Thursday, 29 July 2010

More interesting cases from the BPIRs - award for most unusual library chairs goes to...

The editors over at the BPIRs have come up with another set of interesting cases for the latest volumne of the BPIRs. Here are the abstracts:

"[2010] BPIR 535



Byers and Others (Liquidators of Madoff Securities International Ltd) v Yacht Bull Corporation and Others [2010] EWHC 133 (Ch)


ChD, Sir Andrew Morritt Chancellor of the High Court, 1 February 2010


- JURISDICTION - Council Regulation (EC) No 44/2001 (Judgments Regulation) - Scope of the insolvency exception


- JURISDICTION - Council Regulation (EC) No 1346/2000 on Insolvency Proceedings - Whether party was investment undertaking - Position of in rem claimants


- JURISDICTION - Council Regulation (EC) No 1393/2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (Service Regulation)




[2010] BPIR 552


Child Maintenance and Enforcement Commission v Beesley and Whyman [2010] EWHC 485 (Ch)


ChD, His Honour Judge Pelling QC sitting as a High Court judge, 11 March 2010


- INDIVIDUAL VOLUNTARY ARRANGEMENT - Debtor in arrears of child maintenance - Debtor proposing individual voluntary arrangement - Whether child maintenance arrears a bankruptcy debt - Whether government body responsible for collecting child maintenance arrears a creditor bound by the IVA


- INDIVIDUAL VOLUNTARY ARRANGEMENT - Non-provable bankruptcy debt not discharged by bankruptcy - Proposal providing for a part payment in full and final settlement of non-provable and non-discharged debt alongside other creditors - Whether approval of the proposal unfairly prejudicial




[2010] BPIR 561


Crossley-Cooke v Europanel (UK) Ltd [2010] EWHC 124 (Ch)


ChD, Roth J, 25 January 2010


- STATUTORY DEMANDS - Setting aside - Whether a genuine dispute requiring resolution before statutory demand could be used




[2010] BPIR 567


Everitt (Trustee in Bankruptcy) v Budhram and Budhram [2009] EWHC 1219 (Ch)


ChD, Henderson J, 20 May 2009


- BANKRUPTCY - Husband and wife each bankrupt - Matrimonial home - Realisation of the matrimonial home by trustee in bankruptcy - Statutory considerations - Whether needs of bankrupt and spouse limited to financial needs - Whether needs of bankrupt and spouse covering medical and mental conditions - Extent to which needs of bankrupt to be considered on application - Insolvency Act 1986, s 335A


- BANKRUPTCY - Matrimonial home - Meaning of exceptional circumstances - Whether circumstances in which bankruptcy order obtained relevant to consideration of exceptional circumstances - Insolvency Act 1986, s 335A


- BANKRUPTCY - Remuneration of trustee in bankruptcy - Expenses of trustee in bankruptcy - Whether court entitled to review remuneration and expenses in absence of challenge - Practice Statement relating to the Fixing and Approval of the Remuneration of Appointees


BANKRUPTCY - Matrimonial home - Order for possession and sale - Whether appropriate to impose charging order for trustee's remuneration and expenses - Insolvency Act 1986, s 335A




[2010] BPIR 585


Hall and Shivers v Van Der Heiden [2010] EWHC 537 (TCC)


QBD, Coulson J, 15 March 2010


- INDIVIDUAL VOLUNTARY ARRANGEMENT - Interim order - Interim order obtained one working day before trial of substantial dispute - Whether permission to be granted to continue with trial - Insolvency Act 1986, s 252


- INDIVIDUAL VOLUNTARY ARRANGEMENT - Interim order - Permission to continue proceedings - Whether High Court having jurisdiction when interim order made in the county court - Insolvency Act 1986, ss 252, 373, 385 - Insolvency Rules 1986, r 7.11




[2010] BPIR 591


Hooper (Trustee in Bankruptcy of Surjit Singh Chowdhary) v Duncan Lewis (Solicitors) Ltd and Others


ChD, Deputy Registrar Garwood, 12 March 2010


- BANKRUPTCY - Insolvency Act 1986, s 366 - Position of solicitors - Production of documents required


BANKRUPTCY - Insolvency Act 1986, s 366 - Examination of third parties




[2010] BPIR 602


A Block Transfer by Kaye and Morgan, Re; Re Paul Murphy and Others [2010] EWHC 692 (Ch)


ChD, His Honour Judge Pelling QC sitting as a High Court judge, 26 March 2010


- INDIVIDUAL VOLUNTARY ARRANGEMENTS - Clause capping supervisors' costs and expenses - Costs of application for block transfer order and bond for incoming supervisors causing cap to be exceeded - Whether court had power to vary the terms of the IVA - Whether costs cap could be exceeded - Insolvency Act 1986, s 263(4)




[2010] BPIR 608


Oxford Pharmaceuticals Ltd (In Liquidation), Re; Wilson and Another v Masters International Ltd and Another [2009] EWHC 1753 (Ch)


ChD, Mark Cawson QC sitting as a deputy High Court judge, 10 July 2009


- WINDING UP - Alleged preferences - Whether preference in fact - Connected persons - Whether presumption that payment was influenced by desire to prefer rebutted - Remedies


- DIRECTOR - Alleged misfeasance arising from payments found to constitute preferences


Winding up - Nullity of post-petition dispositions


- DIRECTOR - Whether misfeasance to cause company to dispose of assets after winding-up petition




[2010] BPIR 638


Pick (Trustee in Bankruptcy of Sumpter) v Sumpter and Another [2010] EWHC 685 (Ch)


