Are you making progress? The Scottish court provides helpful pointers to English administrators seeking to extend on the content of progress reports

Although the case of Anthony John Wright and Alastair Rex Massey vs. Scottish Court of Session [2024] CSOH 105 is (as the name suggests) a Scottish decision, there are several takeaways from the case relating to the content of progress reports, which could usefully be applied and followed by English practitioners when making their own application.  Not least, because of the words of warning from the judge:

It is important that administrators and their advisers bear in mind that an extension of an administration should never be applied for, or granted, as a matter of formality. It is not uncommon for the court to encounter cases where serial applications have been made, often on (literally) the same grounds from 1 year to the next, with no discernible sign of progress being made; and of course, if there is an expectation that extensions will be granted without difficulty, there is a danger that administrators will not be incentivised into completing the administration within the existing deadline, confident that another one will be along in the fullness of time

This case concerned an application to extend an administration that had originally commenced on 19 November 2020 and had been extended on three previous occasions.   The court was keen to understand what progress had been made, that creditors had been informed of the application and given a chance to object and that the extension period was the appropriate length.

Despite the warning above the judge acknowledged that this administration was complex and did not fall into that category and was prepared to take at face value the assertion that further time was required to conclude the administration, despite some misgivings about the information in the progress reports.

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(UK) Revolution Bars: When is a meeting really a meeting?

In his judgment to sanction the restructuring plan (“RP”) of Revolution Bars[1], Justice Richards proceeded on the basis that the Class B1 Landlords and the General Property and Business Rate Creditors were dissenting classes, notwithstanding that they approved the Plan by the statutory majority. This is because they did not approve the Plan at “meetings”, since only one person was physically present at each “meeting” even though the chair held proxies from other creditors.

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Recovering costs for dealing with fixed charge assets – lessons for practitioners and security holders (UK)

Mountain landscape

The decision handed down in Pagden and another v Ridgley [2024] EWCH 3047 (Ch) is a helpful clarification on whether agreed costs and expenses incurred by an office-holder in the context of dealing with assets which are subject to a fixed charge in an administration or liquidation, are capable of subsequent challenge under rule 18.34 of the Insolvency (England & Wales) Rules 2016 (SI 2016/1024) (the Rules).

Decision

ICCJ Greenwood held that pre-agreed costs and expenses of an insolvency practitioner (IP), which the fixed charge holder had agreed could be paid out of the proceeds of realisation of the relevant fixed charge asset do not constitute “remuneration” or “expenses” for the purposes of Rule 18.34, and are therefore not capable of challenge on the basis that they were “excessive” or fixed on an “inappropriate” basis. 

This decision establishes (a) the importance of an IP agreeing with a fixed charge holder what costs and expenses they can recover out of fixed charge realisations at the outset – the expenses regime will not help, and relying on other equitable principles could potentially leave them out of pocket; and (b) once an agreement is in place, that a fixed charge holder has limited grounds to challenge agreed fees (although note our commentary below) and therefore they can be confident of recovering what they have agreed. 

For fixed charge holders, the decision is a “note to self” that in agreeing fees with an IP for dealing with the fixed charge assets at the outset, there will be limited scope to challenge these after the sale has concluded, even if retrospectively such costs appear to be disproportionately high.

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Risk of personal liability for directors who re-use a company name: The UK Court provides clarity on one of the exceptions.

Know The Rules

Using the same or similar name of a company that is in insolvent liquidation is prohibited by s 216 of the Insolvency Act 1986 (IA).

A director who acts in breach of s216 by being a director of, or being involved in the promotion, formation or management of a company that is using a prohibited name, risks personal and potentially criminal liability (s217 IA 1986) – unless one of three “excepted cases” set out in the Insolvency Rules 2016 (Rules) applies.

The purpose behind s216 IA was to stop the so called “phoenix” syndrome whereby a shelf company was brought to life using the same or similar name to a company that has gone into liquidation by the same directors.  The prohibition and risk for acting in breach of s216 was therefore aimed at preventing directors from liquidating one company (often after having run up significant debt) and then continuing business under the guise of a new company which, to the outside world, appeared to be the same company they had always done business with.  The directors would be protected by the limited liability status of the new shelf company and trade on the goodwill of the liquidated company – all at the expense of creditors.

Although not all companies using the same or similar name are “phoenix” companies, there is no easy way to distinguish between the good and the bad cases. This is why s216 and 217 of the IA are so widely drawn (to capture all potential cases) but is also the reason why there are exceptions.

