Insolvency and directors' duties in the UK (England and Wales): overview

Q&A guide to group insolvency and directors' duties in the United Kingdom.

The Q&A global guide provides an overview of insolvency from the perspective of companies that are operating within a domestic and/or international family of companies, and considers the various complexities that this can introduce into insolvency procedures. It also has a significant concentration on duties, liabilities, insurance, litigation, and subsequent restrictions imposed on directors and officers of an insolvent company.

To compare answers across multiple jurisdictions, visit the International Insolvency: Group Insolvency and Directors’ Duties Country Q&A tool.

This Q&A is part of the International Insolvency: Group Insolvency and Directors’ Duties Global Guide. For a full list of contents, please visit www.practicallaw.com/internationalinsolvency-guide.

Contents

Corporate insolvency proceedings

1. What are the main out-of-court and court-sanctioned insolvency proceedings involving a liquidation of the company's assets?

Out-of-court insolvency proceedings

Out-of-court insolvency proceedings are informal processes which are not court-sanctioned. They normally have the objective of corporate rescue through an informal workout solution between the debtor and creditor(s).

Company voluntary arrangement. A company voluntary arrangement involves a company and its creditors reaching a contractual agreement over the payment of debt (to reschedule and/or reduce the amount owed to creditors), which is then implemented and supervised by an insolvency practitioner under Part I of the Insolvency Act 1986 (Insolvency Act). It is one of the methods by which other types of insolvency procedures (for example, administration or liquidation) may be avoided or supplemented.

The process involves the company directors drafting compromise proposals they would like to agree with creditors and members. An insolvency practitioner is appointed as a nominee to supervise implementation of the proposal. A company voluntary arrangement is binding on all unsecured creditors if the necessary majority of creditors vote in favour of the proposal at properly convened meetings of creditors. However, a company voluntary arrangement does not affect the rights of secured or preferential creditors unless they agree to the proposal.

The proposal is passed if it is approved by 75% in value of all creditors present (in person or by proxy) and voting (to include at least 50% in value of creditors unconnected to the company). The company's shareholders can approve the proposal by a simple majority in value. Even if they do not approve, the company voluntary arrangement will still be implemented if the creditors approve the proposal with the requisite majority (rule 1.20, Insolvency Rules 1986 (Insolvency Rules) and section 4A(2), Insolvency Act).

Once approved, the company voluntary arrangement is reported to the court and takes effect from the date of the creditors' meeting at which approval has been secured (section 5(2)(a), Insolvency Act). The insolvency practitioner is re-designated from nominee before approval of the company voluntary arrangement to supervisor after approval. Although the supervisor has powers and responsibilities under the company voluntary arrangement, the company's directors remain in control of the company.

A company voluntary arrangement is vulnerable to challenge in court on grounds of unfair prejudice or material irregularity within 28 days of the approval being reported to court, or by a creditor who was not given notice of the relevant creditors' meeting.

There is also a 28-day optional moratorium for small eligible companies while a company voluntary arrangement proposal is being considered (section 1A and Schedule A1, Insolvency Act). Otherwise, there is no automatic statutory moratorium to protect the company from creditors taking action to recover their debts. However, it is possible to combine a company voluntary arrangement with an administration, where a statutory moratorium gives the company some breathing space to agree any proposals with creditors.

Administration. Administration allows a company breathing space under the protection of a statutory moratorium, to allow it to be rescued or reorganised as a going concern or facilitate asset realisation. The company is put into administration and an administrator (a qualified insolvency practitioner) is appointed, who effectively takes control of the day-to-day management of the company and the business. The administrator must act in the best interests of the company's creditors at all times and has wide ranging powers.

Administration can only be commenced in accordance with a set number of statutory purposes:

  • To rescue the company as a going concern.

  • To achieve a better result for the creditors as a whole than would be likely if the company was wound up without first being in administration.

  • Realisation of assets to make a distribution to one or more secured or preferential creditors. Preferential creditors are those creditors whose claims rank in priority to those of unsecured creditors and floating charge holders. For example, employees with labour-related claims.

Administrators can be appointed by a court order or out-of-court by:

  • A holder of a qualifying floating charge. A floating charge is taken as security over all the assets or a class of assets owned by a company. The company is free to deal with such assets during the course of its business until the charge crystallises (that is, on an event of default) at which point the floating charge converts into a fixed charge by attaching to the charged assets. A qualifying floating charge is a floating charge which empowers the holder to appoint an administrator. Paragraph 14, Schedule B1 of the Insolvency Act empowers a qualifying floating charge holder to appoint an administrator, or purports to empower the holder to appoint an administrative receiver under section 29(2) of the Insolvency Act. Notice must be given to prior ranking qualifying floating charge holders.

  • The company itself or its directors can also appoint an administrator if the company is unable to pay its debts (taking into account the cash flow test or the balance sheet test), and having given notice to any creditor holding a qualifying floating charge.

  • A creditor can also present a petition to the court for an administration order. The court can only make an administration order if it is satisfied that the company is or is likely to become unable to pay its debts, and that the order is reasonably likely to achieve the purpose of administration (Paragraph 11, Schedule B1, Insolvency Act 1986).

The administration process ends automatically after one year unless its term is extended in advance, by creditor consent or by court order.

Receivership (fixed charge/administrative). Receivership is not a collective insolvency proceeding, but a remedy for a secured creditor to appoint an administrative receiver (a qualified insolvency practitioner). Accordingly, the receiver does not owe a duty to all creditors, but only to the creditor which appointed him. There are two types of receivership:

  • Fixed charge receivership. A fixed charge receiver is appointed in connection with the specific assets over which the creditor has security, to repay the secured debts to the creditor under section 101 of the Law of Property Act 1925 or contractual terms under the relevant security agreement. The directors of the company are free to manage and deal with the remaining assets which are not subject to the charge.

  • Administrative receivership. An administrative receiver is appointed by creditors who have a floating charge over all (or substantially all) of the assets of the company. The receiver takes custody of the charged assets and can deal with them to satisfy the secured debt. Under the Enterprise Act 2002, this route is only available to creditors with floating charges created before 15 September 2003. However, a number of exceptions allow a qualifying floating charge holder to appoint an administrative receiver. These include the financial sector, social housing, public private partnerships and utilities (section 72B to 72GA, Insolvency Act).

Liquidation (members' voluntary liquidation/ creditors' voluntary liquidation). Liquidation/winding-up is a procedure through which a company's assets are realised for the best possible price and the proceeds distributed to creditors to satisfy the debts they are owed. The order of priority of payment is set out in the Insolvency Act. At the end of liquidation, the company is dissolved.

There are three types of liquidation: compulsory liquidation (a court-based process), members' voluntary liquidation (a solvent liquidation) and creditors' voluntary liquidation. The latter two are out-of-court procedures, that is, they do not require court approval:

  • Members' voluntary liquidation. This is a form of solvent voluntary liquidation. The directors swear a statutory declaration of solvency (section 89(1), Insolvency Act) stating they are satisfied the company will be able to pay all of its debts in full falling due in the 12-month period following appointment of a liquidator. It is commenced by the members passing a special resolution (approved by 75% of members) to appoint a liquidator.

