The power to appoint an administrator is an important power for debenture holders when seeking to enforce their security. In order to exercise that power, the debenture has to be a qualifying floating charge (“QFC”) and it has to be enforceable.
The case of Borg-Olivier v Knowles & Ors [2022] EWHC 2579 (Ch) (“Borg-Olivier”), highlights the importance of the QFC being enforceable and the impact on the validity of the appointment of administrators if it is not.
In this case, the appointed administrators found themselves in the unfortunate position of not being validly appointed following the Court finding that the qualifying floating charge was not enforceable at the date of appointment.
On 11th November 2022, Mr Justice Zacaroli handed down judgment on an application for directions made by the officeholders of ten different energy supply companies (“ESC” or “ESCs”) seeking clarification on issues arising in the insolvencies of the ESCs which had not previously been the subject of judicial consideration.
In terms of quantum, the issues were valued at in excess of a hundred million pounds across the ten insolvencies and potentially many more millions of pounds on other ESC insolvencies not before the court.
The outcome of the application was of particular interest not just to the officeholders of the relevant insolvencies but particularly to Ofgem; the suppliers of last resort (“SoLR” or SoLRs”) and other significant creditors in the insolvencies. All were represented at the hearing which took place over 4 days in early October 2022.
Devinder Singh, a restructuring and insolvency partner in SPB’s Birmingham office, acted for one of ten applicants in an application for directions made in the High Court by a number of officeholders following the collapse of several energy supply companies (“ESC”).
The application sought directions on a number of key issues affecting the energy industry as a whole which until today, have not been addressed by the courts, including:-
Can a Company Voluntary Arrangement (“CVA”) complete, but still remain in place and bind creditors?
The simple answer is yes; but it does require (a) the terms of the CVA to be carefully drafted to allow notice of completion to be filed before the end of the CVA term; (b) compliance with the terms of the CVA, and (c) careful consideration of the position of the supervisors, creditors and company.
Insolvency practitioners (IPs) often occupy quasi-judicial offices which, among other things, require them to, assess and adjudicate on competing claims, take coercive and enforcement actions and complete potentially contentious transactions. They must discharge their legal and equitable duties whilst maintaining objectivity and, whilst recognising and appropriately balancing the interests of a diverse range of stakeholders.
If current financial uncertainty forecasts prove to be true,[1] the challenges faced by IPs in terms of discharging their legal obligations will likely intensify in complexity, timing and scope.
Economic downturns and corporate renewal processes are an inherent part of free market economies. Distress to some represents opportunities for others, including in terms of investments and recapitalisations. IPs have an important role to play in those contexts. Above all else, they ought to bear in mind their commercial and legal obligations, and the fact that markets, governments, courts and their stakeholders are looking at them to act reasonably and responsibly both in advance of, during and after any downturn. The PMC Report regrettably paints a bleak picture. The reference to “people being hit hard” is calculated. It is not only intended to alert governments to the need to recalibrate fiscal policies, but is also intended to warn and prepare others in financial markets. Judges with oversight of external administrators will (and already do) take judicial notice of market and economic conditions. Those factors will be relevant in their assessment of the conduct of IPs, particularly in relation to the competing interests or unrecognised interests of stakeholders.
The courts will assist, and hear from, all aggrieved stakeholders
Whether “aggrieved persons”, “interested persons”, “appropriate persons” or “dissatisfied persons”, domestic and foreign restructuring regimes have, and will continue to, cast wide nets in hearing from, and giving standing to, entities who wish to challenge or judicially review either the decisions made by IPs, or their conduct. That trend will likely gather pace as the recent economic developments filter through in terms of their impacts on legislative reform and judicial oversight of insolvent estates. In that context, IPs must recognise the expanding nature of their duties (and corresponding liabilities both pre- and post-appointment) in seeing through their transactions, adjudications and claims. IPs need to act cautiously before embarking upon claims (irrespective of internal or external funding arrangements) or concluding contentious transactions.
In respect of claims, the risk profiles for external administrators, in the context of both types of funding, are different, and requires the assessment of unique metrics and threshold questions – both of law and commerce. Those assessments are far more complex than simply identifying a potential claim, assessing its merits, seeking or securing funding, and embarking on litigation. Recourse to court processes and invoking the coercive powers of a court are avenues routinely available and familiar to IPs, but just because those avenues exist, and a legal and commercial basis mightbe present to take coercive, recovery or enforcement action, does not mean that the first step need always be litigation. Indeed, taking that approach naturally invites scrutiny, not limited to that from the court (which occupies an oversight function in any event), but from a very broad (and sometimes unknown) range of stakeholders and regulators, including from overseas. Proponents of claims would also be best served pausing to critically assess the implications of their support for external administrators by paying regard to the current economic, legislative and judicial contexts relevant to insolvent estates.
In respect of transactions, exercising expeditious legal and commercial judgment calls will always be part of the mandate of IPs. However, the need to act decisively and quickly should not come at the cost of not properly discharging one’s duties. That is particularly so in circumstances where, firstly, competing transactional interests are at play and, secondly, where creditors are looking to administrators for robust and well-reasoned rationales for why one transactional path should be favoured over another.
The Law on the Temporary Adaption of Restructuring and Insolvency Law Provisions to Mitigate the Consequences of the Crisis (SanInsKG) was published in the German Federal Gazette (Bundesanzeiger) today (8 November 2022) and will become effective in German law tomorrow (9 November 2022), following a very quick legislative process.
Purpose of the SanInsKG
SanInsKG is intended to address the difficulty of companies assessing their solvency in the current economic climate.
Economic, trading and supply chain uncertainties persist and are particularly pronounced in some sectors including infrastructure and construction where sub-contractors often feel significant pressure points.
In our latest Australian insight, following the Federal Court rejecting the liquidators’ proprietary interest claims in the proceeds of performance bonds and upholding the head-contractor’s statutory set-off rights, we consider the implications of the decision in Hastie Group for liquidators, subcontractors, their funders, and target head contractors.
The Singaporean restructuring regime provides an attractive framework for scheme proponents. Our latest insight considers why more APAC cross-border restructures might emanate from Singapore.
While the Judge-made doctrine of equitable mootness continues to beguile and often stymie parties-in-interest seeking to appeal an order confirming a chapter 11 plan (as well as other orders which are on appeal prior to confirmation of a plan), appellants in the Fifth Circuit can continue to rest assured that the doctrine will be applied only as a “scalpel rather than an axe.” That is because in the Fifth Circuit, the doctrine—which can be described as a form of appellate abstention—is applied only on a claim-by-claim, instead of appeal-by-appeal basis. Bank of New York Trust Co., NA v. Official Unsecured Creditors’ Comm. (In re Pacific Lumber Co.), 584 F.3d 229, 240 (5th Cir. 2009). In the Fifth Circuit, “equity strongly supports appellate review of issues consequential to the integrity and transparency of the Chapter 11 process.” Hilal v. Williams (In re Hilal), 534 F.3d 498, 500 (5th Cir. 2008). That is because “the goal of finality sought in equitable mootness analysis does not outweigh a court’s duty to protect the integrity of the process.” Pacific Lumber, 584 F.3d at 252.
Supply chain disruption was exacerbated by the pandemic, and due to the ongoing conflict in Ukraine problems continue to impact UK businesses. Unfortunately there is no sign of disruptions abating in the short term.
In a recent webinar Sarah Rathke explored the question: “Why is Everything Broken? Understanding Pandemic Supply Chains” which is available to view on demand here.
