac.uk/events/view/6709

(Free, all welcome. If you wish to attend please RSVP to IALS.Events@sas.ac.uk )

The lectures will be held at the Institute of Advanced Legal Studies, 17 Russell Square, London WC1B 5DR"

Picture Credit: http://freepages.family.rootsweb.ancestry.com/~jacklee/London/images_London/20021016-IALS02.jpg

Monday, 18 January 2010

Universities as Petitioning Creditors and Freemasons - In Re Moghadam (a Bankrupt) No. BK-1998-No.3816, 26 October 2000

The primary purpose of this blog is to provide an updating mechanism for my company law and insolvency law students. The case cited in this entry might provide a very salutary lesson indeed as it involves a University as a petitioning creditor. Debtor students beware! The case also involves allegations of freemasonry (some builders are pictured), claims against Lord Irvine of Lairg and Sir Paul Stephens, as well as defamation. It is no exaggeration to say that the case has it all!

In Re Moghadam (a Bankrupt) (No. BK-1998-No.3816, High Court of Justice Chancery Division Bankruptcy Court, 26 October 2000,2000 WL 33122459) Mr.Registrar Jaques had to consider an application made under s.282(1)(a) of the Insolvency Act 1986, "which provides that the court may annul a bankruptcy order if it at any time appears to the court that, on any grounds existing at the time the order was made, the order ought not to have been made."

Thames Valley University (TVU) were the petitioning creditor on whose petition the bankruptcy order was made. The debts involved related to costs orders totaling £4993.40 in relation to defamation proceedings brought by Mr. Moghadam against TVU. Mr Moghadam brought the action against TVU relating to alleged defamatory comments made against him during his HND course.. TVU presented a petition to this court on 1st June 1998 based on those judgment debts of £7,731. The case involved some interesting affidavits, including the following:
“1. Freemason organisation on behalf of one of their member who is on the Board of Governor of TVU [I interpose to say that is Thames Valley University] have interfered with judicial process and I am no longer prepared to pursue my case against TVU and I am suing the Lord Chancellor. Exhibit ONE.”

Exhibit 1 is a photocopy of the front page of a claim form issued out of the Queen's Bench Division of the High Court, naming two defendants: Lord Irvine, the Lord Chancellor, is the first defendant; and Sir John Stevens, the Police Commissioner, is the second defendant; and the details of the claim are.."
Perhaps more alarmingly for TVU's own solvency the judge cites further material which notes:
“3. Freemason Organisation and TVU were desperately trying to avoid a scandal and possible the TVU bankruptcy.

“Dr. Mike Fitzgerald (TVU Chancellor) finally resigned in mid October 1998 when I fully exposed his criminal activity to the National Union of Students.”
In relation to the above the learned judge notes: "I have heard what Mr. Moghadam has to say about the machinations of the Thames Valley University and the machinations of the Freemasons' Society. I am surprised that there can be any question of the matter still being extant...Many things I am willing to believe; but I find it hard to believe that the application for leave to appeal is still on the stocks, and if it is not, it seems to me that the foundation for Mr. Moghadam's application today falls away."

Registrar Jaques concludes: "The evidence that he put before the court in support of the application does not begin to justify the conclusion that the bankruptcy order ought not to have been made; and it would be a travesty of justice, it seems to me (although I suspect it will not seem so to Mr. Moghadam) to allow what I consider to be a hopeless application to remain on the file as an adjourned matter, whilst Mr. Moghadam seeks to produce more documentary evidence. He has had two years to do so. He has not done so. The material that he has produced does not begin to satisfy me that the bankruptcy order that was made ought not to have been made; and I repeat, it is based on orders of the court, which have not been appealed, and there is nothing to indicate that anything has happened by way of appeal since November 1997. In those circumstances I consider that the proper course for me to take is to dismiss this application as a hopeless application."

Picture Credit: http://content.artofmanliness.com/uploads/2008/10/freemason.jpg

The impact of section 423 of the Insolvency Act 1986 upon sale and lease back transactions considered - Delaney v Chen & Anor [2010] EWHC 6 (Ch)

In Delaney v Chen & Anor [2010] EWHC 6 (Ch) His Honour Judge Purle QC has considered the impact of section 423 of the Insolvency Act 1986 upon sale and lease back transactions. As the learned judge notes, "The issue is whether and to what extent such a transaction may be vulnerable to attack as a transaction at an undervalue." He goes on:
"Section 423 of the 1986 Act relates to transactions (defined in section 436 as including a gift, agreement or arrangement) entered into at an undervalue. If such a transaction is entered into by a person for the purpose of putting assets beyond the reach of a person (the victim) making a claim against that person or otherwise to prejudice the interests of the victim in relation to his claim, the Court may make such order as it thinks fit for restoring the position to what it would have been if the transaction had not been entered into. A person enters into a transaction at an undervalue if the value of the consideration, in money or money's worth, provided by the other party to the transaction, is significantly less than the value, in money or money's worth, of the consideration provided by himself. This is not a complete or verbatim statement of the section, but a summary of the parts relevant to the present appeal...There are many instances where a transaction may be entered into which depletes the transferor's assets, but that is not enough to stigmatise the transaction as being at an undervalue. Thus, a debtor facing bankruptcy may decide to dissipate substantial amounts on food, drink and other aspects of high living. He gets nothing saleable in return, but receives full value. Whatever else may be said about such a transaction, it is not at an undervalue. The debtor pays full value for the consumables or services in question. Once consumed or enjoyed, there is nothing left and what he pays is irretrievably lost to his creditors. The complaint would, however, as in MC Bacon, be that the transaction was entered into at all, not that it was entered into at an undervalue."
Picture Credit: http://www.victorianweb.org/art/architecture/athenaeum/10.jpg
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