  • Creditors' voluntary liquidation. This process is for insolvent companies and does not involve directors making a statutory declaration of solvency (section 97, Insolvency Act). Instead, it is commenced by the members passing a special resolution to the effect that the company should be wound up and a liquidator appointed. The company will then hold a meeting of creditors at which a liquidator is chosen by majority vote (section 98, Insolvency Act). Unsecured creditors have less comfort that their debts will be paid in a creditors' voluntary liquidation than in a members' voluntary liquidation. Therefore, they are involved in the appointment of a liquidator and are entitled to receive progress reports on the liquidation (rule 4.49C, Insolvency Rules). The liquidator also has a duty to act in the best interests of the creditors.

Court-sanctioned insolvency proceedings

Scheme of arrangement. A scheme of arrangement under Part 26 of the Companies Act 2006 is a compromise or other arrangement between a company and its creditors to achieve various objectives, including reorganising solvent companies or restructuring insolvent companies through a number of tools such as debt write-offs or debt-for-equity swaps.

A scheme of arrangement is approved if 75% in value of each class of creditors and shareholders voting at a meeting of the company, and representing a majority in number of each class, vote in favour of the scheme. If the shareholders are not affected by the scheme (for example, if the company's shares are effectively worthless and no debt-for-equity swap is proposed), the shareholders are not required to vote on the scheme. The same principle applies to any class of creditors that has no prospect of recovery. Unlike a company voluntary arrangement under Part I of the Insolvency Act, a scheme of arrangement must be sanctioned by the court. When sanctioned by the relevant majority of creditors/members and the court, the scheme will bind all members and creditors.

Determining the correct creditor voting classes can give rise to some of the biggest difficulties. Creditor rights, not interests or motives, are the governing factor in class composition (Re BTR plc [1999] 2 BCLC 675). Further, whether members or creditors form one or more classes depends on the circumstances of each case.

Despite these hurdles, English court-sanctioned schemes of arrangement have been a key cram-down tool for restructuring a company's liabilities and binding all creditors into a transaction.

The process of initiating a scheme involves:

  • First court hearing to provide directions on how meetings of creditors must be held to vote on the scheme.

  • Meeting of creditors and members to vote on the scheme in accordance with the directions of the court according to the first hearing.

  • Second court hearing to sanction the scheme.

A scheme of arrangement does not include the appointment of any insolvency practitioners and company directors remain in control. This insolvency procedure can also be used in conjunction with administration, where a moratorium gives the company time to agree any proposals with creditors.

Administration. A company can go into administration by a court order made at a formal hearing. The purpose of the administration route is to rescue the company as a going concern, and if that is not possible, to procure a better outcome for creditors than would be possible by a winding-up (without administration). If this is not possible, administration may still be a viable option where the goal is to realise certain assets and distribute the proceeds to secured and preferential creditors, without unnecessarily harming the interests of the creditors as a whole.

Winding-up/compulsory liquidation. Winding up/compulsory liquidation can be initiated by a number of parties including the company, its creditors or its directors (section 124, Insolvency Act). The liquidation process involves an unpaid creditor/petitioner filing a winding up petition (Form 4.2) with the court for the winding up of the company. The court has discretion to determine whether a winding-up order is appropriate under the circumstances. If a winding-up order is made by the court, all of the company's assets are realised and proceeds distributed to the creditors of the company.

 
2. Are there statutory proceedings allowing for a rescue/restructuring of the debtor company's operations and debts?

Scheme of arrangement

See Question 1, Court-sanctioned insolvency proceedings. This is a very flexible tool (the Companies Act does not prescribe the subject matter of a scheme) which can be used to reorganise solvent companies and groups, while allowing directors to retain control. It can also be used to implement various restructuring strategies, including standstills, write-offs, and debt-for-equity swaps.

Company voluntary arrangements

See Question 1, Out-of-court insolvency proceedings ( www.practicallaw.com/4-608-0871) . Company voluntary arrangements can also facilitate debt restructurings under the supervision of an insolvency practitioner. Like a scheme, the mechanism includes useful cram-down mechanisms to impose revised terms on whole classes of creditors, some of whom may be dissenting creditors.

Administration

See Question 1. The administration process is also aimed at business rescue (and this is explicitly set out as one of the statutory purposes of administration). The statutory moratorium can give companies more leeway to enter into negotiations with creditors, who will be prevented from asserting their rights during the stay period.

In practice, the above proceedings are rarely used as standalone devices but often combined to benefit from the advantages of several restructuring mechanisms, for example the cram-down mechanics of a company voluntary arrangement with the moratorium of an administration.

 
3. What are the general requirements for commencing insolvency proceedings?

The Insolvency Act 1986 does not define the term insolvency. Section 122(1) of the Insolvency Act sets out the seven circumstances under which a company can be wound up, the most common being where the company is "unable to pay its debts". The court must also be of the opinion that it is just and equitable that the company should be wound up (section, 122(1)(g), Insolvency Act).

Section 123 of the Insolvency Act sets out that a company is deemed unable to pay its debts if any one of the following applies:

  • The company fails to comply with a statutory demand for a debt of over GB£750.

  • The company fails to satisfy enforcement of a judgment debt.

  • The court is satisfied that the company is unable to pay its debts as they fall due (cash flow test).

  • The court is satisfied that the company's liabilities (including contingent and prospective liabilities) exceed the company's assets (balance sheet test).

If a company is unable to pay its debts under any one of these limbs, the company can be placed into compulsory liquidation.

Scheme of arrangement

The general requirements for a scheme of arrangement are set out in sections 895 to 899 of the Companies Act. The process is as follows:

  • An application to the Companies Court under section 899 of the Companies Act must be made. The court can make an order summoning a meeting of creditors or class of creditors.

  • The company, creditors, members, liquidator (if the company is being wound up) or administrator (if the company is in administration) can apply for such an order.

  • The creditors/members meeting is held, in which a majority in number representing 75% in value of the creditors, class of creditors, members or class of members approve the compromise or arrangement (section 899, Companies Act).

  • The court sanctions the scheme of arrangement.

Company voluntary arrangement

A company voluntary arrangement must be approved in a creditors' meeting by 75% or more in value of unsecured creditors, either present or by proxy (and provided that no more than 50% of the unconnected creditors present and voting are not in favour of the company voluntary arrangement). All creditors must be given at least 14 days' notice of the meeting.

Administration

Before entering administration, the administrator must also be satisfied that one of the following three statutory objectives can be satisfied:

  • The company can be rescued as a going concern.

  • A better result can be achieved for the company's creditors as a whole than if the company were wound up (without first going into administration).

  • Property can be realised to make a distribution to one or more secured or preferential creditors.

See Question 1.

