UK Corporate Insolvency Law Recent Developments in Light of the Global Financial Crisis

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UK Corporate Insolvency Law Recent Developments
in Light of the Global Financial Crisis

• Dr Michael Schillig
• School of Law
• Kings College London

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Overview

• Cork Report, 1982 Insolvency Act 1986
  Enterprise Act 2002
• Administration
• Company Voluntary Arrangement
• Scheme of Arrangement
• Voluntary winding up by the creditors
• Compulsory winding up by the court

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Overview

• Recent Developments
• Pre-packaged administrations in the European
  context
• The UNCITRAL Model Law in action
• The anti-deprivation rule under scrutiny

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Destination pre-pack

• Pre-pack administration
• Pre-arranged sale of the business immediately on
  appointment of the administrator
• Prior approval by creditors meeting or leave of
  the court is not required
• Only ex post facto challenge by creditors

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Destination pre-pack

• European Insolvency Regulation
• Centre of main interests
• Presumption in favour of the registered office
• Eurofood rebuttable by objective criteria
  ascertainable by third parties

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Destination pre-pack

• Wind Hellas restructuring
• Wind Hellas owned by Hellas II registered in
  Luxembourg
• Hellas II moves COMI to England
• Administrator sells the shares in Wind Hellas to
  Weather Finance
• 1.4 billion EUR of junior (unsecured) notes
  remain with Hellas II

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The UNCITRAL Model Law in Action

• Cross-Border Insolvency Regulations 2006
• foreign representative may apply for
  recognition
• as foreign proceeding
• which will be a foreign main proceeding
• if COMI is situated in the state of that
  proceeding

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The UNCITRAL Model Law in Action

• Re Stanford Bank Ltd (in receivership) 2010 WL
  605796 (CA)
• US receivership did not qualify as foreign
  proceeding
• Antiguan liquidation did qualify as foreign
  proceeding
• DoJ/SFO restraint order

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The UNCITRAL Model Law in action

• Re Stanford Bank Ltd (in receivership) 2010 WL
  605796 (CA)
• Pursuant to the Eurofood test, SIBs COMI was in
  Antigua
• Administrative priority for DoJ/SFO as this would
  save costs
• Recognition as foreign main proceeding subject to
  restraint order

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Anti-deprivation under scrutiny

• Pari passu principle and anti-deprivation rule
• All unsecured creditors share the assets on a pro
  rata basis.
• It is not possible to contract out of the
  Insolvency Act 1986.
• An interest may be limited so that it comes to an
  end when the company goes into winding up.

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Anti-deprivation under scrutiny

• Perpetual v BNY 2009 EWCA Civ 1160

N
I
BNY
LBSF
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Anti-deprivation under scrutiny

• Perpetual v BNY 2009 EWCA Civ 1160
• flip from swap counter party priority to
  noteholder priority
• LBSFs charge has been subject to the flip from
  the start
• Anti-deprivation rule does not apply
• But LBSF v BNY, Bkrtcy SDNY 2010 flip as
  unenforceable ipso facto clause

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Conclusion

• Overall well equipped
• Emphasis on party autonomy
• UNCITRAL Model Law as effective tool
• Concerns about pre-packs race to the bottom?

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