We have extensive experience across all aspects of corporate and personal insolvency and business restructuring.
- We advise management (often alongside a turnaround practitioner) on the formulation and implementation of turnaround strategy and on directors’ duties.
- We advise banks and financial institutions on the validity, scope and enhancement of security and on options for enforcement.
- We advise other stakeholders, including shareholders, creditors and employees on the impact of insolvency or on the modification of their rights to facilitate a restructuring strategy.
- We advise insolvency practitioners on appointment issues and strategy, pre-pack sales of assets and realisation/ recovery of assets for the insolvent estate, which will include litigation brought to challenge antecedent transactions.
- In addition, we have extensive experience in acting for trustees in bankruptcy, realising assets effectively and efficiently. We have market-leading expertise in PRU cases, particularly in dealing with problematic annulment cases.
Operational, Organisational and/ or Financial Restructuring of Distressed Businesses
Saving an ailing business requires early action as delay invariably narrows the options available to a business to restructure and avoid formal insolvency.
Our lawyers have considerable experience of advising investors and management on the necessary steps to be taken to effect a successful company reorganisation/restructuring to avoid the business ultimately failing.
This often involves negotiating with various stakeholders in the business to include funders, suppliers, creditors and employees to agree modifications to their existing legal rights to enable the business to survive.
We have a trusted network of advisers who can be brought in as part of or as advisers to the management team to assist in devising and implementing an effective turnaround strategy. We can also assist in identifying potential alternative sources of finance/ investment and negotiating terms for a financial restructuring.
Where necessary, we are familiar with and will recommend using the insolvency processes that are available to assist in achieving an effective restructuring, but achieving the desired restructuring without recourse to those processes is the priority.
Advice on Directors Duties & Responsibilities
When a company is facing potential insolvency directors can lose the protection that limited liability affords them. A director’s duty is to act in the best interests of the company which, if insolvency is a real risk, means the interests of creditors take precedence over the interests of shareholders.
Directors face potential claims against them, under the Companies Act 2006, if they fail to act in the best interests of the company. Transactions entered into in the difficult twilight period prior to cessation of trade may, subsequently, be viewed in an uncomplimentary light by an office holder and may result in a claim being pursued to obtain compensation for any perceived loss to the company and the general body of creditors.
Additional claims also exist under the Insolvency Act 1986 and, in particular, a director can be sued by a liquidator if he believes that the director caused the company to continue trading beyond a date when he should have realised that insolvent liquidation could not reasonably have bee avoided. Such claims can be significant in value as the court may require the director to contribute a sum based on the amount by which the loss to creditors increased during the period of “wrongful” trading.
Mistakes made in the period leading up to the insolvency of a company can also result in a director being disqualified from acting as a director of a company, or being involved in its management, if the Insolvency Service considers the conduct of the director warrants an application to court to declare the director unfit to act as a director for a period of time (between 2 and 15 years)
Taking early advice to avoid the many pitfalls at such a difficult time may avoid having to defend claims in the future.
Advice to Insolvency Office-Holders on Appointment, Strategy & Realisation or recovery of assets
In many cases, the appointment of an insolvency office holder does not require legal assistance. However, caselaw has created uncertainty around the proper procedure for appointing Administrators via the “out of court” route and, on occasion, emergency applications to Court are required either for the immediate preservation or recovery of assets or because the proposed mechanism for appointment is subject to an actual or perceived threat or challenge.
Once appointed a vast array of legal issues can arise. Some examples include:
- Routine extensions to Administrations or permissions to make certain distributions
- Negotiating and drafting terms for the disposal of the business and assets, whether by “pre-pack” sale or otherwise
- Investigation of director conduct and potential recovery action for misfeasance or antecedent transactions offending the insolvency act provisions
- Recovering director loan accounts or unpaid share capital
- Bulk debt recovery to assist with difficult or aged debtor ledgers
- Defending assertions of misfeasance against the office holder and potentially associated threats of removal from office
- Defending assertions of invalidity of appointment and seeking declarations/ retrospective relief from the Court
- Negotiating ongoing terms of trade in a trading Administration
Security review, enhancement & enforcement
When a customer faces financial difficulty, banks and asset based lenders are keen to establish the scope and validity of any security that they hold over the assets of the customer.
An early security review can assist in addressing any potential challenges or issues over the validity of security and/ or can prompt action to enhance the security held or to take an alternative/ additional stake in the customer, such as a debt for equity swap or equity stake. This might be a step taken to procure the continued support of the bank or asset based lender in order to facilitate a restructuring/ turnaround of the customer’s business.
The security review in its fullest form will also advise on potential enforcement action/ strategy to enhance any return to the bank or asset based lender.
The sale & purchase of insolvent businesses
Whether considering the sale or purchase of an insolvent or potentially insolvent business, there are unique considerations and potential pitfalls to consider.