ChD, His Honour Judge Purle QC sitting as a High Court Judge, 3 February 2010


- BANKRUPTCY - Family home - Sale and possession - Conditional order - Review




[2010] BPIR 646


Roseoak Investments Ltd and Another v Network Rail Infrastructure Ltd and Another [2009] EWHC 3769 (Ch)


ChD, His Honour Judge Purle QC sitting as a High Court judge, 4 December 2009


- STATUTORY DEMAND - Failing to set aside statutory demand - Separate proceedings by debtor relating to the same issues - Abuse of process




[2010] BPIR 652


Ross and Another v Commissioners for HM Revenue and Customs [2010] EWHC 13 (Ch)


ChD, Henderson J, 12 January 2010


- BANKRUPTCY - Appeal - Offer to secure - Terminal loss claim - Insolvency Act 1986, s 271 - Income Tax Act 2007, s 90




[2010] BPIR 679


Stanford International Bank Ltd (In Liquidation), Re; Janvey v Wastell and Hamilton-Smith; Serious Fraud Office v Wastell and Hamilton-Smith; Stanford International Bank Ltd v Director of The Serious Fraud Office and Others [2010] EWCA Civ 137


CA, Sir Andrew Morritt, the Chancellor of the High Court, Arden and Hughes LJJ, 25 February 2010


- 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




[2010] BPIR 759


Tomlinson (Trustee in Bankruptcy of Smalley) v Bridging Finance Ltd and Another


Preston CC, District Judge Turner, 11 January 2010


- BANKRUPTCY - Property vesting in trustee in bankruptcy - Disposition by former bankrupt - Insolvency Act 1986, s 284 - Land Registration Act 2002, ss 23, 24 and 86



[2010] BPIR 775


Trustee in Bankruptcy of Louise St John Poulton v Ministry of Justice [2010] EWCA Civ 392


CA, Pill, Lloyd and Pitchford LJJ, 22 April 2010


- BANKRUPTCY - Presentation of bankruptcy petition - Failure of the court to notify Chief Land Registrar of petition - Whether statutory duty to notify - Whether common law duty to notify - Whether subsequent trustee in bankruptcy able to maintain a claim for breach of duty - Insolvency Act 1986, s 284 - Insolvency Rules 1986, r 6.13




[2010] BPIR 806


Weir v Area Estates Ltd


ChD, Robin Knowles CBE, QC sitting as a deputy judge of the Chancery Division, 18 December 2009


- BANKRUPTCY - Sale of land - Deposit - Lease - Surrender - Disclaimer - Notice - Insolvency Act 1986, s 284 - Land Registration Act 2002, s 86 - Law of Property Act 1925, s 198 - Land Charges Act 1972."



Picture Credit: http://www.co.wichita.tx.us/Pictures/Law%20Library%202.jpg

Wednesday, 28 July 2010

Two new consultations and an annual report - Insolvency Service publish like crazy!

In addition to publishing their 2009/10 Annual Report, the Insolvency Service have also published two new consultation documents. These are:

In relation to the first consultation document I highlighted sometime ago the background, growth and possible use of Company Voluntary Arrangements (CVAs) in the corporate restructuring sphere. In particular I argued that consensual Part 1 Insolvency Act 1986 CVAs, i.e. CVAs without moratoriums and used outside administration, could provide a low cost effective restructuring tool. In a later essay I argued in the alternative that the small CVA provisions as introduced by the Insolvency Act 2000 and now represented in Schedule A1 of the Insolvency Act 1986 could be extended to large companies (i.e. those outside s.247 Companies Act 1985 or s.382 Companies Act 2006) so as to allow large company restructuring with the benefit of a moratorium without the costs associated with an accompanying Administration Order being in place. In so doing I went someway to respond to the Conservative Party's call for the adoption of Chapter 11 type automatic stays into English law. The Insolvency Service have been consulting on this CVA extension idea. 

Furthermore I argued that instead of adopting a new form of business restructuring tool as advocated by the Conservative Party, which is largely reminiscent of the Irish Examinership model, we should instead extend the small CVA provisions (Schedule A1 Insolvency Act 1986) to larger companies therefore reducing associated reform costs as well as benefiting from a reduction in associated Administration Order costs. The Insolvency Service were doing this. Why revisit this expensive second option when CVA reform was afoot? We already have a veritable smorgasbord of restructuring options. Do we really need another? The results of the consultation will be eagerly anticipated. 

Picture Credit: Insolvency Service. 

Insolvency in the news - IP involvement reduced, and some personal insolvency stories.

There are a number of insolvency stories in the news today. The first appears in Accountancy Age and dwells on the purported reduction in IP involvement in the new Insolvency Service moratorium consultation. See here for the story. A separate blog entry will follow on this consultation, not least to highlight the previous rebuttal to the costly and unnecessary proposal

An IVA and bankruptcy have also been cited as possible drivers behind the recent and very sad Fordingbridge deaths. The BBC are reporting that: 

"A father who was found dead along with his wife and two daughters at their Hampshire home had faced bankruptcy...Mr Case filled an alternative to bankruptcy, known as an Individual Voluntary Arrangement (IVA), at Salisbury County Court in 2006. The arrangement, which usually lasts a period of about five years, is still listed as "current". An IVA requires a person to pay back as much of their debt as they can afford, after which the balance is written off." 

Finally, and on a more light hearted note, it has also been reported that a Scottish driver has been bankrupted by her local council for accruing some £18,000 worth of parking fines. Apparently Ms Clare Williams, who works for a law firm in Aberdeen, "regularly amassed fines of £60 when she illegally parked her black Volkswagen Beetle."

