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Legal Developments in the The Legal 500 UK 2020

How can these businesses avoid falling into liquidation? Are you helping any insolvent retail operat

September 2019 - Insolvency & Restructuring. Legal Developments by IR Global.

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The following article discusses session two in the IR Global Virtual Series on ' The Retail Apocalypse'.

In the event of liquidation, what are some of the challenges specific to retail in terms of asset di

September 2019 - Insolvency & Restructuring. Legal Developments by IR Global.

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The following article discusses session three in the IR Global Virtual Series on 'The Retail Apocalypse'

New revised guidelines for administrators in pre-pack sales

December 2013 - Insolvency & Restructuring. Legal Developments by Druces.

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Pre-pack sales by administrators are now used frequently enough for most people in business to be aware of them and many have come across them in their business lives. A small amount of controversy still attaches to pre-packs, but it is probably right to say that they are now an accepted part of the UK business scene as a useful means of rescuing a business in difficulty and preserving some or all of the jobs connected with the business.

SIP161, the guidelines for insolvency practitioners carrying out a pre-pack sale, issued in 2009 by the Association of Business Recovery Professionals (and commissioned by the Joint Insolvency Committee (JIC)2) have been revised. The revised guidelines took effect from 1 November 2013. The revised SIP16 defines a pre-pack sale as follows:


 

‘... an arrangement under which the sale of all or part of a company's business or assets is negotiated with a purchaser prior to the appointment of an administrator and the administrator effects the sale immediately on or shortly after, his appointment.' 


Commercial rent arrears recovery: 
stress no more?

October 2013 - Insolvency & Restructuring. Legal Developments by Druces.

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If a tenant of commercial property does not pay its rent as it falls due one of the most effective remedies for a landlord has been to exercise Distress - the common law right to recover rent arrears by seizing and selling a tenant's goods. That right is soon to be abolished and replaced with a new system of commercial rent arrears recovery (CRAR). 


The EC Commission’s proposal for changes to the EC regulation on insolvency proceedings

July 2013 - Insolvency & Restructuring. Legal Developments by Druces.

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Druces currently authors the Insolvency and corporate restructuring section of The In-House Lawyer magazine. For more information and articles from this author click here.

The EC regulation on insolvency proceedings1 (the Regulation) was introduced as a directive taking effect in the laws of member states of the European Union, without the need for member states to pass any local law of implementation. It has been part of EU law and the law of the United Kingdom since 31 May 2002. Insolvency laws vary across the member states of the EU, so a framework was needed to allow the patchwork of differing local laws to interact as efficiently as possible. The Regulation applies in all the member states of the EU, except Denmark, which exercised its right to opt out. 

Rent in administration proceedings: a headache for landlords

May 2013 - Insolvency & Restructuring. Legal Developments by Druces.

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Druces currently authors the Insolvency and corporate restructuring section of The In-House Lawyer magazine. For more information and articles from this author click here.

An important area of insolvency law – the liability of a company in administration to pay the rent under the lease of its premises – which until recently had been relatively clear and straight forward, is currently in an unsatisfactory state. This was not always the case, as, until quite recently, landlords and administrators could easily assess where they stood under the flexible approach that prevailed for many years. Unfortunately, as occasionally happens with insolvency law in the UK, a relatively minor change in the law leads to a re-examination of the position. The matter comes before the court, which feels constrained to interpret the law in a way 
that leads to an impractical result. There then follows a clamour for a change to the law. It is a pattern that we have seen several times before. 


De facto directors: Holland v Revenue and Customs & anor [2010]

March 2011 - Insolvency & Restructuring. Legal Developments by Druces.

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A recent Supreme Court judgment in Holland v Revenue and Customs (HMRC) [2010] has considered the status of de facto directors and, on a 3-2 split decision, limited the applicability of the concept. The decision is controversial because it will provide a defence in certain circumstances for persons controlling companies who are not officially directors of them against claims by liquidators and other parties interested in the winding up of those companies.


Guarantee stripping in company voluntary arrangements: landlords fight back

January 2011 - Insolvency & Restructuring. Legal Developments by Druces.

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A fashion retailer and wholesaler, part of an Italian group, had 11 retail shops and 14 concessions in department stores in the UK, through which it sold garments supplied from Italy by its parent company. The company got into financial difficulties and considered a restructuring involving the planned closure of some of its stores and the surrender of leases with several years left to run. This was clearly going to be an expensive exercise, given that the shops were in upmarket locations and let at relatively high annual rents. Eventually, it was decided to put the company into administration so that the administrators could propose a company voluntary arrangement (CVA), with the intention that four stores would be closed and the leases would be effectively surrendered by the terms of the CVA. The CVA was seen as a mechanism through which the Italian parent company would be released from its obligations under the guarantees given to the landlords of two of the stores. This ‘guarantee stripping’ had been attempted previously by the Powerhouse group, although in Prudential Assurance Company Ltd & ors v PRG Powerhouse Ltd & ors [2007] its CVA was overturned by the court on the basis that the release of the parent company from guarantees given to its subsidiaries’ landlords constituted unfair prejudice under s6 of the Insolvency Act 1986 (the 1986 Act). 