Receivership

To appoint an administrative receiver the creditor must hold a qualifying floating charge created before 15 September 2003. A qualifying floating charge created after that date may still give rise to the right to appoint an administrative receiver in limited public policy cases, as set out in section 72A to section 72GA of the Insolvency Act. These exceptions include the financial sector, social housing, public private partnerships and utilities.

A fixed charge receiver can still be appointed if permitted under the contractual terms of the relevant security documents, or under the Law of Property Act 1925 (although this is more restricted).

Members' voluntary liquidation

This is a solvent process. It can only be commenced if the company directors are prepared to swear a statutory declaration of solvency under section 89 of the Insolvency Act to the effect that, having made a full enquiry into the company's affairs, they are satisfied that the company can meet its debts (plus interest) in full for at least 12 months from the commencement of winding up. Within five weeks of the statutory declaration, a special resolution must be passed by members for the winding up of the company (section 84, Insolvency Act and section 283, Companies Act).

Creditors' voluntary liquidation

To trigger a creditors' voluntary liquidation, a company's members must pass a special resolution for its winding up (section 84, Insolvency Act and section 283, Companies Act). The members will also need to nominate an insolvency practitioner to act as a liquidator (albeit they will have very limited powers).

Within 14 days of the resolution to wind up the company, a creditors' meeting must be convened under section 98 of the Insolvency Act, during which the creditors vote to appoint the liquidator (who may or may not be the members' nominee).

 

Insolvency of corporate groups

4. Are there joint insolvency proceedings available that can apply to a whole group of companies? Do all members of a corporate group have to proceed under the same type of insolvency proceeding?

Under English law, each company is treated as a separate legal entity under the doctrine of separate legal personality/identity. A company owns its own assets and incurs its own liabilities and is distinct from its shareholders, management and employees as well as other group entities (all of whom, generally, will not incur liabilities deriving from the company's activities).

Under both English law and Regulation 1346/2000 on insolvency proceedings (Insolvency Regulation), there is no provision or procedures for joint or co-ordinated proceedings. Any insolvency proceeding must therefore be brought separately for each company in the group.

The court can, at its discretion, also permit hearings of insolvent companies in the same corporate group, in sequence.

This is subject to the following:

  • Ability to commence proceedings in a central location. When dealing with multinational groups (or transnational companies), each company (including any non-EU registered companies in the group) must show that its centre of main interests lies in England under Article 3(1) of the Insolvency Regulation, to be allowed to bring the group's insolvency proceedings in England. There is a rebuttable presumption that a company's centre of main interests is in the jurisdiction in which it is registered. In North Sea Base Investment Limited & Ors, the presumption was rebutted, and administrators of eight shipping companies registered in Cyprus were held to have their centre of main interests in England (the jurisdiction in which much of their operations and management were based).

  • Location of proceedings. There are no requirements as to location, but the proceedings must be brought before a court which has jurisdiction to hear the claims. Main proceedings can be brought in England regardless of where a company or its affiliates are located, provided the company can show that it is where its centre of main interests is. Once main proceedings have been opened in one EU member state, any proceedings opened in another member state must be secondary proceedings (Article 3(3), Insolvency Regulation).

As each group company has distinct legal personality, there is no requirement/obligation on a company's affiliate to proceed under the same type or location of insolvency proceeding as other group members.

 
5. Can the same insolvency office holder(s) administer the assets and the liabilities of the entire corporate group? Is a court hearing required to determine whether administration by the same individual(s) is appropriate and, if yes, does notice have to be given to creditors?

It is possible for the same insolvency office holder to administer the assets and the liabilities of the entire corporate group. Further, a court hearing is not necessary to determine whether the appointment of a single office holder is appropriate. In practice, a single insolvency office holder is usually appointed to manage the insolvency proceeding of the entire group, even though there is no legal requirement.

The decision of which office holder to appoint rests on different parties, depending on which insolvency process is invoked and by whom:

  • Administration. A company can enter administration after a formal court application or upon filing at court certain prescribed documents (that is, out-of-court). The out-of-court administration process is only available to the relevant company, its directors and qualifying floating charge holders. Notice to third parties is necessary where there are qualifying floating charges over the company's assets (rule 2.20(2), Insolvency Rules).

  • Where a company or its directors appoint an administrator, they must first give five business days' notice to all holders of qualifying floating charges registered at Companies House, naming the proposed administrator(s). A qualifying floating charge holder can apply to court appointing a different administrator, or make its own out-of-court appointment. In practice, prospective administrators will also require the qualifying floating charge holders' formal consent before taking the appointment. If the intention is for one/more administrators to act jointly, then a statement setting out the extent the administrators can act jointly or severally should be filed with the court.

  • Where a qualifying floating charge holder appoints an administrator out-of-court, it must provide all prior ranking qualifying floating charge holders with at least two business days' notice. This includes all qualifying floating charges created earlier, or qualifying floating charges which rank in priority for other reasons (for example, by agreement).

  • Creditors' voluntary liquidation. The shareholders who pass the resolution to place the company into voluntary liquidation will propose the liquidator, thereafter the creditors will sanction that appointment or propose to vote for a different liquidator.

 
6. If the law does not permit a single insolvency office holder, are there provisions allowing different office holders to co-ordinate with each other so that the value of the group's assets can be maximised?

English law does not make any provision for the co-ordination or collaboration of different office holders to maximise the value of the group's assets. However, any insolvency office holders appointed must act in the best interests of the creditors of the company they have been appointed to act on behalf of. Accordingly, they can co-ordinate with other office holders for practical reasons if it means they will be furthering the interests of the creditors they represent (as opposed to only the interests of the creditors of the corporate group as a whole).

 
7. Can professional advisers work for the entire corporate group?

Professional advisers such as legal, accounting and auditing firms are only able to work for and represent the entire corporate group in an insolvency context, provided they are suitably qualified to act and it does not create any conflicts of interest. Insolvency practitioners also need to confirm on their statement of appointment that they have no prior material professional relations in the last three years or professional dealings with the relevant companies. Taking an appointment under such circumstances will give rise to a regulatory breach.

 
8. Are the rules regarding members of a corporate group transferring assets to one another different when one or more members are insolvent?

Section 830(1) of the Companies Act prohibits companies from distributing share capital to shareholders, unless there are sufficient distributable profits. Section 829(1) of the Companies Act clarifies distribution as meaning every distribution of a company's assets to its members, whether in cash or otherwise. A distribution in kind can capture assets transferred, or even a debt write-off, from a subsidiary to a parent or between subsidiaries. Where the transferor company has any distributable profits, it can transfer assets for consideration which is at least equal to book value (even if that is less than fair value).

In an insolvency context, the following antecedent intra-group transactions are potentially vulnerable to adjustment/being set aside, to enable the office holder to achieve the best possible result for creditors and protect the pari passu principle underpinning asset distribution.

Transactions at undervalue (section 238, Insolvency Act)

If a company in administration or in liquidation has entered, during the two years before the onset of insolvency, into a transaction for no consideration or for consideration which is significantly less than the value, in money or money's worth, of the consideration provided by the company, the transaction may be regarded as a transaction at an undervalue (section 238 and section 241, Insolvency Act).