Picture Credit: http://images.dailyexpress.co.uk/img/dynamic/1/285x214/39690_1.jpg

Tuesday, 27 July 2010

When does a CVA unfairly prejudice the interests of a creditor?


Mourant & Co Trustees Ltd and Mourant Property Trustees Ltd v Sky UK Ltd & Others [2010] EWHC 1890 (Ch): Mr Justice Henderson

Mr Peter Hollis and Mr Nicholas O'Reilly, licensed insolvency practitioners and partners of Vantis Plc, were appointed the administrators of the tenant, Sixty UK Ltd ("Sixty"), of two retail units at the Met Quarter shopping centre in Liverpool at an initial creditors' meeting held on 8 December 2008. The administrators proposed a CVA on 17 March 2009 that was approved at another meeting on 2 April. The effect of the CVA was to release Sixty SpA (Italian parent company of Sixty) from all liability under the guarantees upon payment of a sum of £300,000 to the applicants as landlords of the units. The figure of £300,000 was said in the proposal to represent 100 per cent of Sixty's estimated liability to the landlords on a surrender of the leases. The applicants were ostensibly to receive full compensation on the basis of a notional surrender of the leases, but they were to be deprived of any recourse against Sixty SpA as guarantor during the remainder of the 10 year terms of the leases, which had been granted in 2006 and still had approximately seven and a half years to run. All other creditors under the CVA were to be paid in full, subject to normal terms and conditions. They also had the benefit of an apparent agreement by Sixty SpA to defer repayment of a sum of just under £15 million due to it from Sixty. It was intended that Sixty would continue to operate as a going concern, and with the exception of the landlords of the closed stores no other external creditors were asked to accept any reduction in, or compromise of, their debts. As such, the necessary majority of 75 per cent in value of creditors present and voting in person or by proxy at the meeting voted in favour of the arrangement; the only creditors present at the meeting who voted against the proposal were the applicants.

The applicant’s challenge was made under section 6(1) of the Insolvency Act 1986, which is to the effect that an application may be made by any creditor entitled to vote at the meeting if a voluntary arrangement which has effect under section 4A unfairly prejudices the interests of the creditor and/or there has been some material irregularity at or in relation to either of the meetings. The gist of the applicants' argument was that they were unfairly treated in comparison with the generality of the external unsecured creditors, all of whom were to be paid in full. Moreover, they could not find any justification for requiring them to give up the valuable benefit of the guarantees in precisely the situation they were designed to meet, namely the inability of the tenant to honour its obligations under the leases. The CVA therefore left them in a substantially worse position than on a liquidation of Sixty, when regardless of the amount that they might have expected to receive as a dividend in the liquidation, their contractual rights against Sixty SpA would have been unaffected.


Mr Justice Henderson noted that the critical point was that in a liquidation the applicants would still have had the benefit of the guarantees for the remainder of the term of the leases. They would also have had the option, following a disclaimer of the leases by a liquidator of Sixty, to require Sixty SpA to step into Sixty's shoes and to take equivalent leases in its own name. These contractual rights were of obvious commercial value to the landlords, and formed an important part of the consideration for the package of incentives negotiated with the Sixty group in 2006. Hence, neither Sixty nor Sixty SpA could unilaterally alter any of those contractual provisions, and but for the CVA it would have been open to the landlords to continue to enforce the guarantees against Sixty SpA regardless of the plight of Sixty, and regardless of whether it went into liquidation or the leases were disclaimed. As such the CVA was fatally flawed, and ought to be set aside.
Mr Justice Henderson then advised that it is the duty of administrators or other office holders to maintain an independent stance, to act in good faith, and only to propose a CVA if they are satisfied that it will not unfairly prejudice the interests of any creditor, member or contributory of the company. The need for a responsible and professional attitude is even more pronounced where the CVA is structured in such a way that it is bound to be passed by the votes of creditors whose position is either unaffected or improved, and where another much smaller class of creditors is to be deprived of valuable contractual rights in reliance on the Powerhouse principle. Thus, the greatest care was needed to ensure fairness to the latter class, both in the substance of what was proposed and in the procedure that was adopted.


Picture credit: http://www.vantisplc.com/

R3 figures on Torbay - "Fawlty Towers Town tops Britain Bankruptcy Chart."


A recent article in OneIndia on some R3 statistics reminded me of the time when I took a diversion from a Devon based holiday to visit the hotel which is said to be the inspiration for the BBC's famous Fawlty Towers series ("Don't mention the war!"). Along with my best mate (pictured - an insolvency man of some renown) and his daughter we decided to re-enact a famous scene from the series. Pictured to the right outside the Best Western Gleneagles hotel my holidaymaker chum can be seen whacking a naughty car with a branch. My wife stayed safely in the car doing her best Sybil impression, meanwhile, his wife, more sensible child and my dog had decided to stay at base camp. As the article notes the data compiled by R3 shows that Torbay, which includes the south Devon resort of Torquay, is the number one hotspot for personal insolvency.



