How does an English administrator obtain recognition of their appointment in an EU member state?

map of Europe with pins inSince 31 December 2020 insolvency proceedings opened in England will no longer benefit from automatic recognition in an EU member state.  Instead an application will need to be made for recognition in the relevant member state where there are cross border assets or an establishment.

Our quick guide gives an overview of the recognition procedure in Germany, France, Italy and Spain as well as an overview of the procedure in England for member state countries seeking recognition of their appointment here.

There is no one size fits all approach and to a degree, we will have to wait and see how member state courts respond to recognition applications to determine how easily recognition will be granted.

Does a failure to give notice to a prior QFCH invalidate UK administrator appointments?

The case of Re NMUL Realisations Limited (in administration) [2021] EWHC 94 (Ch) follows in the footsteps of the case of Re Tokenhouse VB Limited [2020] EWHC 3171 (Ch),where the Court considered whether a charge-holder’s failure to give notice of their intention to appoint administrators invalidates the appointment (see our previous blog here).

The issue in this case was whether failure to give notice to a prior floating charge-holder, whose security had been incorrectly marked as satisfied at Companies House, was a fundamental defect, such that it rendered the appointment void, or whether the defect could be remedied by an order of the Court.

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Pensions Schemes Act – Why should UK insolvency practitioners be concerned?

The Pensions Schemes Act received Royal Assent yesterday (11 February).

For those involved in restructuring it is important to be aware that the Act introduces new offences, carrying hefty fines and the possibility of imprisonment that apply to “any person”.  Given the wide scope of the drafting the new offences could capture directors, insolvency practitioners, lenders and other professional advisors commonly involved in a restructuring whose only defence to such a claim is that they acted with “reasonable excuse” – a term not defined in the legislation.

Our previous blog here sets out why the new offences cause concern for the insolvency profession, and our pensions colleagues’ alert sets our more detail about the changes and actions for trustees and employers.

Even though the criminal sanctions are aimed at punishing those who put a pension scheme at risk and criminal liability carries a high bar, the risk of a civil claim and potential fine of up to £1 million, may be a risk that some are not willing to take when seeking to restructure a company that has a defined benefit pension scheme.

The Pensions Regulators powers will be brought into force by regulations that are still awaited.  However, practitioners should be mindful of the fact that the new criminal sanctions can capture “a series of acts” which could potentially capture actions taken before the regulations come into force.


Changes for the UK Restructuring and Insolvency Market- predictions for 2021

At the start of 2020, we considered what changes the UK restructuring and insolvency market might expect to see during the year – however no one could sensibly have predicted the significant and far reaching impact of COVID-19.

In part 1 of our blog, we look back at 2020 and look forward to what the UK restructuring market can expect in 2021 considering the new Insolvency Laws, expected Rule changes, pre-pack sales and practice and procedural points.

Insolvency Laws – all change in 2020, what about 2021?

Last year we saw the proposed corporate insolvency reforms fast tracked into the legislative books making both temporary and permanent changes to the UK’s insolvency laws. See our Quickguide on Changes to the UK Insolvency Regime – what the Act means for UK Businesses as a useful overview of the changes.

Permanent Changes – impact to date

The Corporate Insolvency and Governance Act 2020 (CIGA) introduced new insolvency tools, in the form of the new restructuring plan and moratorium, and whilst we have seen the likes of Virgin Atlantic implement a plan, only a handful of businesses have taken advantage of the new moratorium.

Recently, the court sanctioned the first ever UK cross-class cram down in relation to the plan for DeepOcean and in 2021, as the market becomes more familiar with this new tool and as the case law develops, we may see the restructuring plan being used more widely and extending into the SME market.

Temporary Measures – further extension?

Temporary measures (such as restrictions on presenting winding up petitions and suspension of wrongful trading rules) are due to expire at the end of March (April for the relaxation of wrongful trading rules). For many companies they will also have to face up to discharging the VAT that they were allowed to defer from March 2020. However, an abrupt end to the measures could see a wave of insolvencies.