The office holder can apply to the court for an order that restores the status quo, if the company was unable to pay its debt at the time or as a consequence of the transaction. It is presumed that such a condition is satisfied if the relevant transaction is entered into with a person connected to the company. The term connected is defined in section 249 of the Insolvency Act to include an "associate" of a company under section 435 of the Insolvency Act, which clarifies that all wholly owned companies in a group are associated.

Directors who have approved such a transaction may also be found to be in breach of their duty to promote the success of the company and/or to minimise the potential loss of the company's creditors.

Preference (section 239, Insolvency Act)

If the company gives a preference to one of the creditors or a surety or guarantor for any of the company's debts or other liabilities, which has the effect of putting that person in a position which, in the event of the company going into insolvent liquidation, will be better than the position he would have been in if such action had not been taken, the court can make an order that restores the status quo, if such a preference was given during the six months before the onset of insolvency (sections 239 and 241, Insolvency Act). The look back period is extended to two years, if the preference is given to someone who is deemed to be a connected person. The court can make an order under section 239(3) of the Insolvency Act to restore the company's position to what it would have been had the company not given that preference.

For a transaction to be a preference, the company must have been influenced in deciding to give the preference by a desire to prefer the party (section 239(5), Insolvency Act). Existence of a "desire to prefer" is presumed where the transaction is with a connected person.

Directors involved in giving such a preference may be found to be in breach of their duty to minimise the potential loss to the creditors as a whole.

Invalid floating charges (section 245, Insolvency Act)

Floating charges created during the year immediately before a company becoming insolvent are deemed invalid, save to the extent of the value of the consideration given by the lender to the company at the time of creating the charge. If the charge is created in favour of a connected party, the look back period is extended to two years, and there is no need to show that the company was insolvent.

Transactions defrauding creditors (section 423, Insolvency Act)

Where a transaction was entered into for the purpose of defrauding creditors by putting assets beyond the reach of claimants of the company, the transaction can potentially be unwound by the court. No time limit applies and there is no requirement that the company be insolvent, in liquidation or administration.

Common law: the anti-deprivation principle

Under the anti-deprivation principle, the English courts can invalidate certain transactions which meet all the following criteria:

  • Involves the removal of an asset from a company that would otherwise be capable of realisation for the benefit of the company's creditors.

  • The parties to the transaction had the commercial objective of depriving the company's creditors of the benefit of the removed asset.

  • The asset was removed as a direct consequence of the company's insolvency.

 
9. How are claims of one member of a corporate group against other members of the group treated in a formal insolvency processes for those members?

A member of a corporate group can make a claim against other member(s) of the same group. The treatment of such a claim depends on the nature of the claim, for example, whether it was secured or unsecured (an unsecured claim ranks pari passu with third party unsecured creditors). Under English law, a claim is not prioritised or subordinated because the creditor is a group company. The principles of separate legal personality apply.

Substantive consolidation

10. Is pooling of assets and liabilities of some or all members of a corporate group allowed, so that a creditor of one member becomes, in essence, a creditor of all members?

There is no established doctrine of consolidation under English law, and such a concept is contrary to the doctrine of separate legal personality.

In very rare and complex cases, the English courts may consider allowing the corporate veil to be pierced, and permit pooling of assets and liabilities of some or all members of a corporate group. For example, in Re Bank of Credit and Commerce International SA (No.3) [1993] B.C.L.C. 1490, the court approved a scheme by the liquidators for the pooling of assets and liabilities in the BCCI group, where the assets and liabilities of the different companies in the group were so intermingled that it would have been impracticable to separate them. Similarly, in Re Lehman Brothers International (Europe) (In Administration), the courts stepped away from the norm and gave effect to certain pooling mechanisms.

 
11. What proceedings are required for the court to order the pooling of assets and liabilities?

Not applicable (see Question 10), although insolvency set-off may apply at the point of insolvency. Insolvency set-off applies where there have been mutual dealings between a creditor and the company. It is mandatory, automatic and self-executing, the process takes into account what is due from each party to the other in respect of dealings, and sets off these sums. It applies in liquidations (rule 4.90, Insolvency Rules) and in administrations (rule 2.85, Insolvency Rules).

 
12. Is the partial pooling of assets and liabilities allowed? What conditions apply?

Not applicable (see Question 10 and 11).

 
13. If the pooling of assets and liabilities is permitted, are there any protections for certain types of creditors?

Not applicable (see Question 10 and 11).

Protections are in place for certain creditors:

  • Preferential creditors. Certain unsecured creditors' debts are given preferential status in a distribution of the realisations of a company's assets (sections 175, 386 and Schedule 6, Insolvency Act). Accordingly, they rank in priority to other unsecured creditors, floating charge holders and to the prescribed part. Such claims include certain employee claims and contributions to pension schemes (paragraph 8, Schedule 6, Insolvency Act), and wages and salaries of employees for work done in the four months before the insolvency date, up to a maximum of GB£800 per person (paragraph 8, Schedule 6, Insolvency Act).

  • The prescribed part (as set out in section 176A, Insolvency Act) is the part of the proceeds from realising assets covered by a floating charge which must be set aside and made available to satisfy unsecured debts. The prescribed part is calculated as a percentage of the value of the company's property which is subject to a floating charge, namely 50% of the first GB£10,000 of net floating charge realisations plus 20% of anything thereafter, subject to a cap of GB£600,000. The share is quantified under the Insolvency Act (Prescribed Part) Order 2003.

Secured creditors

14. How are secured creditors treated in relation to a group of companies?

Secured creditors in relation to a group of companies are treated separately, in line with the doctrine of separate legal personality. For example, if a creditor has a security interest in the assets of one group member, and a guarantee from another group member, both of those claims are valid in the insolvency proceedings of the entire group, but they will not usually be consolidated into one claim.

The equitable principle of marshalling can come into play where a single debtor company has two secured creditors (that is, a senior creditor and a junior creditor) who have taken security over certain common assets, plus the senior creditor has taken security over additional assets over which the junior creditor has not taken security (the Senior Assets). Marshalling operates so that in circumstances where the common assets have been depleted as a result of the senior creditor enforcing its security, the junior creditor has recourse to the Senior Assets to satisfy its debt. This ensures a maximum amount of the debtor's assets will be available for distribution among creditors in the event of enforcement.

 

Insolvency proceedings for international corporate groups

15. What extra considerations are necessary if one or more members of the corporate group is incorporated under or governed by the laws of another jurisdiction?

This depends on the jurisdiction in which the relevant member is incorporated and/or based (see Question 16).

 
16. If insolvency/restructuring proceedings are started for corporate group members in different countries, do international treaties or EU legislation apply?

The main regimes which provide the legal framework governing cross-border insolvency proceedings in England are the following.

Insolvency Regulation

This applies to all EU member states (other than Denmark), and provides that a corporate group member's main insolvency proceedings (main proceedings) must be commenced in the state where its centre of main interest is.