Monday, 26 July 2010

Huge Leap in Bankruptcy among Women


An interesting article by Rachel Shields discusses statistics that reveal that women are increasingly struggling to meet their financial obligations. While the figures from different agencies show that the number of female bankruptcies increased from 6,042 in 2000 to 29,680 (42 percent of all bankruptcies) in 2009, the number of women entering into Individual Voluntary Agreements increased by 22 percent in 2009 and 63 percent of Debt Relief Orders were awarded to women in the same year, there is hardly any consensus on the explanation of the cause. Graham Horne, deputy chief executive of the Insolvency Service attributes the increases to “irresponsible spending” in a bid to maintain an unsustainable lifestyle. Nigel Millar, a business recovery partner with Baker Tilly LLP believes that because more women have greater control over their finances more women will logically get more credit and incur the consequences. However, research carried out by the Equal Opportunities Commission found that women earn less, own less, and have a lower earning potential. Thus, Anna Bird, head of policy and campaigns at the Fawcett Society argues that women who lose their jobs are less likely than men to have savings.


The Consumer Credit Counselling Service on its part ascribes the increase to rising unemployment given that women are twice as likely as men to work in vulnerable sectors (such the public sector) and departments. Other social factors such as the increase in single-person households (9 out of 10 are run by women) and divorce rates (a study by the Institute for Social and Economic Research revealed that while men’s income increased by 25 percent five years after divorce, that of women fell by 20 percent) have also been advanced as proximate causes.


What this article demonstrates is that the huge leap in bankruptcy among women may be explained by several factors, some of which are related to gender and some of which are not. While financial mismanagement and unemployment (not specifically affecting sectors populated by women) show that to speak in generalities may be incurious, social factors such as earning capacity and the effects of divorce and increase in single-person households show that it is not always a matter of the circumstances of each case and it remains very important to make gender distinctions in analyses.

Picture credit: http://www.independent.co.uk/

Friday, 23 July 2010

High Cost of Official Bankruptcy (Financial Times, 27 August 1980)



Gareth Griffiths


More than 55p was spent on administration in every £1 of net assets realised in bankruptcy cases handled by the Official Receiver compared with 42p in the pound by non-official trustees.

The Official Receiver handled 3,707 cases in 1979 and the non-official trustees 1,352 cases.

Preferential creditors received 16.7p and unsecured creditors 27.8p in official cases. The Insolvency Service makes a profit for the Government, which last year doubled from £343,000 to £672,000, mainly because of high interest rates on fee money.

In non-official cases preferential creditors received 12.4p and unsecured creditors 45.5p.

The number of bankruptcies in Britain last year fell by 11 per cent and estimated liabilities were two-thirds less than in 1978, according to a Department of Trade report published yesterday.

The sharp decline in the estimated liability figures from £202m to about £74 indicates that the collapses caused by the property market slump of the mid-1970s, have worked their way out of the system. Changes in the bankruptcy law in 1976 have also reduced the number of cases.

There were 3,170 bankruptcy cases in 1979 compared with 3,540 in 1978. The greatest number of failures occurred in the construction industry with 832 cases.

Picture credit: http://www.ft.com/home/uk

Thursday, 22 July 2010

Cork Pushes Plan for New-Style Instant Liquidation, Accountants Weekly 24 March 1978

Kenneth Cork, doyen of receivership and liquidation practice, is campaigning within his Insolvency Law Review Committee for a proposal championed by solicitors but which has not yet won the backing of the Accountancy Bodies in their submissions.

He told the Wilson Committee looking into the functioning of financial institutions on which he also sits: ‘We are contemplating the ability to appoint somebody who would have much the same power as a receiver but was called an administrator, and he will be able to put the company on ice while people have time to think’. He followed this up with a speech last week to members of the Institute of Credit Management, where he is president, outlining the proposals.

The principal advantage enjoyed by receivers is immediacy, going into a company on behalf of a bank, for example, overnight to secure their interests. But in the case of a creditor’s voluntary liquidation, notice must be given and in the ensuing hiatus detrimental changes can take place within the debtor company and in its relationship with suppliers outside. The basic premise is that there should be a general moratorium under the aegis of the new administrator, who would be immediately installed to head off unfavourable developments.

The solicitor body, which took the lead in this proposal, was the City of London Solicitors Company, for which a nephew of Kenneth Cork, Colin Cork of Nathan Oppenheimer & Vandyck is one spokesman. This far-reaching suggestion is new to the CCAB committee preparing submissions to Mr. Cork’s Insolvency Committee, though a spokesman agrees that the gap in the current procedure represents a ‘real problem’. The CCAB is presenting its submissions piecemeal to the Insolvency Committee in order of priority, so will have ample opportunity to declare its view on this topic in due course.

The Committee of London Clearing Bankers has seen an outline of the proposal, but says it has not yet been given time to consider its details. ‘Receivership is of far greater importance to the banks,’ a spokesman says, ‘while the change does not affect that, the speedier action would be welcome to creditors. Our own submissions to the Cork Committee are not complete, but this change would seem of more particular importance to accountants’.

The passage of the administrator proposal will not be a bed of roses. ‘It is just something the committee is considering,’ is another view being expressed.

The powers of secured creditors are also being attacked in submissions to the Cork Committee, which has already collected the views of 110 bodies and individuals. In the latest Three Banks Review, Professor R.M. Goode of London University questions whether secured creditors (commonly the bank) are not too secure. ‘This is one of the vital questions currently under consideration by the Cork Committee,’ he says.

Wednesday, 21 July 2010

Does the Protocol Give Rise to a Legally Enforceable Contract?


