Unusually there was no statutory insolvency scheme applicable because the defendants although insolvent were not domiciled or incorporated within the English jurisdiction and so the English statutory insolvency regimes had no application.  Although a bankruptcy process was theoretically available in Saudi Arabia, (the relevant jurisdiction), it was at best an imperfect one which would not result in a pari passu distribution of assets.

The court concluded that where there was no statutory insolvency regime, the general rule was that the “first past the post” principle applies so that whoever obtained the charging order first would be entitled to enforce first.  However, it is only a general rule and there may be exceptions when it is appropriate in the exercise of the court’s discretion not to make a charging order final.  There may, therefore, be exceptional cases where even though no statutory insolvency regime applies, it is appropriate to conclude that a judgment creditor should not have the benefit of a final charging order on the basis that the Charging Orders Act 1979 and the terms of CPR 73.8 recognise the existence of a discretion as to whether to make an order final.

Although a charging order will prejudice other creditors if granted because it gives the creditor security against which to enforce his judgment which the other creditors would not have, it is only where that prejudice is “undue” that the court should consider not making a final charging order.

The prejudice to the other creditors was only undue if there was something about the judgment creditor’s conduct which would cause undue prejudice if the order was made final or if there was some other exceptional circumstance.

Although the judgment creditor had attended meetings with the other claimants there was nothing inequitable for them to have the charging order made final.  Overall the court did not consider the judgment creditor’s conduct could be said to be such as to make it inequitable to refuse to make the order final.

This was quite an unusual situation as mostly when dealing with an insolvent judgment debtor there will be a statutory regime applicable such that the judgment creditor is not entitled to have its interim order made final.  However, this decision is an interesting analysis of the court’s approach where there is no such insolvency regime.

British Arab Commercial Bank PLC and others v Ahmad Hamad Algosaibi and Brothers Company and others [2011] EWHC 2444

It seems this practice is no longer acceptable – no matter how urgent the case.

Possibly this will result in more out of hours filings on a “hostile” basis.

Corporate insolvencies across the board were down on the same period last year: compulsory liquidations and creditors’ voluntary liquidations decreased by 11.3% (seasonally adjusted), corporate receiverships by 23.9%, administrations by 24.4% and company voluntary arrangements by 22.4%.

Personal insolvencies followed the same trend, save for debt relief orders. Bankruptcies decreased by 29.2% and individual voluntary arrangements by 5.4%. Debt relief orders increased by 15.4%.

Further analysis of these statistics by the Corporate Recovery and Insolvency Team follows shortly.

The case in question concerned a guarantee that was so fundamentally flawed and unsuitable for the relevant transaction, that the Court did not have the power to step in and rectify the drafting mistakes. A Court only has the  remedial tools of construing a contract and rectifying obvious errors, in order to give the contract business purpose. However, where there is a genuine dispute over the existence of a guarantee or as to the terms of the guarantee itself, a Court cannot piece together the intention of the parties and create a document for them. That is simply beyond the powers available to the Court.

So, what can we learn from this latest decision? Well, in simple terms, that a party seeking to rely upon a guarantee must ensure it is accurately drafted and contains all the required terms.  Do not leave anything to chance, otherwise there is no guarantee of your guarantee standing up to scrutiny before a Court.

HMRC v Airtours Holiday Transport Ltd [2010] UKUT 404 (TCC)

A large holiday company (My Travel Group) suffered financial difficulties, and arranged for PwC to liaise on its behalf with its banks, bondholders and other creditors.  The company reclaimed input VAT in respect of these services.

HMRC issued assessments to recover the tax, on the basis that the supplies had actually been made to the company’s creditors, rather than to the company itself.   Their contention was that since the company had not recevied the supplies (even though they had paid for them) the company would not not be able to recover VAT.  Since the creditors had not paid for the supplies they also could not recover the VAT.

The First-Tier Tribunal allowed the company’s appeal but the Upper Tribunal reversed this decision and found in favour of HMRC.

Comment

This case seems to be a victory for the taxman but a loss for professional advisers and struggling businesses.  Since VAT will be paid but not recovered this will make professional fees that much more expensive.

In light of this decision, professional advisers should assess their letters of engagement and billing arrangements to determine who, in truth their client is.

If you would like to discuss this with anyone please contact me or Carolyn Jones (in our Banking and Finance team) on 01923 202020.

The claimants alleged that the APR stated in the agreement should be regarded as the primary figure and the monthly interest rate should be calculated from and should correspond (as closely as possible) to the APR.  They produced an expert report from a mathematician and computer expert who concluded that the APR rates on the monthly cash advance balance rate were incorrectly stated.

A regulated agreement is not properly executed unless the agreement contains all the prescribed terms.  If improperly executed, it is only enforceable by an order of the court.  The court cannot grant such an order in respect of agreements signed before 6 April 2007 and so those agreements which did not contain all of the prescribed terms are irredeemably unenforceable.  The claimants alleged that the APR was misstated and as a consequence the agreements were unenforceable.

The Judge explained that there is a very clear difference between the nature and function of the stated monthly (or annual) rate and the APR. The stated monthly or annual rate is (on its face) a contractual term.  The APR is designed to provide information to consumers and is arrived at by a complex formula designed to include not only interest rates but also other charges.  The APR is not a prescribed term.  Merely because the APR is included does not make it a prescribed term of the agreement.  The APR is not the driver of the figures and in any event,  if it were,  it would be unworkable as the APR figure only needs to be stated at the inception of the agreement.

Accordingly the claims that the agreements were irredeemably unenforceable because of an alleged mismatch between the APR and the stated rate of interest were struck out.

This case involved calculating the interest rates retrospectively, which as the Judge pointed out had “a surreal quality to it”. In the light of the series of cases which have resulted in a positive outcome for lenders, this is yet another nail in the coffin for those who seek to use the courts to bring consumer credit related claims on a very tentative and speculative basis.

Sternlight v Barclays Bank Plc and others [2010] EWHC 1865

In the report, the OFT said that landlords, as unsecured creditors, are unfairly disadvantaged in insolvencies compared to secured creditors (such as banks) and should be given greater powers to influence the fees charged by insolvency practitioners.

The OFT has offered to assist the Department for Business, Innovation and Skills (BIS), and the Insolvency Service in taking forward its recommendations. The British Property Federation (BPF) has expressed its support for the recommendations and has urged BIS to act on them.

A total of 35,682 people became insolvent between January and March 2010 – the fifth consecutive quarter that the number of insolvencies has hit a record level.

The main statistics are as follows:

• Individual bankruptcies rose by 7 per cent over the quarter, but fell by 10.7 per cent on the same quarter in 2009;
• Individual voluntary arrangements (IVAs) rose by 20.1 per cent on the same quarter in 2009;
• Debt relief orders (introduced in April 2009) rose by 6 per cent over the quarter;
• Compulsory corporate liquidations fell by 1.3 per cent over the quarter and by 14.8 per cent on the same quarter in 2009;
• Voluntary corporate liquidations fell by 11.4 per cent over the quarter and by 19.1 per cent on the same quarter in 2009.

Solvency II, which is the new solvency regime for all EU insurers and reinsurers, will now come into force on 31 December 2012 (instead of 31 October 2012) so that it coincides with the financial year-end of most European insurance companies.

Solvency II aims to introduce solvency requirements that better reflect the risks that companies face, and deliver a common supervisory system across all EU member states.