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Welcome to Inform: Insolvency
Recent figures show that in the last three months of 2009 the UK GDP grew by 0.1%. Whilst this means that the UK is now technically out of recession, the future remains uncertain. Immediate cause for concern is that the inflation rate rose to 3.5% in January, the fastest annual pace in the last 14 months. This rise in inflation was in part driven by VAT returning to 17.5%, and the Bank of England is expected to hold off raising interest rates as it predicts the rate of inflation to fall back below the 2% target later this year, but these figures provide, at the very least, a weak platform for future growth and raise concerns that the economy may yet succumb to a double dip recession.
Given the significant recent increase in the number of companies that have agreed 'time to pay' tax arrangements with HMRC (now over 60,000 companies), and with the general election fast approaching, we fear that there may be a significant way to go before the economy stabilises and confidence returns. This offers no comfort for small and large companies alike and there may be a significant jump in the number of insolvencies in the near future, particularly in the run up to the next quarter date.
On this note, this edition of Inform: Insolvency focuses on the recent High Court decision concerning an administrator's obligation to pay rent for property occupied during the administration period. It also highlights an important clarification in the law relating to preferences, some useful practical tips on moving a company from administration to compulsory liquidation and bringing a section 423 action against a solvent entity.
We also take this opportunity to introduce Merely Okine, Jason Freedman and Rory O'Hare to the team. Merley, a senior solicitor, joined us in February 2009 from Salans' insolvency team. Upon completing his training contract in 2007, Jason joined Speechly Bircham's Construction and Engineering department and later joined the insolvency team on secondment in November 2008. Jason recently joined the team on a full time basis. Rory, a newly qualified solicitor, joined us in October 2009.
If you have any questions arising from any of the articles contained in this edition or any insolvency matter generally, please don't hesitate to contact us.
Must administrations pay rent?
A liquidator's obligation to pay rent for property occupied during the liquidation as an expense has been long-established, and the operation of Rule 4.218 of the Insolvency Rules is clear. Until recently however, the position in relation to administrations was less so. The High Court decision of HHJ Purle in the case of Goldacre (Offices) Limited v Nortel Networks Limited (in administration) [2009] EWHC 3389 (Ch) has helpfully clarified the position and it is now clear that administrators who continue to occupy the company's premises have to pay the rent passing under the lease as an expense of the administration...read more
How does a company 'suffer' an act to be done?
Office holders will be aware that the issue of preference by companies is governed by section 239 of the Insolvency Act 1986. That section states that a company gives preference to a person if the company ....does anything or suffers anything to be done which has the effect of putting that person into a position which... will be better than the position he would have been in if that thing had not been done before. A commonly used example is where a director who has provided a personal guarantee to the company's bank causes the company to repay the bank before other creditors, thereby putting himself in a better position in the event of the company's insolvency...read more
Administration to compulsory liquidation
The amended process implemented by the Enterprise Act 2002 introducing schedule B1 to the Insolvency Act 1986 sets out in paragraphs 76 to 86 the process for ending the administration. Under the previous regime, it was always necessary to seek Court release at the end of the administration period but the new streamlined process provides various exit routes for administrators to consider. There is however a common scenario which does not fit in with any of the prescribed exits...read more
There is no escaping the clutches of section 423 IA
Office holders are often presented with a set of facts that fit neatly within the limitations set by sections 238 or 339 of the Insolvency Act 1986 (the Act). So there is generally no need to enquire further as to whether the purpose of the transaction at an undervalue was to put assets beyond the reach of creditors...read more
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