Mond & Anor v MBNA [2010] EWHC 1710 (Ch) (Sir William Blackburne)


In early February 2009 C (the debtor) approached ClearDebt for financial advice in relation to his loan and credit card liabilities. ClearDebt advised C (who was unwilling to enter into bankruptcy) to propose an IVA to his creditors. Mr Mond (who also happens to control ClearDebt) agreed to become C's nominee for the purposes of the Proposal and to be the supervisor of the IVA upon its approval. The Proposal disclosed that C, who was 23 years old at the time, lived at home with his parents, had no significant assets other than a motorcycle which he required for travel to his place of employment as a plumber, and had unsecured liabilities totalling £18,969 made up of two loan creditors and three credit card creditors (of which MBNA was one). The smallest of the five was for £2,099 and the largest was MBNA for £5,536. The Proposal also disclosed that C had a monthly income of £1,083, monthly outgoings of £860 and, in consequence, when applying what are known as the CCCS (or Consumer Credit Counselling Service) Budget Guidelines, an excess of income over expenditure of £223 per month. The nominee (Mr Mond)’s fee, excluding VAT, would be £1500 and the supervisor's fee, again excluding VAT, would be 15% of all realisations (after the payment of the nominee's fee) and would be drawn as sums were received. In addition, 3.15% of the proposed monthly contribution would be paid to ClearDebt by way of premium for insurance to indemnify C against being unable to work owing to accident, illness or unemployment during the period of the IVA. It was anticipated that the total estimated dividend payable to creditors would amount to 46p in the £.

The Proposal was made in accordance with the procedure laid down by the IA and IRules and was sent to C’s creditors under cover of a letter dated 3 March 2009 giving notice of an intended meeting of creditors on 18 March 2009. By a proxy dated 11 March 2009, MBNA (acting by its agent KPMG) instructed Mr Mond as chairman of the proposed creditors’ meeting to vote against the Proposal. The following grounds for rejection were stated on a document which accompanied the proxy form: “high fees”, “disposable income available for a DMP” and “minimal number of creditors”. As MBNA held more than 25% of C’s indebtedness, MBNA's decision to reject the Proposal meant that it would not be approved. MBNA's precise reasons for opposing the Proposal and whether those reasons changed as the days passed have been a matter of some dispute. One of those reasons was MBNA’s view that, having regard to C’s disposable income and the small number of creditors, a DMP was feasible and manageable. To this end a member of MBNA’s Insolvency Team contacted C in mid-April 2009 with an offer to set up a DMP for him. The result was that on 16 April he agreed to do so on terms that he would make a monthly payment of £70 towards his indebtedness until it was paid off (with interest and fees chargeable in respect of the indebtedness being frozen in the meantime), the payments would be made by direct debit and the arrangement would be reviewed annually. The figure of £70 per month was calculated as that proportion of his monthly disposable income of £223, taking into account the amounts owed to his other creditors, which would leave a balance sufficient to make proportionate monthly payments to those other creditors. In accordance with this arrangement C paid the initial monthly instalment later that month and has since continued to meet the monthly instalments due under the arrangement. The evidence discloses that C was able to enter into DMPs with each of the other four creditors, reviewable six-monthly. Thus, the only persons who are unhappy with what happened were Mr Mond, the nominee under the Proposal (and, if the Proposal had been accepted, the intended supervisor under the IVA), and ClearDebt which had advised C on his options and suggested to him that an IVA was the best solution once he had rejected the bankruptcy option.

The relief claimed was for declarations that, by voting against the Proposal, MBNA acted in breach of various provisions of the Protocol. For the claimants, Mr Stephen Davies QC submitted that the terms of the Protocol are binding on members of the BBA (including therefore MBNA) because, through the BBA (by its Executive Director's letter of 17 December 2007) they agreed to comply with it. It creates, he said, mutual obligations of a bilateral nature. However, Sir William Blackburne noted that the Protocol is not intended to operate in the way that Mr Davies suggested. The Protocol sets out how the IVA provider, on whose advice and with whose assistance the debtor presents a PCIVA proposal, should go about the process of formulating and advising him on it and, assuming the proposal is Protocol-compliant, how the creditors who have elected to abide by the Protocol, should treat the debtor. It is clearly a statement of best practice. It does not set out the terms of any contract by which the IVA provider and the creditors, electing to operate the Protocol, are to be bound in law. Nonetheless, he observed that even though the Protocol does not give rise to a legally enforceable contract but is no more than a voluntary code of practice, the court should not decline, on that account alone, to exercise its discretion to grant declaratory relief in respect of it. But he felt considerable difficulty about granting any kind of declaratory relief on this claim where the only persons who were before him to debate the correct operation of the Protocol were two IVA providers, in reality Mr Mond alone since he effectively controls ClearDebt, and one, albeit important, member of the BBA.


Picture credit: http://www.cleardebt.co.uk/

Tuesday, 20 July 2010

Company directors should not be able to act wrongfully without fear of repercussion

Steven Law, President of R3


This is the gist of a media statement issued by Steven Law, president of the leading professional association for insolvency, business recovery and turnaround specialists in the United Kingdom, known as R3. This follows from the “carefully considered plan to meet the 11% cuts agenda” submitted by the Insolvency Service to the Department of Business Innovation and Skills. Steven Law notes that although the 11% cuts in running costs is an “unavoidable necessity” in this climate this may likely result in the reduction of the number of insolvency and live company investigations carried out by the Insolvency Service. In his opinion, this has the same effect as taking the police off the beat in the midst of a violent crime wave. Most of R3’s members have noted a sharp rise in the number of cases of suspected misconduct by company directors in 2009/2010, as well as the number of problematic decisions not to disqualify directors who ostensibly did not carry out their duties with responsibility. Thus, given that the Insolvency Service has two years to follow-up a referral many cases of alleged fraud during the recession may not be investigated. He concludes that the cuts should be imposed elsewhere within the Insolvency Service because it is a matter of public interest that the Service has the requisite resources to deal with all the cases they receive else some company directors will continue to act with impunity.