Subject to certain exceptions, main proceedings are intended to have universal scope and cover all of the company's assets, except where secondary proceedings are opened in a member state other than that of the main proceedings, in which case the law of that member state will apply only in relation to the assets in that territory. A judgment initiating the main proceeding or deriving from a main proceeding is automatically recognised in other EU member states.

Cross-Border Insolvency Regulations 2006 (SI 2006/1030)

These give effect to the UNCITRAL Model Law on Cross-Border Insolvency (Model Law). They apply without the need for reciprocity, so the English courts may recognise eligible insolvency proceedings in another jurisdiction even if that jurisdiction has not itself enacted the Model Law. However, the Insolvency Regulation prevails if the other jurisdiction is an EU member state.

If there are multiple insolvencies in different countries, under the Cross-Border Insolvency Regulations, the "foreign main proceedings" are the insolvency proceedings opened in the jurisdiction where the debtor has its centre of main interests. Proceedings opened in jurisdictions where the debtor has an establishment but not its centre of main interests are deemed "foreign non-main proceedings".

The Cross-Border Insolvency Regulations only become relevant after the English courts recognise the foreign proceedings. In contrast, if the Insolvency Regulation applies, the English courts must recognise the relevant foreign proceedings.

Section 426 of the Insolvency Act

Under section 426 of the Insolvency Act, courts in certain designated jurisdictions can apply to the English courts for assistance in insolvency proceedings. The English courts have discretion regarding whether to provide assistance, but the general rule is that they should provide assistance unless there are powerful reasons not to.

The designated countries are: Anguilla, Australia, the Bahamas, Bermuda, Botswana, Brunei, Canada, Cayman Islands, Falkland Islands, Guernsey (modified), Gibraltar, Hong Kong, the Republic of Ireland, Malaysia, Montserrat, New Zealand, South Africa, St Helena, Turks and Caicos Islands, Tuvalu and the Virgin Islands.

Common law

Under English common law, one of the key principles with respect to cross-border insolvency is universalism, and the idea that there should be a unified insolvency proceeding in the insolvent entity's domicile which is given cross-border recognition and which applies to all company assets.

 
17. Do domestic courts typically attempt to exercise jurisdiction over all the assets of a company filing locally (regardless of where the assets are located) or do they limit their jurisdiction to local assets?

There is a general rebuttable presumption that the centre of main interests is established in the jurisdiction in which an entity is registered (as set out in Article 3 of the Insolvency Regulation).

The English courts will exercise jurisdiction over all assets of a company (regardless of where they are located) if the company can show its centre of main interests is in England and the English courts accept jurisdiction, and such proceedings are deemed to be the main proceedings. In these circumstances, the English court's jurisdiction and the legal effects of the main proceedings would need to be recognised across all EU member states.

If the English proceedings are deemed to be secondary proceedings, then any court orders will only have legal effect in England, and consequently only have effect over assets located in England.

Under the Model Law, English courts have varying rights to apply for recognition of the English proceedings in the relevant state, provided that the relevant state in which the assets are located is a signatory to the Model Law.

 
18. Do local courts enforce court orders from foreign jurisdictions that attempt to exercise jurisdiction over assets located in your jurisdiction that are owned by a company subject to foreign insolvency proceedings?

EU member states

Under the Insolvency Regulation, the English courts must recognise and enforce court orders made by the courts of other EU member states, if the main proceedings have been initiated in such jurisdictions (see Question 17).

Other jurisdictions

Cross-Border Insolvency Regulations. Under the Cross-Border Insolvency Regulations, a foreign representative administering foreign insolvency proceedings can apply to the English courts for recognition of those insolvency proceedings, either as foreign main proceedings or foreign non-main proceedings.

Section 426 of the Insolvency Act. Under the Insolvency Act, a court in certain countries designated by the Secretary of State (mostly Commonwealth countries) can apply to the English courts for assistance in insolvency proceedings. The English courts have wide discretion in determining whether to co-operate with foreign courts in relation to insolvency proceedings, and can apply English insolvency law or the relevant foreign insolvency law (section 426(5), Insolvency Act).

Regulation 15A of the Financial Collateral Arrangements (No2) Regulations 2003 (SI 2003/3226) (Financial Collateral Arrangements Regulations). The English courts will not recognise and enforce an order under section 426 of the Insolvency Act (or any other law or common law) which conflicts with Part 3 of the Financial Collateral Arrangements Regulation. This is intended to protect those holding financial collateral (such as cash, shares, bonds and credit claims), and prevents financial collateral arrangements from being set aside in the event of the debtor's insolvency.

Common law. English law recognises the principle of universalism (that insolvency proceedings apply universally) (see Question 16). Accordingly, a foreign judgment in personam may be recognised and enforced in the UK if one of the following applies:

  • The debtor was present in the foreign country when the proceedings were instituted.

  • The debtor claimed or counterclaimed in the foreign proceedings.

  • The debtor voluntarily appeared in the foreign proceedings (thereby submitting to the foreign jurisdiction).

  • The debtor previously agreed to submit to the foreign jurisdiction (for example, by contract).

 
19. Can the courts co-operate with foreign courts to co-ordinate the administration of group assets?

Although there is no single formal procedure for co-ordination between the English courts and foreign courts, a system for cross-border co-operation and assistance can be found under various legislative provisions and common law:

  • Section 426 of the Insolvency Act.

  • The Insolvency Regulation: liquidators appointed in main and secondary proceedings have a duty to co-operate (Articles 31 and 36), and there are provisions for a stay of secondary proceedings under Articles 33 and 36.

  • Cross-Border Insolvency Regulations. Articles 25 to 27 of the Model Law have been inserted which provide for co-operation between the courts and competent authorities involved in cross-border insolvencies.

Parties can also adopt various non-binding guidelines and principles on a voluntary basis:

  • American Law Institute (ALI) and International Insolvency Institute (III) Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases 2001.

  • INSOL International (International Association of Restructuring, Insolvency and Bankruptcy Professionals) Global Principles for Multi-Creditor Workouts 2000.

  • ALI Principles for Co-operation in Transnational Insolvency Cases among the members of the North American Free Trade Agreement (NAFTA) 2001 (ALI NAFTA Principles).

  • ALI/III Global Principles for Co-operation in International Insolvency Cases.

 

Directors' duties

20. Does your jurisdiction encourage or discourage overlapping boards or management teams for separate members of a corporate group?

Each company in the group has its own independent board of directors and the members of the board have a duty to act in the best interests of the company they represent. This duty shifts to act in the best interests of the creditors in the event of a company's insolvency (see Question 22). Boards can sometimes overlap, either wholly or partially.

Directors sitting on more than one board or management team must have regard to potential conflicts of interest in order to ensure compliance with their duty to avoid conflicts of interest, as stated by section 175 of the Companies Act.

 
21. What legal consequences are there for the directors of a parent company where they are not directors of the subsidiary but do manage the subsidiary's affairs?