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Comparison of Directors’ Duties Across Europe

This article, that was recently published in INSOL, provides a comparison of directors’ duties between several European jurisdictions –  England and Wales, Germany, Italy, the Czech Republic and the Slovak Republic.

It explores the role of directors and their general duties and obligations in a going concern scenario and examines how those duties might change as a business moves into a period of distress or becomes insolvent.

As noted in the article there is one feature that is common to most jurisdictions and that is the obligation not to continue trading if a company is insolvent.

Will UK businesses face supply chain challenges now Trump is in office?

Throughout his 2024 campaign, President Donald Trump vowed that if re-elected, he would address unfair trade practices, rebalance trade relationships, and fund other economic proposals through new and expanded tariffs. With his return to the White House, the world is grappling with a complex web of international trade risks and potential opportunities in 2025.

President Trump’s first term offered only a small preview of what we can expect on trade policy over the next four years. If executed, his campaign promises represent a transformational restructuring of US tariff policy, a manifestation and acceleration of the broader evolution of how the United States – and the world – approaches trade and economic policy.

His remarks, as well as long-standing proposals developed by his closest trade advisers, will present challenging scenarios for businesses that rely on global supply chains, exports and investments across virtually every industry. Tariff actions implemented (like those applied against goods from China and steel and aluminium generally) as well as threatened (such as those proposed against numerous trading partners in response to digital services taxes) during his first term are discrete examples of what could follow, but the stakes are much higher, and the scope much wider, today. There is no one point in time where companies must respond – President Trump has already pledged new tariffs on Mexico, Canada and China, and the playing field will remain dynamic as the administration debates, proposes and implements new trade policies.

But what does all this mean for UK businesses?

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(US) Fifth Circuit Puts Serta Simmons Uptier Transaction to Bed

On December 31, 2024, the U.S Court of Appeals for the Fifth Circuit issued a unanimous decision reversing the bankruptcy court’s ruling that allowed an uptier transaction entered into by Serta Simmons Bedding, LLC (“Serta Simmons”) in 2020 (the “2020 Uptier”). The appellate court also held that plan provisions requiring the indemnification of the lenders who participated in the 2020 Uptier (“Prevailing Lenders”) were impermissible under the U.S. Bankruptcy Code and should be excised from the plan.

The use of uptier transactions by distressed borrowers has increased dramatically over recent years, spurred by the marked increase in distressed companies during the COVID-19 pandemic. The 2020 Uptier was one of the first major uptier transactions and was controversial from its inception because it resulted in the subordination of a majority of creditors’ interests. Typically, in an uptier transaction, a borrower will issue new superpriority debt under an existing credit facility, consented to by the majority of lenders, in exchange for giving those lenders’ debt superior status. Such transactions earned their name because new debt is “uptiered,” subordinating the existing debt of lenders who were not party to the uptier transaction. This is what occurred with the 2020 Uptier—the Prevailing Lenders were able to uptier their loan, with the remaining lenders (“Excluded Lenders”) recovering little on their claims in the restructuring.

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Delaware Bankruptcy Court Denies Healthcare Debtors’ Request to Enter into Nonbinding Commitment Letter (US)

The goal of a sale process under section 363 of the United States Bankruptcy Code is for a debtor to maximize the value of estate property for the benefit of all parties-in-interest.  But what happens when the only party that is interested in purchasing the estate property is a former insider who is unwilling to submit a binding offer without certain bid protections, such as a breakup fee and expense reimbursement?  This is the predicament that the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) recently faced, ultimately denying such protections without prejudice.  The decision serves as a helpful reminder of how debtors should conduct a bidding process, evaluate bids, and what terms interested parties should expect a bankruptcy court to find improper. 

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Top 10 Predictions for 2025 in UK Restructuring and Insolvency    

What can we expect in R&I in 2025? Well that’s always difficult to know for certain but our predictions are based on what we saw in 2024, and how we expect some of these to play out in 2025.

And let’s see where we are at the end of the year because there were a few twists and turns in 2024 that no one saw coming that kept us all on our toes.

You can probably add a few of our 2024 predicitions to this list too – some of these did not come to fruition but they may well still be on the cards for 2025.

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Distressed M&A Deals in Poland

The post-pandemic anxiety on the European markets was largely due to the anticipated wave of bankruptcies. High interest rates, surging energy prices and out-of-control inflation took their toll on many European businesses. Although the doomsday scenario did not come to pass, we have been seeing increasingly more restructurings and insolvencies. The Polish market is no exception. Currently, with more stable interest rates and restored investor confidence, distressed assets sales may seem like an attractive way to deploy capital. 

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