Picture credit: https://www.r3.org.uk/Default.asp

Nigerian Government Denies Claims that the State Oil Company (NNPC) is Insolvent


The statement that the oil corporation through which the eighth-largest producer and exporter of crude oil in the world (the government of Nigeria) participates in the petroleum industry was insolvent was no doubt an oxymoron highlighting the contradiction between the company’s cash flow and how it is managed. Nonetheless, given that the Nigerian National Petroleum Corporation (NNPC) accounts for more than 70% of the government revenue and 40% of the country’s GDP, saying that it is insolvent implies that the country is most likely equally unable to discharge its financial obligations. However, this statement brought a sharp rejoinder from the company’s spokesperson to the effect that the NNPC can effectively pay for its crude and product importation obligations and has only one difficult customer: the government of Nigeria. The latter has since backtracked on the claims of the NNPC’s insolvency. Whether it was an inadvertent error or an intended pun or paradox, it has certainly dragged the reputation of the country further through the mud especially in a continent where insolvent debtors are often seen as persons that have transgressed morality and the criminal law.


Picture credit: http://www.nnpcgroup.com/home

Monday, 19 July 2010

All that Glitters is not Goldtrail


Goldtrail went into administration on Friday, July 16th 2010. It was the biggest independent tour operator to Turkey and was allegedly worth £35 million. It also operated flights and holidays in Greece. Although it took as many as 250,000 people to the Southern cost of Turkey in one summer, problems with customer dissatisfaction as a result of "grotty accommodation and poor service" had been in the limelight for a while now. In 2008, the company paid out £120,000 to nine customers who had allegedly contracted legionnaire’s disease from the shower of their hotel. Then there were also complaints of people contracting salmonella and E.coli. The Association of British Travel Agents (ABTA) fined the company £11,000 that year. Unsurprisingly, the company has now left about 16,000 customers stranded in Turkey and Greece in its wake.


It is uncertain whether Goldtrail’s management showed any regard for the interests of these customers, who today are creditors, many of whom may have to wait for about two years in order to be refunded. Surely, if the company’s management had kept proper books of account then they “knew, or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation” (section 214 of the Insolvency Act 1986). However, customers were booked a fortnight ago and about 2,000 customers were due to travel last weekend. Given all their problems, there is no doubt that a “reasonably diligent” manager would have known that the company could not continue to trade and had to be put into liquidation. It would be interesting to see the liquidator’s report on the conduct of the managers because this case has got “wrongful trading” written all over it.

Picture credit: http://www.abta.com/home

Friday, 16 July 2010

Response to Enquiry about Proposals for the Early Reform of Bankruptcy Law (Thursday 24 July 1980)


Reginald Eyre


“The Government has decided in principle that a simpler and more straightforward system of personal bankruptcy is called for. This would involve replacing the Official Receiver in the administration of personal bankruptcy by receivers appointed from the private sector. This would be a further extension of the changes made in 1976 when, as a result of the increases in the deposits on petitions and monetary limits the number of personal bankruptcies dealt with by Official Receivers declined by about 40 percent.


For many years the Insolvency Service, which handles both personal bankruptcy and companies winding-up has been unable to recruit sufficient specialised staff to cope with its work load. To relieve the Official Receiver of personal bankruptcy work would enable these scarce specialist resources to be concentrated on companies winding-up investigations. This is where they are most needed.


These proposals in no way imply that the Government is relaxing its pursuit of fraud. In fact, as far as compulsory winding-up of companies is concerned, the Official Receiver will not only continue to pursue fraud, he will be better staffed to do so.


To ensure that creditors’ rights continue to be protected, the new procedure would remain under official control. It would therefore remain under the control of the Court with the Department of Trade continuing to have supervisory functions. The Secretary of State would still be directly responsible to Parliament for its proper administration.


In cases of personal bankruptcy unconnected with company failure, there would be the same obligation on the receiver (albeit from the private sector) to report to the Department any prima facie evidence of criminal offence as there was on the Official Receiver.


Even allowing for increased costs, we believe that the new procedure will continue to be, at the very least, an equally effective means of debt collection and of relieving debtors of the burden of their debts as the present system.


I am now considering the translation of this general policy into firm legislative proposals. This is a complex and technically demanding task calling for wide consultation with all interested parties, and for this reason I am arranging for a consultative document to be published today. This will give an outline of the proposed alternative bankruptcy procedure to replace the existing one in England and Wales and will invite comments on the new policy which we are proposing. Under the new policy there will be a consequent saving of approximately 570 staff and a net financial saving of £3 million a year.


The Insolvency Law Review Committee, appointed under the chairmanship of Sir Kenneth Cork by the previous Government, produced an Interim Report on bankruptcy at the end of last year, proposing major changes in bankruptcy law and procedure. I am arranging for that Report also to be published today. However, the present Government has radically different views from its predecessor on the responsibilities of the Civil Service, it is of course no reflection on the Cork Committee that the change should have occurred while they were at work, but in consequence the Government are now considering this very different approach. To operate the present personal bankruptcy system, or even the modernised system devised by the Cork Committee, requires a large technically-trained staff employed in the Government service. Changes in society, in processes for recovery of debt, and in the value of money, all suggest that it is now unnecessary to maintain this costly public structure for the administration of the civil process of personal bankruptcy.


Fortunately the Cork Committee has already received and assessed much expert evidence on those areas of general insolvency law reform which will still be directly applicable to the cases to be dealt with under the new procedure. The Committee’s views on these law reform aspects will be of great assistance to us and may well appropriately be included in any proposed legislation. In this connection those who gave evidence to the Cork Committee can be assured that their work will remain of considerable value.”



