In this case, the High Court had to consider a scheme of arrangement involving financial assistance as part of a restructuring to resolve financial difficulties suffered within a group of companies, and ruled that, whilst some aspects of the scheme of arrangement could be defined as financial assistance under section 678(1) of the CA, they also fell within the principle purpose exception under section 678(2) of the CA. The principle purpose was considered by the High Court to be the attempt to release a subsidiary’s pension scheme liability, with any payments and loans made in good faith and in the interests of the companies involved. The High Court also ruled that the payment of costs and giving of indemnities as part of the scheme of arrangement, which would otherwise be construed as financial assistance, should be approved by the exercise of the High Court’s power under section 681(2)(e) of the CA, as such payments and indemnities were commercially necessary for the restructuring and in the interests of the companies’ creditors and members.

The High Court also ruled that an error in a figure contained in a special resolution, which was being voted on by the company’s members to approve changes in share capital under the scheme of arrangement, could be construed so as to correct that error. Under the CA, a resolution to be passed at a general meeting cannot be considered a special resolution unless the text of the resolution was contained in the notice of general meeting. The courts have previously held that a general meeting cannot amend a special resolution except to correct grammar or spelling, or where all members eligible to vote on the resolution waive their rights to notice. However, in this instance, it was clear that the special resolution, when read with accompanying documentation, contained an error, and the High Court ruled that common sense should prevail – that the special resolution could be read as a matter of construction as if the error had not been made. In addition, the meeting had been informed of the error prior to the vote, and the minutes of the meeting noted the error.

This ruling is important as it is a further insight into how the revamped financial assistance doctrine under the CA is interpreted by the courts. It is also a good to see that the courts are willing to be flexible when considering a special resolution containing an error, allowing that error to be considered corrected – however, it would be interesting to see the court’s ruling if an error contained in a special resolution was a mistaken word rather than a mistaken figure. In this case it was obvious to all that the figure was incorrect, but if mistaken wording was included in the special resolution the mistake might not be so clear-cut and the court not so generous in their ruling.

The EAT heard five appeals that all looked at the same point: does administration under Schedule B1 constitute “insolvency proceedings instituted with a view to the liquidation of the assets of the transferor” within the meaning of regulation 8(7) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)?

The EAT held that, contrary to its 2009 decision in Oakland v Wellswood (Yorkshire) Ltd, administrations cannot be “bankruptcy … or … analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor” within the meaning of regulation 8(7) of TUPE.

Consequently, all employees who are employed by the transferor immediately before the transfer takes place will have their contracts transferred under TUPE. Where a sale of an undertaking by an administrator amounts to a “relevant transfer” for the purposes of TUPE, the employees assigned to that undertaking will transfer to the buyer and be protected against transfer-related dismissal. This is so whether or not the sale is pursuant to a “pre-pack” arrangement.

The five cases were listed together so that there could be an authoritative decision as to whether regulation 8(7) of TUPE could apply to administration. However - somewhat ironically - the fact that this ruling conflicts with the Oakland decision means that an actual definitive decision may need to be made by the Court of Appeal sometime in the future. In the meantime, employment tribunals will probably follow this ruling rather than Oakland.

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.

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.

The purpose of the Act was to introduce reforms to modernise the legislation which had previously been set out in the Third Parties (Rights Against Insurers) Act 1930. 

Under the Act the rights of an insolvent insured to an indemnity from its insurers under a liability policy are still transferred to a third party claimant.  However, the Act introduces 4 key changes: 

1. A third party claimant is no longer required to first establish liability against an insured before bringing proceedings against their insurers.  A new Court procedure is available to third parties.  The third party has a right to seek declarations as to the insured’s liability to them and as to the insurer’s potential liability under a contract of insurance in one set of proceedings.  If the Court or Tribunal makes such declarations it will be able to make an appropriate judgment which is likely to be a money judgment.  A third party will no longer be obliged to join the insured in proceedings against the insurer.    
2. The definition of insolvency has been widened to include companies subject to a Company Voluntary Arrangement or a Scheme of Arrangement.
3. The regime governing a third party’s ability to seek information is clarified.  The list of disclosable material is set out in the Act.  A third party will now have greater rights of access to information to establish the terms of any relevant insurance policy which will assist in deciding whether to embark on litigation.  If it can be established that there is a contract of insurance that covers, or might reasonably be expected to cover the supposed liability, information can be obtained on the identity of the insurer, the terms of the insurance, and whether there are or have been proceedings between the insurer and the insured in respect of the supposed liability. 
4. A third party claimant need not take steps to restore a dissolved insured company to the Companies House Register. 

Conclusion

The Act is intended to improve the rights of third parties and to reduce litigation, expense and delay.

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.

However, we have been advised today that Registrar Derrett will now be dealing with all extension applications filed in the High Court until rotation in September 2010, and that she intends to list each extension application for hearing. So applications will not, for the foreseeable future, be dealt with on paper. The effect of this is that the cost of making an application will increase, as representation will be required at the hearing. In addition, applications will need to be made in good time so that they can be heard well before the expiry of the period of administration.

The Court held that rent would continue to be payable as an administration expense quarterly in advance under the terms of the two leases whilst the administrators retained or used any part of the premises for the benefit of the administration.  Applying the principles imposed in liquidations, the Court held that an administrator electing to hold leasehold premises could do so only on the terms and conditions of the lease, and any liability incurred while the lease was being enjoyed or retained for the benefit of the administration was payable in full as an expense.

The High Court had ruled that although each of the two provisions were not a problem, the combined effect of the termination of the licence and transfer of shares at market value once the licence had been terminated would be to deprive W’s creditors of the value of the licence. Accordingly, this would breach the ‘anti-deprivation rule’ and not be permitted under insolvency laws.

The Court of Appeal has now reversed that decision. The purpose of the rule was to invalidate contractual provisions which expressly or had the effect of disapplying a provision of the Insolvency Act 1986 – it did not have any wider application. The High Court had been wrong to look behind the wording of the contract and assess the overall commercial effect of the joint venture agreement and licence in combination. There was nothing in either the joint venture agreement or the licence which offended against the 1986 Act. The Act did not stop one party from providing that contracts or licences were terminable upon the other’s insolvency event. Similarly, the Act did not prevent someone from purchasing (for value) the other’s assets if that other became insolvent.