Which approach to take?

When insolvency law and arbitration meet, the question arises as to how the commencement of the insolvency proceeding affects the ability to arbitrate, the arbitration agreement, the arbitration proceeding and the setting aside proceeding, as well as the recognition and enforcement of the arbitral award.

In a global context, international arbitration meets international insolvency law, which brings into play the two following issues:

The ‘failing firm’ defence in difficult times

Given the current economic climate, competition authorities are expecting a possible increase in the use of the ‘failing firm’ defence. The doctrine provides potential opportunities for businesses to acquire competitors, which in normal circumstances would be regarded as anti-competitive. The basic rationale behind the doctrine is that since the failing firm would have left the market anyway due to its financial collapse, any harm to competition caused by the loss of an independent market player would arise regardless of the merger. The doctrine therefore potentially allows a business to acquire its struggling competitor, which is on the brink of administration or liquidation. The defence is worth considering by any administrator or liquidator of a business. Competitors are likely to pay the highest prices for assets and so a merger with a competitor could be an appropriate solution to save a deteriorating business.

European cross-border insolvency: an overview and update

The EC Regulation on Insolvency proceedings does not make particularly easy reading.1 It is a Brussels-made law in the form of a Directive, which took effect in all EU member states (except Denmark, which opted out) on 31 May 2002. Making sense of its provisions involves understanding some slightly unfamiliar concepts, some containing a rather circular logic. That is why there is a rapidly growing body of case law on the key issues. On the positive side, one issue that has been significantly clarified is the meaning of the debtor’s centre of main interests (COMI), the most fundamental concept of the EC Regulation.

Administrators, landlords and tenants: three key cases

Since the introduction of the Insolvency Act 1986 (the 1986 Act), there has been a standard way of dealing with the leasehold premises of a company in administration as part of the sale of the business. Typically, the business sale agreement provides for the purchaser to occupy the leased premises on the basis of an informal licence. The sale agreement places the onus on the purchaser to obtain the landlord’s consent to the assignment of the lease. It also provides that the consequence of this formal breach of the lease is to be at the risk of the purchaser alone. In the majority of cases, this method of dealing with the company’s leased business premises is effective because the landlord will prefer to have the purchaser or assignee in occupation paying the rent and will usually work with the purchaser to formalise the assignment of the lease.


Will company voluntary arrangements become the UK’s most popular rescue procedure?

A Financial Times journalist reporting on the successful approval of a company voluntary arrangement (CVA) by the creditors of JJB Sports plc (JJB) in May 2009 referred to CVAs as:

‘The previously obscure legal process… tipped to become one of the UK’s most popular corporate lifelines.’

To describe the CVA process as ‘obscure’ is something of an exaggeration, but is there any basis for this prediction? After a couple of false starts in CVAs by Powerhouse Ltd (Powerhouse) and Stylo plc (Stylo), a model for the rescue of large retail companies using stand-alone CVAs has been developed. Three recent high-profile cases in the retail sector, involving JJB, Focus (DIY) Ltd (Focus) and Blacks Leisure Group plc (Blacks), have shown that the CVA procedure can be more useful than administration in rescuing a retail business. JJB and Blacks were both publicly listed companies, and JJB was the first such company to use a stand-alone CVA, without the protection of the administration moratorium, as a rescue procedure.

The effective use of liens to protect against the collapse of corporate customers

Logistics service providers need to have an effective contingency plan to deal with the prospect of their retailer customers experiencing severe financial distress, defaulting on payments, or going into administration or liquidation. Although good credit control is essential, especially given the recent disappearance of several household names in the retail sector, this article will focus on the need for the protection afforded by well-drafted contracts that give the service provider effective liens.

With effective liens in place, if (in accordance with Murphy’s Law) the worst does happen, the service provider will be far better off from a legal point of view and the risks to its own business associated with a customer’s default can be minimised. This article is written with the logistics service provider in mind, but several basic points will also apply to service providers in other sectors.

The twilight zone: legal issues for directors

there is no legal definition of the term ‘twilight zone’ (perhaps derived from the cult TV series, the writer would like to think), which is now widely used to describe a period of trading when a company has, or is predicted to have, insufficient cash to pay its debts as they fall due. This might be an immediate cash-flow crisis or the problem might be anticipated many months ahead.

