Legal update

Courts not sympathetic when it comes to Bankruptcy

Saturday, May 28th, 2011

The court has a limited discretion not to make a bankruptcy order where the debt is the subject of a statutory demand which has not been paid and is outstanding at the time of the bankruptcy petition hearing.    

In Adeosum v HM Revenue & Customs (HMRC), the bankrupt entered into a contract with the Revenue in relation to pay his tax over a period of time tax but failed to do so. Consequently HMRC served a statutory demand before preseting a bankruptcy petition. 

At the first hearing the petition was adjourned because the debtor convinced the judge and HMRC he could obtain £50,000 to deal with the debt.  At the next hearing the soon to be bankrupt debtor did not appear, and as payment of the debt hadn’t been made the judge took the view the debt was not disputed and a bankruptcy order was made.

The bankrupt was a GP therefore his bankruptcy would affect his ability to earn a living.  The bankrupt appealed the decision because he claimed the judge had failed to consider his reasonable offers to pay, the draconian effect of the order on his job, proportionality and that he had not had a fair trial under Article 6 of the European Convention on Human Rights.

On the appeal the judge stated he only had limited discretion in such a case.  Although hardship was to be taken into account, it was not sufficent grounds not to make a bankruptcy order. The debtor had had ample opportunity to be heard and to pay the debt and had made numerous promises to pay.

It is clear therefore that courts will not take a sympathetic view of a debtor’s future circumstances and difficulty in earning a living when deliberating whether to make a bankruptcy order where a debt is not disputed and the debtor has had ample opportunity to make payment but has failed to do so.

We are currently dealing with a GP/Doctor in an identical situation.  We are seeking the approval of an IVA and the annulment of his bankruptcy.

Anyone facing a bankruptcy hearing should not take the matter lightly and should seek appropriate advice early.

New Ruling on Administrations could benefit companies needing a moratorium and hamper those with Onerous Articles of Association

Friday, May 20th, 2011

The High Court recently provided great news to Company Directors who need protection from hostile creditors.

Directors of all limited companies may now take advantage of the moratorium available when filing a Notice of Intention to Appoint an Administrator, which will provide immediate protection from any creditor or other person taking action against a company or its assets (e.g. bailiffs, landlord distraint and winding up petitions).

This moratorium is available even where there is no Qualifying Floating Chargeholder.

But this also means that Notice of an Intention to Appoint an Administrator MUST be given in all circumstances, which could delay the urgent appointment of Administrators whilst a ‘reasonable notice’ period is given.

The Court also found that an out of court appointment of administrators was invalid on two counts:

  • there was no valid board resolution; and
  • there was no notice to the company/shareholders.

It is imperative that a Board Meeting is validly convened and constituted.  Disagreeing or hostile directors can no longer hold disregard for the Articles of Association of a company and force the appointment of an Administrator.  This should never have been able to happen before this ruling, however nobody had previously challenged the validity of the appointment of an Administrator on these grounds.  It demonstrates the importance of making sure your advisers deal with your situation thoroughly.

So for disagreeing boards of directors this ruling could thwart the appointment of an Administrator by a minority number of hostile directors entirely.  There are other ways to place a company into Administration and perhaps these routes need to be considered.  We have utilised all possible routes to place companies, LLP’s and partnerships into Administration where there are disagreeing stakeholders.  Contact us for further help and guidance.

Minmar (929) Limited & Teejinder Paul Chohan v Freddy Khalatschi and Martin John [2011] EWHC 1159 (Ch)

 

Dismissal automatically unfair under TUPE

Tuesday, April 26th, 2011

In May 2008 a company entered into Administration, which was not a Pre-pack Administration, and after a month of trading it was sold as a going concern.

Upon appointment, the Administrators undertook their review of the business and decided to dismiss the Chief Executive on the day of their appointment.

The Chief Executive took his former employer and the purchaser to a tribunal claiming his dismissal was not for an economic, technical or organisational reason, but in fact it was as a  result of the impending transfer of the business therefore rendering it automatically unfair.

The tribunal agreed, and the appeals tribunal also agreed, that it was unfair.  It was decided that despite at the time of the dismissal the purchaser had not been identified, the business was always going to need someone in the position of Chief Executive and that it could have been foreseen at the time that he would be replaced, which he subsequently was, therefore the dismissal was automatically unfair.

This is another warning to purchasers of insolvent businesses from an Administrator that the TUPE risks are severe and need to be factored into their consideration of the position.  Conversely it is yet another problem facing Administrators when it comes to rescuing a business and/or achieving a sale as prospective purchasers will be nervous or offer significantly less as a result of TUPE, thereby reducing returns to creditors.

TUPE does not help when attempting to rescue a business, achieve a going concern sale or a Pre-Pack Administration and we have seen a number of purchasers opt to buy a business from liquidation because of the severance of TUPE.

The ruling is of course good news for employees and may see tribunal claims rise further as many dismissed employees will struggle to gain new employment.

BCR offer insolvency services throughout Staffordshire, Shropshire, Cheshire and Lancashire with insolvency practitioners helping individuals and companies in Stoke on Trent, Shrewsbury, Telford, Bolton, Preston, Blackburn, Stockport and Manchester.