The statistics are clear that the number of restructuring proceedings in Poland is on rise.
Among all types of restructuring proceedings available in Poland, the procedure which is of most interest is the approval of an arrangement, primarily because it is the least formal and it offers special protection against enforcement.
However, with the increase in the number of restructuring proceedings, the instances of misuse are also increasing. The main motivation for initiating proceedings is often to avoid enforcement during the protection period or to cut down debts, even when there is no chance of the arrangement being approved or performed. In this blog we consider how creditors can defend themselves against such situations.
In the case of JDK Construction Limited the Court of Appeal had to consider whether an earlier decision by a High Court judge that liquidators had been validly appointed was correct.
The answer to that question turned on whether the resolutions that the company had passed to place the company into voluntary liquidation were valid given there were questions over who the members of the company were (or should have been) at the time the resolutions were passed.
The liquidators had relied on the filings at Companies House, but these did not reflect what ought to have been the position following shares being transferred without one of the shareholders knowing. Although it will be rare that shareholdings are transferred in the circumstances outlined below, one question this decision raises is how much reliance can a practitioner place on the members register? The trial judge said the register is conclusive evidence, but is it?
And what if the register is wrong, does this place an officeholder’s appointment at risk?
It seems like s248 of the Insolvency Act 1986 (“Act”) is flavour of the month with the judiciary at the moment, with two recent cases analysing this in the context of administration extensions (read our previous blogs here and here ) and now a further decision considering this in the context of converting an administration into creditors voluntary liquidation (“CVL”) – the question this time being whether “preferential creditors” are unsecured creditors in the context of converting an administration to liquidation under paragraph 83 of Schedule B1 (“Schedule B1”). The answer (see below) offers a helpful solution.
There is a tension between UK insolvency and pensions laws. Put simply, this is because insolvency laws look to protect all of the company’s creditors, but pension laws seek to protect the interests of the pension creditors alone.
When new offences and criminal sanctions were introduced in 2021 enabling TPR to issue fines of up to £1million – with the potential for those offences to capture insolvency practitioners, lenders, directors and others – this did nothing to enhance the unhappy relationship between restructuring and pensions.
For a reminder of the new offences and the concerns felt by the restructuring market, see our earlier blogs here and here.
Our colleagues in pensions have recently posted a blog reflecting on these new powers and whether and to what extent those have been used – including the new notifiable events regime and what has happened to that. For those in the restructuring market who may come across companies that have a defined benefit pension scheme it’s worth a read – not least because it is a helpful reminder of the powers, but also to give some comfort that to date TPR has not – seemingly – done much with them.
As practitioners we pour over notices of intention to appoint (NOIA) and notices of appointment of administrators (NOA) to make sure every detail is accurate. Why? Because no one wants to risk an invalid appointment because there was a minor mistake or error that was overlooked. Understandably errors occur, particularly when the appointment of administrators often happens at speed, with all parties inevitably juggling many balls. Prescribed information may have been missed, or incorrectly stated and procedural steps may have been inadvertently forgotten.
The approach the judiciary take to a defect and the effect on an appointment has moved on a long way since the days of prescribed forms, when a failure to use the right form might had resulted in an invalid appointment, or a step that was described in the Insolvency Rules as a “must” was often considered fatal if not done.
Now the court will consider whether it was intended that a breach of Schedule B1 or the Rules should result in an invalid appointment – dividing defects (as per Euromaster) into those which go to the power to appoint (where a breach is more likely to cause an invalid appointment) and those where the breach is procedural in nature (where it generally won’t). Even where a defect is more fundamental, we have seen the court take an even more holistic approach and find a pragmatic solution that enables the company to stay in administration where it is clear that it should be –Re Tokenhouse is an example of this.
Why then do we still fret over whether every “i” is dotted and “t” is crossed? Perhaps this is just a hangover from the days of prescribed forms where such errors were problematic, have we all been conditioned to be uber cautious?
The bankruptcy court presiding over the FTX Trading bankruptcy last month issued a memorandum opinion addressing valuation of cryptocurrency-based claims and how to “calculate a reasonable discount to be applied to the Petition Date market price” for certain cryptocurrency tokens. As noted in Bankruptcy Judge John Dorsey’s opinion, “[n]o bankruptcy court has ever estimated the value of cryptocurrency-based claims, nor … has any court ever conducted a valuation of crypto type assets.” The opinion therefore is required reading for parties to cryptocurrency bankruptcy cases as it provides a roadmap for both debtors and non-debtors to use when valuing cryptocurrency claims.
For those that are that way inclined (which includes us at #SPBRestructuring!), the 500 plus page Wright v Chappell judgment which sets out the BHS wrongful trading claim against its former directors makes for an interesting read. It paints a colourful picture of the downfall of the BHS group, from the point that it was sold for £1 to its eventual demise into administration and then liquidation. You can make your own mind up about the characters involved, but the story is a sorry one, with creditors ultimately suffering the most.
The liquidators of the BHS group brought a claim against the former directors for wrongful trading, two of those directors settled the claims against them, and three defended. This recent decision relates to the findings against Henningson and Chandler, with the outcome of the claim against Chappell being dealt with separately.
Ultimately the judge found that both Henningson and Chandler were liable for wrongful trading, but also that they were liable for misfeasance trading in breach of their director duties. But what is “misfeasance trading”? How does this impact director duties? Does this change how practitioners should be advising directors of distressed companies?
File your proof of claim before the bar date. That’s a principle every creditor in a bankruptcy case should adhere by. But on June 7, 2024, the United States Bankruptcy Court for the Southern District of New York may have increased the degree of diligence parties need to conduct to determine whether they are a potential creditor in a case and therefore required to file a proof of claim. The decision, which is on appeal, stands for the proposition that a party in interest should file a protective proof of claim when the party (a) has received notice of the bar date and (b) should recognize that there is some possibility that it could face liability in the future related to its prepetition relationship with the debtor.
On June 27, 2024, the Supreme Court ruled in a 5-4 decision that a bankruptcy court does not have the statutory authority to discharge creditors’ claims against a non-debtor without the creditors’ consent (except in asbestos cases). The decision in Harrington v. Purdue Pharma settles a long-standing dispute in the bankruptcy world that will have significant impact on Purdue Pharma and its hundreds of thousands of creditors, and more generally on the bankruptcy practice itself.
No, it isn’t. We now have two cases where the Court has decided that the consent of paid secured creditors is not required when extending an administration under para. 78 of Schedule B1 of the Insolvency Act 1986 (the “Act”).
In Boughey & Anor v Toogood International Transport and Agricultural Services Ltd [2024] EWHC 1425 (Ch) (“Toogood”) the judge agreed with the conclusions reached in the recent Pindar case – see our blog on this – concerning the interpretation of s248 of the Act. Agreeing that is it clear that a secured creditor as defined in s248, is a creditor who “holds” (in other words still has) a security. The judge in Toogood elaborated on this further saying that even if it was possible to construe “security” in s248 as referencing security for a debt of zero, s248 still refers to “creditor”, saying that a creditor who has been repaid is no longer such.