Section 251 of the Insolvency Act refers to the term director as any person occupying the position of director, by whatever name called. Any person who is not a director of the subsidiary but makes decisions in respect of the subsidiary's affairs, which are the type of decisions that would normally be made by the directors of a company, may be deemed to be a de facto director of the subsidiary. De facto directors are generally liable in the same way as registered directors.

English law also recognises the concept of shadow directors. A shadow director is

defined as a person in accordance with whose directions or instructions the directors of a company are accustomed to act (section 251, Companies Act). Depending on the involvement of the directors of the parent company in the management of the subsidiary, such individuals could be considered to be shadow directors. Shadow directors are liable in many of the same ways as the directors themselves.

 
22. What are the main duties and responsibilities of directors and officers to the company, shareholders and third parties? Do they change when the company becomes insolvent?

Directors are bound by statutory and fiduciary duties to the company. Chapter 2 of Part 10 of the Companies Act (sections 171 to 177) sets out the general duties of directors and officers. These include the following:

  • To act within the constitution of the company.

  • To promote the success of the company.

  • To exercise independent judgment.

  • To exercise reasonable care, skill and diligence.

  • To avoid conflicts of interest.

  • Not to accept benefits from third parties.

  • To declare an interest in proposed transactions or arrangements.

Directors owe their duties to the relevant company (as opposed to the shareholders of the company), and not to the corporate group as a whole. However, group companies usually have the same directors, who owe duties to each company.

The duty to promote the success of the company is subject to "any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company" (section 172(3), Companies Act). However, when a company becomes insolvent, the directors' duty to promote the success of the company is replaced by a duty to act in the best interests of the company's creditors (section 172, paragraph 331, Companies Act Explanatory Notes). In this situation, directors must protect the value of the company assets and minimise losses to creditors as far as possible.

 
23. How are competing duties addressed where directors and officers of different group company members overlap and there are conflicts of interest between the group members?

Under section 175(1) of the Companies Act, directors have a duty to avoid conflicts of interest. Directors therefore must declare any conflict of interest that could potentially arise in managing their duties. A shareholders' resolution would be required, or the company's constitutional documents modified, to ratify the conflict, failing which the director would not be able to act in the relevant transaction.

 
24. What specific types of conduct are in breach of the duties and responsibilities of directors and officers?

The following behaviours will be in breach of the directors' duties listed in sections 171 to 177 of the Companies Act (see Question 22):

  • Acts exceeding the scope of the company's constitution (excess of power), and acts within the scope of the company's constitution but done for an improper reason (abuse of power).

  • Taking a decision where the director did not honestly and in good faith believe that he acted in a way most likely to promote the company's success for the benefit of its shareholders, or made a decision that a reasonable, honest and intelligent director could not have concluded would promote the company's success. For example, causing the company to make certain payments, despite knowing that the company had been unable to pay its debts as they fell due and that the value of its assets was less than its liabilities (Hellard v Carvalho (Ch), 25 September 2013, reported in [2013] EWHC 2876 (Ch)).

  • When the company is at risk of becoming insolvent, unreasonably overlooking the interest of a large creditor will be in breach of a director's duty to promote the success of the company under section 172 of the Companies Act.

  • Subordinating the director's powers to the will of a third party, unless authorised by the constitutional documents to do so (such as voting in a particular way at board meetings, unless in accordance with powers of delegation clearly set out in the articles of association).

  • Taking on and exercising a directorship without being sufficiently qualified.

  • Where a director places himself in a position where there is a conflict between the duties owed to the company and personal interests or other duties owed to a third party (exploitation of property, information or opportunity), whether or not the director is aware of the existence of a conflict, unless the situation could not reasonably be regarded as likely to give rise to a conflict of interest.

  • Exploiting the position of director for personal benefits if it may reasonably be regarded as likely to give rise to a conflict of interest (for example, bribery).

  • Failing to declare to the other directors the nature and extent of any interest in a proposed transaction or arrangement with the company.

In the event of insolvency proceedings, directors may be liable for the following statutory offences:

  • Transactions at an undervalue (see Question 8).

  • Preference (see Question 8).

  • Fraudulent trading and wrongful trading. Under section 213 of the Insolvency Act, directors are liable if they knowingly carried on business with the intent to defraud creditors or for any other fraudulent purpose. Under section 214 of the Insolvency Act, directors are also liable if they have engaged in wrongful trading, provided two conditions are met:

    • the company has gone into insolvent liquidation, and the director at the time knew or ought to have known that there was no reasonable prospect that this could have been avoided; and

    • the directors have failed to establish that they have taken every step to minimise the potential loss to creditors.

  • Misfeasance/breach of duty. The misappropriation of corporate assets by a director, in violation of the company's interest and for the director's own personal benefit, is a criminal offence. Also, directors misapplying money or other company property may result in a breach of section 212 of the Insolvency Act, and the directors may be ordered to repay any amount the court thinks just.

Directors also have a duty to take all proper steps to minimise the potential loss to creditors after becoming aware that there is no reasonable prospect of the company avoiding insolvency/liquidation. However, a director may take the view that it is in the best interests of the company and its creditors to continue trading out of difficulties, unless they know or ought to have known that there was no reasonable prospect of recovery.

 
25. What civil and criminal liability exists for directors and officers if they breach their duties and responsibilities?

Before the onset of insolvency proceedings

A breach of directors' duties before the onset of insolvency can give rise to an action by the company. The duties are only owed to the company, and only the company can enforce them. Under strict conditions, however, a shareholder can bring a derivative action under section 260(3) of the Companies Act, in respect of an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company. There is no requirement for the director to have personally benefitted from the breach.

After the onset of insolvency proceedings

After the onset of insolvency, if a director is found guilty of fraudulent trading, the court can order him to pay a fine and/or sentence him to imprisonment. The civil sanction is a contribution to the assets of the company, and a director found guilty of fraudulent trading will almost invariably be disqualified. Creditors may also have a remedy at common law through an action for deceit.

If a director is found guilty of wrongful trading, the court can order him to make a contribution to the company's assets as it sees fit, with a possible set off against any debt or obligation due to him by the company, and possible subordination of debt if the director is also a creditor of the company.

More generally, under section 212 of the Insolvency Act, a director or former director of a company who "has misapplied or retained, or become accountable for any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company" can be compelled by the court (on the application of the official receiver, liquidator or any creditor) to repay the money or property or any part of it, or to contribute such sums to the company as compensation.

Before or after the onset of insolvency proceedings

Directors or former directors can be held criminally liable for certain types of malpractice under the Insolvency Act (largely relating to fraud and deception) if they are found to have committed an offence either before or during the liquidation. The types of malpractice covered include the following:

  • Fraud in anticipation of, or after, winding up (section 206, Insolvency Act).

  • Transactions in fraud of creditors (section 207, Insolvency Act).

  • Misconduct in the course of winding up (section 208, Insolvency Act).

  • Falsification of the company's books (section 209, Insolvency Act).