The twilight zone continues until the company is put back on an even keel, meaning a positive cash flow and balance sheet, usually achieved by restructuring, rescue and turnaround techniques, often involving refinancing. Alternatively, the business or shares of the company might be sold. A company might come out of the twilight zone, only to dip back into it from time to time. Unfortunately, many companies in the twilight zone are incapable of rescue and have to be put into administration or liquidation. The date of the commencement of the formal insolvency procedure then triggers the vulnerable period in English law, governing claw backs in relation to preferences, transactions at undervalue, floating charges and other matters, which come under the scrutiny of the liquidator and the creditors in a winding up.

Samsun Logix and developing cross-border insolvency issues

With the ever-increasing trend towards globalisation, it is often observed that there are few businesses of reasonable size that do not trade across borders. At this difficult economic time, many are likely to have overseas suppliers, contractors, counter-parties and customers undergoing financial difficulties. For these businesses, cross-border insolvency issues are cropping up frequently. At the same time, the law is rapidly developing, with cases on cross-border insolvency issues regularly brought before the English and foreign courts.

Pre-packs:a coming of age?

The pre-pack administration, after some difficult formative years, appears to have emerged as a legitimate restructuring tool. Criticisms levelled by creditors, certain that they are getting a bad deal, have been numerous and, as a consequence of actions by creditors, the pre-pack has been put under the microscope in court. Out of all this has emerged something that appears to be seen by the court as a process that is compliant with statutory rules and policy. This article looks at the development of the pre-pack and asks whether it has now ‘come of age’.

Bluebrook/IMO restructuring: a wash out for the mezzanine lenders

Every economic downturn brings in its wake a series of restructuring cases, when the mistakes made during the previous boom are called to account and hard lessons are learnt. Mann J recently gave judgment in the High Court in Bluebrook Ltd, Re [2009]. The matter came to court on the application to sanction three schemes of arrangement.1 It was opposed by the mezzanine lenders on the basis that their interest was unfairly prejudiced. Bluebrook provides a helpful insight into the Court’s approach to the use of schemes of arrangement in restructuring. It also deals in some detail with the issue of determining where value breaks, a crucial issue in a restructuring for the purpose of deleveraging a business overburdened with debt.

The CVA – a retailer’s new best friend?

July 2009 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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JJB Sports plc (JJB) is a high street retailer which had fallen into diffi culties and couldn’t determine a mechanism for dealing with the lease costs of its closed stores, which created cash pressures. A rescue of the business would only be possible if its landlords consented to a compromise. However, there had already been other high-profi le failures to achieve landlord consent. We developed a tailored Company Voluntary Arrangement (CVA) which was approved by 99% of creditors. Blane Leisure Ltd’s CVA (a wholly owned subsidiary) was approved by 98% of creditors. No one in attendance at the Creditors’ Meeting on 27th April 2009 voted against the proposal.

Two more years of recession: a crisis of confidence

June 2009 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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When asked how long the current credit crisis will last, Mick McLoughlin, Global Head of Restructuring at KPMG, tends to take issue with the question. He maintains that we are no longer in the grips of a credit crisis. Instead, he maintains that we have moved on to something far more difficult to escape from; a crisis of confidence.

Financial market participant insolvency

March 2009 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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In the aftermath of the initial credit crunch storm, smaller market participants are feeling the pinch. It is possible that some of these will have insufficient liquidity to continue to trade, or will fail to meet their capital ratios, and may have to seek support from a stronger participant or wind themselves down. However, it is also possible that some will follow Lehman into insolvency.

FACTORING ECONOMIC CONDITIONS INTO BUSINESS PLANS

January 2009 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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The current recession is unprecedented, which makes the outcome difficult to predict. But one thing is certain: it is very dangerous to keep talking down the economy. We do not want to see a deep, prolonged recession. What we actually need, after the excesses of the last four or five years, when too much finance was available, is a correction or readjustment of the economy, not a wholesale recession.

International Corporate Rescue

November 2008 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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This article discusses the way in which the CVA, a highly flexible UK insolvency procedure, was used to implement a complex cross-border restructuring without damaging the operations of a global Tier One automotive supplier.

The importance of preserving cash in a downturn

November 2008 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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Insights from 2008 research into cash and working capital management

Firing up the internal cash generator

November 2008 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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This time a year ago you probably looked forward to phone calls from your bank. They tended to be from the friendly relationship manager inviting you to another cricket match or perhaps a convivial catch up over lunch. Today the same bank may find you slightly less enthusiastic about their calls.