Thursday, 15 July 2010

Is the level of the debt reported directly related to the political affiliation of the announcer?


9 days ago an IEA (Institute of Economic Affairs) Discussion Paper was examined on this blog. The paper heralded the bankruptcy of the UK Government owing to the fact that if its debt was calculated in accordance with the generally accepted accounting practices the overall public sector balance sheet would look much worse. This is because the “liabilities” of Northern Rock, Bradford and Bingley, Lloyds Banking Group and unreported pensions debt would be included. Today some media outlets are equally reporting that the level of debt is actually about five times higher than previously reported because of the inclusion of liabilities in unfunded public service pension obligations and unfunded state pension schemes and the Government’s stakes in Royal Bank of Scotland and Lloyds.


As such, the question today is: to include these “additional” figures or not to include them? The answer seems to be a function of the reporter’s political affiliation as some would consider the inclusion to be financial transparency while others would consider the inclusion to be nothing more than subtle fear mongering. Whatever the case, it is important to note that under the Maastricht Treaty the data on the deficit and debt of governments are calculated according to the 1995 European System of Accounts and the United Nations Statistical Commission decision on the treatment of government receipts. If one looks beyond these international standards then one would realise that the levels of debt of most Western European and North American countries and Japan would equally be five times higher than initially reported.

Picture credit: http://www.hm-treasury.gov.uk/

Wednesday, 14 July 2010

Cork Materials: “Choice of Cork or Green Paper” 25th of July 1980


“Bankruptcy is a small matter in the broad context of the financial system, but its treatment is critical to the operation of that system. Both the public’s perception of it either as stigma or misfortune and its legal weight affect the entire psychology of risk-taking in the personal and corporate spheres. So the profound differences between the interim report of the Insolvency Law Review Committee and the Government’s Green Paper are disturbing, representing as they do radically opposed solutions to the problem of dismantling the existing and cumbersome provisions.


Sir Kenneth Cork and his committee proceeded slowly and produced an elaborate and thorough system whose main objective would be the separation of the wrongdoer from the unfortunate or rash. Its provisions are developments of the existing system in recognition of the soundness of its principles of speed, fairness and the ultimate rehabilitation of the bankruptcy. Most importantly, while freeing the small and blameless debtor it preserves a high level of vigilance born by the courts and the Department of Trade.


In contrast there is a stark simplicity about the Green Paper in its abolition of the Official Receiver in personal bankruptcies and its reallocation of his functions to the private sector. The procedures themselves will also be trimmed, most notably by the abolition of the first meeting of creditors. With the underwriting of the receiver’s bill by the creditor the net effect is to exert pressure in favour of private settlements. The Government has been encouraged to follow this route by the Insolvency Act 1976 which reduced the number of bankruptcies by 40 per cent by increasing the monetary limits in the original statutes and yet did not result in any harassment by creditors bent on taking the law into their own hands.


That, however, was a small step compared to the Green Paper’s radical changes. Apart from reducing the total number these also would tend to make the bankruptcies which do occur less visible and consequently more open to abuse. The Government answers this criticism by pointing out that these private sector receivers will be answerable to the Court: but that is only one level of answerability compared to the more elaborate checks and balances involved in the Cork proposals. The comparison makes the Green Paper appear a rushed and incomplete affair whose inspiration seems to be more the cutting of 570 Civil Service jobs than a fundamental reconsideration of insolvency law. It was this reconsideration towards which the Cork Committee was heading, albeit slowly, and the Government should not have pre-empted it at this late stage.”

Picture Credit:
http://images.npg.org.uk/120_120/2/9/mw08129.jpg

Tuesday, 13 July 2010

Citizens Advice Bureau: The Unfair Treatment of Bankrupts by Banks


John Tribe could give you a drawn-out lecture on the barbarous and inhumane treatment of debtors over the course of mankind’s history. However, what makes it particularly prolix is the fact that the lecture will discuss incidents that occurred yesterday and may be this morning too. Debtors are still viewed across the globe as some kind of white-collar or blue-collar (depending on the person’s social status) criminals that ought to be chastised or made to feel as uncomfortable as possible. In some countries where there are no established or recognised or popular insolvency procedures the debtor – creditor relationship is akin to that of fugitive – police fugitive task force. Nonetheless, a report of the Citizens Advice Bureau (Call to Account) published yesterday shows that even in societies where there have been substantial reviews of the insolvency laws and practices and the enactment of so-called ‘debtor-friendly’ statutes, the honest and unfortunate trader that is unable to pay his debts due to unforeseen circumstances and the consumer who became insolvent due to “unplanned changes” (job loss, divorce etc) are still very much chastised. Only two (Barclays and The Co-operative Bank) of the seventeen banks that provide basic bank accounts in England and Wales and Northern Ireland allow people going through bankruptcy to open accounts (even with no credit). The evidence adduced shows the anguish of undischarged bankrupts with no access to even basic bank accounts: “basic tasks such as receiving wages or benefits and paying bills can become huge and costly obstacles to overcome, particularly for people who are often at a vulnerable point in their lives.”