  • Material omissions from any statement relating to the company's affairs (section 210, Insolvency Act).

  • False representations to creditors (section 211, Insolvency Act)

In each case the penalty is imprisonment or a fine, or both.

The court has a duty to disqualify unfit directors of insolvent companies (see Question 32).

 
26. Is potential personal civil or criminal liability a factor in officers and directors deciding if and when to put the company into a formal insolvency/reorganisation procedure?

See Question 25.

Directors are exposed to potential civil liability for wrongful trading under section 214 of the Insolvency Act if they continue to trade where the company has no reasonable prospect of recovery. In such a case, they may be regarded by the courts as unreasonably delaying the company's entry into formal insolvency proceedings and the creditors may suffer loss as a result of this delay.

However, directors can also be liable if they initiate the insolvency process prematurely, causing loss to creditors. In either case, the directors must be able to justify their decisions and show that they acted in good faith. Doing so is likely to be sufficient to avoid prosecution.

 
27. Is insurance available to protect directors and officers from claims arising while operating a financially distressed company?

Companies are allowed to purchase and maintain "for a director of the company, or of an associated company, insurance against any liability" "attaching to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he is a director" (sections 232(2) and 233, Companies Act).

Insurance policies are widely used by officers and directors in the UK. Directors' and officers' liability insurance (D&O insurance) can be used to protect directors and officers of a company from loss resulting from claims made against them, in relation to the discharge of their duties as directors or officers respectively. Such policies usually cover the costs of defence if a director is found guilty of wrongful trading. Policies typically exclude fraud and dishonesty.

 
28. Can directors and officers resign from their positions if the company becomes financially distressed and what difference will this make to their potential liability?

Resignation of a director will not prevent them from being found liable. If the directors conclude that the company cannot continue to trade, their duty is to implement the most appropriate insolvency proceeding. A director's resignation will not prevent them from being liable for any wrongful or fraudulent trading committed while they were directors, and the associated criminal and civil sanctions. A director can resign if he is conflicted or if he is unable to find a common position with the other directors he can resign, but he will still be liable for any failure to take appropriate action before his resignation.

 
29. How common is litigation against directors and officers for violation of their duties after commencement of insolvency/reorganisation proceedings? Is the litigation typically successful?

Official statistics provided by the Insolvency Service indicate that around 1,210 directors were disqualified in 2015/2016.

Proceedings for fraudulent trading are generally rarely successful, as an intention to defraud creditors, or any other fraudulent purpose, must be proven.

Wrongful trading is usually easier to prove, although proof must be provided that the director knew or ought to have known that there was no reasonable prospect that the company would avoid going into insolvent liquidation.

Directors can show that they have complied with their duties by relying on board minutes, advice from lawyers and financial advisers (see Question 30).

 
30. What defences against civil and/or criminal sanctions are available to directors and officers?

Wrongful trading

The burden of proof lies on the director or former director, and not on the office holder, to show that he has taken every step to minimise the potential loss to creditors as he ought to have taken (section 214(3), Insolvency Act). As the likelihood of insolvency increases, it may be prudent to hold frequent board meetings, circulate updated budget to the board and keep major creditors informed of the situation.

Fraudulent trading

The liquidator must show actual dishonesty involving real moral blame. There must be evidence of actual dishonesty. This can include deliberate inaction of a participant as well as positive actions to defraud. There is no statutory defence. A director may be exempted from liability if he proves that he did not participate in the carrying on of the business in that manner, or did not have knowledge of the fraudulent purpose of the transaction.

Transactions at an undervalue

No order can be made under section 238 of the Insolvency Act if the company which entered into the transaction did so in good faith (even if it acted dishonestly in the transaction itself) and for the purpose of carrying on its business and, at the time, there were reasonable grounds for believing that the transaction would benefit the company (section 238(5), Insolvency Act).

For the relevant time pre-requisite, see below, Preference.

Preference

As with transactions at an undervalue, under section 241(2) of the Insolvency Act it is a defence that the relevant transaction was entered into in good faith and for value. The onus is on the person asserting the defence to prove good faith.

Section 239 of the Insolvency Act is limited to transactions with the company's creditors or a surety or guarantor for any of the company's debts or other liabilities (section 239(4)(a), Insolvency Act). There must also have been a "desire to prefer" (section 239(5)), that is, a desire to better the position of the person who benefits from the transaction, than such person would have been in had the company gone into insolvent liquidation. The "desire to prefer" is presumed where the beneficiary is a connected party (see Question 8).

Any allegedly voidable transactions at an undervalue and preference transactions must have occurred within the relevant time to be vulnerable to a section 238/9 Insolvency Act (as applicable) application by the office holder. This includes:

  • The transaction occurred within the six months before the onset of insolvency, or two years before the onset of insolvency where the transaction is with a connected party (section 240(1), Insolvency Act).

  • The company was at the time unable to pay its debts, within the meaning of section 123 in Chapter IV of Part V of the Insolvency Act, or becomes unable to pay its debts due to the transaction (section 240(2), Insolvency Act). This limb is deemed to be satisfied unless proven to the contrary, in relation to any transaction at an undervalue entered into by a company with a person connected with the company.

Negligence, default, breach of duty or breach of trust

A director may be exempt if his decision is viewed as being reasonable by the court under the circumstances, or if the breach of duty was ratified by the members, except where the transaction is likely to cause loss to the creditors because the company is insolvent or likely to become insolvent as result of the breach, in which case the approval of members is ineffective.

 
31. If it appears that "going concern values" will result in a higher return to creditors than a liquidation of the assets, can directors and officers be protected if they decide to continue operations to protect the values for the benefit of all creditors?

It is possible for a company to continue trading while insolvent. The directors will not be liable unless they incur debts which they know, or ought to know, that they will not be able to repay. All steps must be taken to minimise potential loss to creditors after directors become aware that there is no reasonable prospect that the company can avoid insolvent liquidation.

Directors can properly take the view that it is in the interests of the company and of its creditors that, although insolvent, the company should continue to trade out of its difficulties. They may take the view that it is in the interests of the company and its creditors that some loss-making trade should be accepted in anticipation of future profitability. However, there is a risk that trading while insolvent may lead to personal liability. Under section 214 of the Insolvency Act, a director can be liable where he knew, or ought to have concluded, that there was no reasonable prospect that the company would avoid going into insolvent liquidation.

 
32. If a company becomes insolvent, is a director or officer of the insolvent company legally restricted from acting as a director or officer in another company, or from obtaining credit as a promoter of another company?

A director or officer of an insolvent company is not restricted from acting as a director or officer in another company, or from obtaining credit as a promoter of another company, unless he has been disqualified.

Disqualification orders are issued by the courts against the directors if the Secretary of State considers that it is in the public interest that such an order be issued.

A director can be disqualified at the court's discretion, if he is or has been the director of a company which has at any time become insolvent, and his conduct as a director of that company makes him unfit to be concerned in the management of a company (section 6, Company Directors Disqualification Act 1986).