Restore asks KPMG’s Simon Whicker about the potential impact of the collateralised debt crisis

November 2008 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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According to some commentators, the credit crunch possibly represents the worst financial crisis since the Great Depression. Outside the financial sector, however, in the ‘real’ economy, employment is holding up, many companies are predicting continued growth and talk is of a period of readjustment rather than deep recession

In a downturn, cash really is king

November 2008 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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‘Cash is king’ is one of those phrases that business executives often pay lip service to, but relatively few really mean it and even fewer really understand what it means. For many of those executives, cash has never been a real issue. It has always turned up when it has been needed.

Taking down the Sword of Damocles: Definition of Illiquidity

January 2008 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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‘Damocles was an excessively flattering courtier in the court of Dionysius II of Syracuse, a 4th Century BC tyrant of Syracuse, Italy.

Schefenacker

January 2008 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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In the spring of 2007, the English coastal village of Portchester welcomed a new corporate citizen. Schefenacker, a manufacturer of mirrors and lights for the global automotive industry, relocated its headquaters from the German town of Schwaikheim near Stuttgart to Hampshire in the UK as part of a wide-ranging restructuring operation. It was more a move that enabled a troubled company to ward off German corporate law and the German Insolvency Code, while implementing a rescue plan that would satisfy the demands of its financial backers. That the strategy succeeded was good news not only for Schefenacker itself, but also for its car-industry customers.

Thorn in your side

December 2007 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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Underperforming business units depress enterprise values and consume cash that could be better used elsewhere, but it is easy to waste resources on ineffective fixes. Roger Bayly, a Partner in KPMG’s UK Restructuring practice discusses how to spot these problem areas and how to decide what to do.

Restructuring: An overview of services

August 2007 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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KPMG's Restructuring practice can help to solve complex problems that may threaten a company's value. Working alongside lenders, stakeholders and all levels of management, our professionals are able to plan and deliver restructuring actions that can provide real improvements to the cash flow, profit & loss and balance sheet.

The Pensions Bill, March 2004

August 2007 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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New duties on trustees and employers with Defined Benefit Schemes will make restructuring more complex. This covers key points for lenders and their concerns (Briefing Sheet)

Pensions Act 2004 - Clearance an overview, May 2005

August 2007 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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The Pensions Regulator ("the Regulator") has issued guidance on the matters to consider when corporate transactions requiring clearance, i.e. those which might materially affect the recovery to a pension scheme if the employer became insolvent, are proposed. Failure to consider whether to seek clearance may result in financial contributions to the company's pension scheme being sought not only from parties to the transaction but also from their associates. This could undermine the commercial justification for a transaction or impose an inflexible cash drain. (Lender Briefing - 212717)

Pensions Act 2004 - Pension Scheme Creditors - A force to be reckoned with, May 2005

August 2007 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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Where a pension creditor exists in a distressed situation, other creditors may have to get used to the pension trustees and / or their advisors becoming considerably more assertive. This situation will arise as trustees must ensure that they do not allow the pension scheme to have fewer assets that would support the benefits available to members under the new Pension Protection Fund regime ("the PPF"). (Lender Briefing - 212717)

Pensions Clearance - Sense and sensibility. Share sales from an administration, Oct 2005

August 2007 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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A welcome decision from the Pensions Regulator may give comfort to lenders and corporate groups in distressed situations. Where circumstances allow, clearance may be available to protect subsidiary companies from Financial Support Directions (FSDs) where the holding company is insolvent, thus allowing viable companies to be subject to share sales. Lenders and corporates can also be reassured that the Regulator is displaying a reasonable and proportionate attitude. (Lender Briefing - 212716)

Spectrum Plus versus the Pensions Act, Jan 2006

August 2007 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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Where a company alters its security from an existing debenture to factoring or invoice discounting arrangements, this may require negotiation with the pension trustees or clearance from the Pensions Regulator. (Lender Briefing - 300082) 

 

Pension Restructuring - A great leap forward, June 2006

August 2007 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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The CVA of Pittards Plc (Lender Briefing/Case Study - 301732)

Pensions a roadmap for users Recovery Magazine, Nov 2006

August 2007 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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Much has been written about the powers of the Pensions Regulator (tPR), the safety net provided by the Pension Protection Fund (PPF), and we are becoming familiar with a whole new dictionary of jargon that previously resided soley on the bookshelves of the actuaries. But in all this complexity - what does it all mean? (Article)

The CVA - Your flexible friend, Nov 2006

August 2007 - Insolvency & Restructuring. Legal Developments by KPMG LLP.

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An unusual and progressive use of a Company Voluntary Arrangement ('CVA) (Lender Briefing - 304090)