The 15 banks that do not provide basic bank accounts to undischarged bankrupts intimate that they are concerned about potential liability although Barclays and The Co-operative Bank told the Citizens Advice Bureau that they experience no such difficulties. The alternative options for these unfortunate (for at least 44 percent of cases) persons include Post Office Card Accounts and Credit Union Current Accounts. Although they are widely available and can be accessed via counter services nationwide (for Post Office Card Accounts) tax credit and pensions payments and other deposits (wages, housing benefits etc) cannot be made, and electronic facilities for payment or withdrawal are not available. The Citizens Advice Bureau (as well as the Treasury Select Committee) is therefore calling on the 15 banks who continue to exclude bankrupts to change their policies as a matter of urgency.



Picture credit: http://www.citizensadvice.org.uk/

Monday, 12 July 2010

Sean FitzPatrick, Former Chairman of Anglo Irish Bank Set to be Declared Bankrupt Today


As the blazing “Celtic Tiger” dwindled one of its most glaring lampposts, Sean FitzPatrick, was shown to have been nothing but garish. In December 2008, the former chief executive and chairman admitted failing to disclose information about personal borrowings to the tune of 87 million Euros which he had moved in and out of the bank each financial year for a period of 8 years. There are also questions about whether deposits from Irish Life & Permanent were used to mask huge customer deposit withdrawals; and whether the bank had lent money to some investors to buy its own shares in order to bolster its share price, among many others. In January 2009, the bank was nationalised and recapitalised and Sean FitzPatrick was required to repay about 110 million Euros to the bank. He told the court he was unable to repay owing to the fact that the financial crisis and property crash had wiped out his net worth. The court then issued a protection order restraining his creditors from moving against him in order to give him time to put a scheme together. He offered his family home, half of his pension and his car but Anglo Irish (representing about 70 percent of Sean FitzPatrick’s total debt) opposed the scheme. Thus, he believes he is now left with no option but bankruptcy.
Although it is uncertain how he may settle the debt, one wonders whether the bankruptcy regime in Ireland would not be lambasted for being too debtor-friendly if Sean FitzPatrick were to use a bankruptcy order by Justice McGovern as a convenient shield to intercept any attempts by Anglo Irish to move against him. Surely, the bank must be thinking that it is not up to a debtor also facing a criminal inquiry and a possible jail sentence under the Companies Act and the Criminal Justice (Theft and Fraud Offences) Act, 2001 to deal with his assets as he wished. Also, the fact that he apparently continues to lead an obtrusively lavish lifestyle[1] would not help defenders of the bankruptcy regime. Nonetheless, Fine Gael[2] might insist that bankrupts like Sean FitzPatrick constitute a very small minority and that also might be true.





[1] http://www.irishcentral.com/news/Disgraced-banker-Sean-FitzPatrick-parties-on-97761029.html
[2] http://www.businessandleadership.com/leadership/news/article/23145/

Friday, 9 July 2010

Ombudsman will cause insolvency costs to rise and R3 parentage doubtful?!

Yet more OFT report fall out! Accountancy Age are reporting that some Insolvency Practitioners (IPs) are predicting that the imposition of a complaints body (like Cork's Ombudsman) will cause a rise in the costs of administration. See here for the story. An interesting side line argument has also developed from the article on the genesis of R3. See the comments section at the foot of the story. TE Lawrence (pictured) had dubious parentage according to some reports. He turned out alright, as has R3!

Picture Credit: http://trueclassics.files.wordpress.com/2010/02/peter-otoole-lawrence-of-arabia-c10103933.jpeg

Very interesting personal insolvency map from R3

R3, the Association of Business Recovery Professionals (pictured), have published a very interesting pictorial representation of personal insolvency across England and Wales. See the map here. The accompanying press release notes that:

"The bankruptcy map which looks at the number of new bankruptcies and Individual Voluntary Arrangements (IVAs) that occurred in England and Wales shows that the likelihood of becoming insolvent was almost seventy percent (69.5%) higher in the North East than in London. There were almost six thousand (5,923) new personal insolvency cases in the North East which means that for every ten thousand people, 29 of them became insolvent. The figures indicate that people who live in London are least likely to go into a formal insolvency procedure. The average number of new cases in England is 24.3 per ten thousand - in London there were 17.1 new personal insolvency cases for every ten thousand people. 


R3’s President, Steven Law commented:
“Prior to the recession, the North East had a higher than average unemployment rate and the region’s construction industry was badly hit during the economic downturn so it is understandable that personal insolvencies are more common there. Londoners are least likely to become insolvent as there are more employment opportunities in the region. Unfortunately, with the announcement of public sector job cuts, it is likely that the figures will worsen, especially in areas such as the North East where public sector employment is high.”

The top ten insolvency hot spots (new personal insolvency cases per 10,000):

Ø  Torbay, South West (45.8)
Ø  Kingston upon Hull, Yorkshire and the Humber (40.7)
Ø  Lincoln, East Midlands (39)
Ø  Plymouth, South West (38.8)
Ø  North Tyneside, North East (37.4)
Ø  Gateshead, North East (37.1)
Ø  Corby, East Midlands (37)
Ø  Hastings, South East (36.9)
Ø  West Devon, South West (36.9)
Ø  Thurrock, East Anglia (36.7)

Law commented:
“It is unsurprising that many of the top ten insolvency hotspots are coastal towns. Tourism and leisure services businesses are often the main employer in these areas and, when people are reining in their spending, these services tend to be the first affected which means businesses reduce staff hours or cut jobs; or replace permanent jobs with temporary positions.

“A low percentage of formal personal insolvencies does not equal good news, especially as the insolvency industry estimates that 500,000 people are in informal insolvency procedures and R3 research shows that nearly 1 million people are struggling with debt and have not yet sought help. R3 advises anyone who is in financial difficulty to seek advice sooner rather than later.” 
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