Once disqualified, the director or former director must not, without leave of the court, be a director of any company or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company.

The maximum period for disqualification under section 6 of the Company Directors Disqualification Act is 15 years, depending on the cause for disqualification, and the minimum period is two years. Under the Insolvency Service Enforcement Outcomes Tables, the average disqualification period for disqualification orders is 7.4 years in 2015/2016.

 
33. If a director or officer becomes personally insolvent, is he legally restricted from continuing to act as a director or officer of his current company or another company?

Current company

A bankrupt person cannot act as the director of a company without the court's permission, or create, manage or promote a company without the court's permission.

Another company

See above, Current company.

 

Online resources

Legislation.gov.uk

W www.legislation.gov.uk/

Description. Legislation.gov.uk is the official home of UK legislation, revised and as enacted. This official website is managed by the National Archive on behalf of HM Government.

Insolvency Service

W www.gov.uk/government/organisations/insolvency-service

Description. The Insolvency Service is a government agency providing services and information to those affected by financial distress or failure. It is sponsored by the department for Business, Energy and Industrial Strategy. It administers bankruptcies and debt relief orders, makes reports of any director misconduct and/or disqualifies them if there is evidence of misconduct. The website is an official website and is hosted by the National Archives.



Contributor profiles

Louise Verrill, Partner, Bankruptcy and Corporate Restructuring

Brown Rudnick LLP

T +44 20 7851 6072
F +44 20 7851 6100
E lverrill@brownrudnick.com
W www.brownrudnick.com

Professional qualifications. England and Wales, licensed insolvency practitioner

Areas of practice. Bankruptcy and corporate restructuring; insolvency; finance; investment funds; distressed debt; family offices and family business.

Recent transactions

Some high-profile cases include:

  • Advising an ad hoc group of Anglo Irish Bank's lower tier 2 noteholders, in relation to the bank's coercive tender offer in respect of the notes and the related restructuring legislation to impose burden sharing on subordinated noteholders.

  • Advising ad hoc lower tier 2 noteholder groups of Allied Irish Bank and Bank of Ireland in relation to the ongoing restructuring.

  • Acted for ID-Sparinvest, a branch of Sparinvest SA as the super senior funder in relation to PA Resources AB, a Swedish based oil and gas exploration business which had entered administration in Sweden in early 2015.

  • Instructed by the joint administrators of Phosphorus Holdco, the parent company of the Phones 4u group, to investigate all claims relating to the company's administration.

  • Advised the retail bondholders and upper tier 2 preference share retail holders in Co-op Bank.

  • Successfully advised Catalyst Capital Group on its acquisition of a controlling interest in a restructured, distressed property investment company, Homburg Invest.

  • Represented the ad hoc committee of bondholders of Pescanova.

Languages. English

Publications. Author and co-author of various articles and chapters for:

  • Recovery, 2016.

  • INSOL World, 2015, 2016.

  • International Law Office, 2014, 2015.

  • Eurofenix, 2010, 2014.

  • Research Handbook on Crisis Management in the Banking Sector, published 2015.

  • Guide to the World's Leading Women in Business Law, 2012.

  • Euromoney's Global Insolvency & Restructuring Review, 2010-2011.

  • The Hedge Fund Journal, October 2008.

  • Euromoney Yearbook, Global Insolvency & Restructuring Review 2008/09.

  • International Securitization and Finance Report, 2008.

  • LegalWeek.com, 2008.

  • Twilight Trusts Insolvency Intelligence, Issue 10, January, 2008.

  • Hedgefund Review, October, 2007.

  • Powerhouse Challenge Recovery Magazine, August, 2007.

  • Tolly's Receivership Chapter, 2005.

Sabina Khan, Associate, Bankruptcy and Corporate Restructuring

Brown Rudnick LLP

T +44 20 7851 6107
F +44 20 7851 6100
E skkhan@brownrudnick.com
W www.brownrudnick.com

Professional qualifications. England and Wales

Areas of practice. Bankruptcy and corporate restructuring; insolvency; distressed debt and claims trading; finance and funds.

Recent transactions

  • Acting for a major private equity investment firm in the 100% disposal of its stake in a European subsidiary (a listed real estate investment company), with a property portfolio spanning The Netherlands and Germany.

  • Representing a West African Government (Ministry of Finance) and a wholly owned national airline company in connection with debt restructuring and operational restructuring.

  • Acted for Queensgate Investments, a real estate fund, on the debt financing side in connection with the acquisition of Kensington Forum Hotel, a 906-room hotel in central London, in a deal worth about GB£350 million.

  • Assisted one of the largest funds in Scandinavia with a super-senior investment proposal in order to fund a solvent work-out of PA Resources (an oil and gas exploration company listed on the Swedish stock exchange, with interests in the North Sea, Congo and Tunisia).

  • Regularly advises a London-based hedge fund in relation to the sale and purchase of distressed European debt, overcoming jurisdictional issues and ensuring that the relevant documentation is LMA-compliant.

  • Acted for currency traders involved in ongoing regulatory investigations in connection with the alleged manipulation of the foreign exchange market.

Languages. English

Publications.

  • Co-author, "An acquired taste? The acquisition of NPLs in Europe", Recovery, Autumn 2016 Edition.

  • Co-author, "More options for financial institutions - the impact of the EU Bank Recovery and Resolution Directive and other potential reforms", Eurofenix, Summer 2015 Edition.

Grégoire Hansen, Associate, Bankruptcy and Corporate Restructuring

Brown Rudnick LLP

T +44 20 7851 6134
F +44 20 7851 6100
E ghansen@brownrudnick.com
W www.brownrudnick.com

Professional qualifications. Avocat registered with the Paris Bar (French qualified); practising as a European Registered Lawyer registered with the Solicitors Regulation Authority

Areas of practice. Bankruptcy and corporate restructuring; insolvency; corporate finance.

Recent transactions

  • Advising a group of former directors and officers of a UK company on the insolvency process and any potential liability of the group.

  • Advising Avolon in connection with their aircraft sale and leaseback operations.

  • Advising Total Engine Asset Management in connection with their aircraft sale and leaseback operations.

  • Assisting a national carrier airline on its restructuring strategy.

  • Advising on the issuance of variable funding notes as debt instruments for a major funding platform in relation to Jersey and France.

Languages. French, English

Publications.

  • Investing in distressed debt in Europe: the TMA handbook for practitioners, Globe Law and Business & Turnaround Management Association, Co-author of article Restructuring High-Yield Bonds in Europe - November 2016.

  • Practical Law Country Q&A, Lending and taking security in France, Co-author, Practical Law Company, April 2016.

  • Brown Rudnick Alert, A bold reform of Unified African Insolvency Law: OHADA's new legal framework to boost turnaround and creditor recovery, Co-author, Brown Rudnick LLP, February 2016.

  • Brown Rudnick Alert - France introduces limited partnership as likely new main form of private equity and hedge fund, Co-author, Brown Rudnick LLP, November 2015.


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