A party considering an offer to purchase a business from an insolvency practitioner will need tailored funding and will need to turn its mind to a very limited and quick due diligence exercise. In particular, there is a need to focus on transferability of existing contracts, supplier issues (such as retention of title), release of bank security, ownership and transferability of intellectual property rights, issues surrounding the payment of VAT, the potential automatic transfer of employees and accrued rights to the buyer and restrictions on a connected buyer’s re-use of the company name or trading name.
An insolvency practitioner will generally not offer any indemnities or warranties on disposal of the business and assets of a business over which he or she is appointed. It is important that all parties understand the commercial realities (and risks) of the situation at the outset.
An insolvency practitioner will want a fast and cost effective document produced that divests the company of such right, title and interest as it has in the assets that he proposes to transfer but provides the insolvency practitioner with protection from personal liability and minimises potential claims against the insolvent company. He may also require advice on the manner, timing and/ or validity of appointment, the technical requirements surrounding a “pre-pack” disposal of the business and assets and potentially other issues specific to the assets to be transferred, such as retention of title claims, employee claims, validity and assignment of intellectual property rights and/ or the strategy for dealing with any real property owned or occupied by the company.
Representing/protecting investor & creditor interests
An investor will need to quickly understand the impact of any restructuring, refinancing or insolvency on the likelihood of him or her receiving any return on investment.
Creditors and investors may need to carefully weigh a proposal to defer payments in the hope or anticipation of longer term repayment (possibly with premium) against the prospect that insistence on payment within existing terms could derail a potential rescue strategy and precipitate an immediate insolvency giving little or no return or repayment.
Creditors might have proprietary rights that can enhance their leverage or priority of payment in an insolvency process or restructuring exercise. This might include formal security, trust arrangements, liens or retention of title. In each case there are benefits and pitfalls/ risks in relying on/ enforcing security. By way of example, the simple refusal to deliver up an asset in exercise of a lien (or other possessory security) would breach a statutory moratorium arising on Administration and inadvertently a creditor might find himself in contempt of court.
Investigating the causes of insolvency
The management of a business will usually know before the market place if a business is at risk of insolvency. Rather than act strictly in the best interests of the company and its creditors, it is not uncommon for management, in breach of their duties, to take steps to preserve their personal interests and those of their investors (often the same people). With advance notice of potential risks of insolvency, they may have the time to secure/improve their positions and contrive things to make it look as if advantageous steps were lawful at the time they took place, rendering the possibility of successfully reviewing/reversing them difficult, if not impossible. Such steps can include declaring and paying dividends or restructuring a business so that the profitable element of it is ringfenced from subsequent claims, to the detriment of creditors.
Our lawyers have considerable experience of investigating the period leading up to insolvency to identify if steps have been taken to extract value or protect assets in anticipation of a potential insolvency. We have significant expertise in reviewing historic accounts to disclose potentially detrimental activities and also make full use of the extensive powers of enquiry available to insolvency office holders to identify where complex schemes have been used to legitimise an unlawful asset protection exercise.
Conducting Insolvency Act & related claims on behalf of creditors and office holders
We have a very extensive practice conducting claims against directors and third parties to recover assets, or their equivalent value, for the benefit of creditors. These include:
- Transactions at an undervalue
- Wrongful/fraudulent trading claims
- Misfeasance claims against directors
- Recovery of directors loans or unpaid share capital
- Breach of trust/unlawful assistance by third party claims
- Unlawful dividends
- Section 423 Insolvency Act 1986 claims
The department has a reputation for creative problem solving and, as a consequence, has been involved in a number of leading reported insolvency cases to include the following;
- Walker v W A Personnel  BPIR 620
- Hill v Spread Trustee Co Ltd  B.C.C. 646 (CA)
- Hill v Haines  Ch 646 (CA)
- RE Krug International (UK) Ltd
- Walker v Mark Holt & Co Ltd  B.C.C. 548
- Atkinson v Corcoran  EWHC 3484
Complex schemes are often used to give the appearance of legitimacy to the distribution/ divestment by a company of its core assets and to subsequently shelter those assets or their proceeds from recovery action. Our specialised fraud and asset tracing and recovery team is experienced in using insolvency act powers, in particular the powers of enquiry and an innovative application of section 423, to unravel such schemes. The team uses its extensive multijurisdictional expertise to explore and recover assets from offshore trust structures designed to give protection to ill gotten gains.
With the application of innovative funding structures and insurance products, the cost/ risk burden for creditors and the insolvent estate is reduced or eliminated.
Recovering assets from off-shore trusts
Off-shore trusts are often used as a vehicle to shelter assets from potential creditor claims. They rely on the limited filing obligations in the jurisdictions in which they are based to frustrate attempts to trace ownership of assets back to the insolvent estate that previously owned them. The team has a lengthy track record of successfully unravelling the complexities concerning the use of off-shore trust to recover assets for the benefit of creditors. Jurisdictions in which we have experience include The Isle of Man, Guernsey, Jersey, Gibraltar, British Virgin Islands and Vanuata.