Ministers recognise the potential cliff-edge and in debates in the House of Lords reveal that ‘work is ongoing to develop measures to address what we are aware is a potential issue’ – what this means, we will have to wait and see.  Perhaps a further extension of the temporary measures or a tapered approach. It is difficult to predict but a further extension will, for some companies, simply mean kicking the insolvency can further down the road

New Insolvency Rules

One thing we can expect in early 2021 are new Insolvency Rules.

CIGA introduced temporary rules to implement the new procedures but permanent rules are expected shortly although as yet, we don’t know the date for those.

Appointing administrators

One issue the new Rules might clarify is the time when an e-filed notice of appointment of administrators takes effect, particularly one filed outside of court hours, hopefully addressing the flood of cases considering this issue.

Cases such as Re Keyworker Homes (North West) Ltd, concluded that a notice of appointment could be e-filed and take effect even when filed outside normal court opening hours, but even in early 2020 the courts were still having to address issues created by e-filing notices of appointment (see our previous blog).

However, the issues created by the decision in Keyworker Homes were addressed in the Temporary Insolvency Practice Direction (TIPD).

The current TIPD sets out the time and date that the court will apply to a notice of appointment filed out of hours, however the practice direction is due to expire on 31 March 2021 and therefore unless extended (or the issue addressed in the new Rules), we could see the Courts having to grapple with this question again in 2021.

That said, it is doubtful that a Rule change or clarification would eliminate all challenges to appointment.  A failure to abide by procedural requirements will likely still require judicial consideration of the validity of an appointment – see a recent example in our blog concerning a QFCH appointment.

Changes to pre-packs

The proposed pre-pack regulations will introduce a mandatory requirement for an administrator to obtain creditor approval or an independent written opinion before proceeding with a pre-pack sale to a connected party.

Whilst we have no hint of a date when this will become mandatory, other than when parliamentary time allows, the new regulations will have to be enacted by June 2021 when the government’s power to make the regulations expires.

Practice and procedure

Remote swears and hybrid hearings

The TIPD introduced a number of temporary procedures and changes to address COVID-19 challenges including the option to swear NOIs and NOAs remotely. Given that restrictions on meeting people could be in place beyond 31 March when the temporary measures expire, an extension to the TIPD may be required to address the need to work remotely, although at this point, there is no mention that it will be.

Further, we have seen the introduction of remote and hybrid hearings in the TIPD. The ability to manage court processes remotely has been helpful, aided by CE-filing which although still only a pilot scheme will no doubt be extended beyond 6 April 2021 when the pilot scheme expires.

Finally, we have seen temporary processes for presenting and pursuing a winding up petition set out in the Insolvency Practice Direction relating to CIGA.  This introduced the ‘Coronavirus Test’ (see our previous blog).  The temporary processes remain in place until 31 March 2020, but given the government is aware of the potential cliff edge will this be extended to avoid an influx of winding up petitions?

Statements of Insolvency Practice (SIPS)

SIP 3.2—Company voluntary arrangements, SIP 7—Presentation of financial information in insolvency proceedings and SIP 9—Payments to insolvency officeholders and their associates from an estate (England) will all be updated with effect from 1 April 2021.

Insolvency Practitioners should ensure they are aware of the changes ahead of then, and for other professionals it is worth noting the changes in SIP 3.2 in relation to the provision of information and the nominee’s role.

In the final part of this blog, we will discuss the Pensions Schemes Act, potential changes to directors’ duties, HMRC and cross border insolvencies.  To ensure that you receive updates, please subscribe to our blog.


Cannabis and Bankruptcy: 2020 in Review

In 2020, bankruptcy court doors continued to be shut to cannabis companies.  Perhaps most troubling is the continued bar for companies that are only tangentially involved in the state-legalized cannabis industry.  Although outlier cases exist, and even though courts have hinted that bankruptcy may be appropriate for some cannabis-related individuals and companies in some situations, there is a consensus now that bankruptcy is generally not available to individuals and companies engaged, directly or indirectly, in the cannabis industry.  Below are some of the most important decisions from 2020. Continue Reading