Sanction of Liquidator’s Actions

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015. As of writing, where a company is placed into liquidation, the Liquidator’s ability to bring certain proceedings or take specific steps is controlled by the insolvency legislation, some of which require the permission of either the Court or, more usually, creditors.

This permission is commonly referred to as “sanction” and the powers of appointed liquidators that are exercisable with or without creditors’ sanction is defined by Schedule 4 to the Insolvency Act 1986. These powers differ depending on whether the company has been wound-up by the Court or by its shareholders by way of a creditors voluntary liquidation.

The sanction of creditors is normally required when liquidators seek to compromise creditors’ claims, bring or defend legal proceedings and continue the business of the company (where the company has been wound-up by the court) or issue proceedings to recover assets as a result of disposals or payments which preceded the liquidation (often referred to as antecedent transactions).

The Bill seeks to remove the requirement for creditors’ (or indeed the Court’s) approval of such proposed steps and instead the various powers of an appointed liquidator (as set in Schedule 4 to the Insolvency Act 1986) are combined into a single list, free of any interference or need for authority from creditors.

Whilst liquidators actions will remain subject to the control of a creditors committee, the Court and the Secretary of State, the removal of this burden to seek creditors’ approval is perhaps welcome as this is very rarely contentious and will again assist the government in its objectives to reduce the cost of insolvency proceedings and maximise returns to unsecured creditors.

Assignment of Administrators’/Liquidators’ Causes of Action

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015

A majority of all professionals in the insolvency market will be fully aware of recent civil litigation changes which lead to a prohibition on Claimants from recovering their legal costs which had been incurred in proceedings on the basis of a Conditional Fee Agreements (where solicitor’s fees were payable on a “no win no fee” basis) usually combined with After the Event Insurance premiums (which insure against an opponent’s legal costs).

Proceedings arising from insolvent situations (usually claims by appointed Liquidators or Administrators) were granted an exemption from these changes until April 2015, during which time government has been in consultation as to the effect of such changes.

However, it has now been announced that this extension will not continue from April 2015.

This leads to a considerable difficulty – where companies placed into liquidation or administration have no assets to fund a claim against the former directors or third parties there is little other option (unless creditors are happy to fund such proceedings) to seek recovery of assets that should form part of the company’s estate.

The Bill has however provided assistance to this problem at Section 106 where it provides the power for appointed Liquidators and Administrators to assign a cause of action under certain categories of claim that historically could only be issued by an appointed Liquidator or Administrator.

Further, all such claims cannot be repaid to holders of fixed or floating charges over the company but rather will fall to a pool of assets to be distributed to unsecured creditors. This is obviously good for creditors but also means that the likelihood of an appointed Administrator/Liquidator being funded to take such proceedings will diminish.

These proposals have also led to changes in the marketplace where insurance companies increasingly have demonstrated an appetite to acquire company claims and the expansion of this to claims by Liquidators and Administrators will no doubt also prove attractive to them.

At Francis Wilks & Jones we deal with such insurers and their brokers and can facilitate the necessary introduction and take you through the appropriate steps in the litigation proceedings to support such recovery action.

Administrators: Powers To Bring Fraudulent/Wrongful Trading Claims

Currently, going back to the introduction of the Insolvency Act 1986, claims for wrongful and fraudulent trading (the latter being a far more serious allegation) could be brought against company directors by liquidators appointed over the company.

The Bill proposes to amend this provision to also allow appointed Administrators to bring such claims against directors (and also shadow directors as per the changes referred to in the previous blogs), perhaps with a view to attempting to reduce the cost of two sets of insolvency proceedings.

This is an expanded power for recovery of company losses against directors and also provides for circumstances where a company faces administration and is immediately dissolved following conclusion of the administration proceedings. Ordinarily, if any such wrongful trading or fraudulent trading claim existed, the Administrator would need to convert the insolvency to a liquidation for these purposes, a potentially expensive step with no guaranteed promise of any recovery being made.

Additionally, Section 107 of the Bill provides that any recoveries on the basis of these (and other) pre-insolvency transactions would not be payable to any holder of a fixed or floating charge (which is usually the purpose of an Administrator’s appointment) and so this may ultimately lead to a scenario where an appointed liquidator may be required to investigate such matters but is unlikely to issue proceedings in light of the requirement to convert to a liquidation if monies are recovered.

A future blog will discuss the payment of prescribed part sums to unsecured creditors out of Administration, but Section 107 recoveries do not appear to relate to such sums.

Both Insolvency Practitioners, directors and banks (or any other secured creditor) should be fully aware of these changes. At Francis Wilks & Jones we can advise on such matters.

Compensation Orders Following Disqualification

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015.

A further proposal within the Bll is the power of the Court to make a Compensation Order following the disqualification of a director, whether by Court order or upon providing a disqualification undertaking. It is also proposed that a director could offer a compensation undertaking, in a similar manner as disqualification undertakings are currently offered by former directors.

This compensation regime, which annexes to the disqualification regime, will provide added complications for directors, who in a large number of circumstances have suffered together with the failure of the company either in respect of their own capital investment or alternatively as a result of guarantees they provided or charges over properties they own.

Should a compensation undertaking not be offered, then the Secretary of State may apply for a compensation order within 2 years from the date when the disqualification order was made or within 2 years from the date when the disqualification undertaking was accepted.

It is not uncommon for a former director to face bankruptcy proceedings as a result of their company’s failure and the introduction of applications for compensation orders may lead to further, or post bankruptcy, liabilities.

Accordingly, as a result of the various changes proposed, directors of insolvent companies could be bearing the consequences of failure for up to 9 years following the commencement of the insolvency proceedings.

At Francis Wilks & Jones we can advise on all of these risks.

Director Disqualification – Extension Of Limitation Period

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015.

Director disqualification claims currently can only be brought against directors within a period of 2 years from the date of insolvency. However, this limitation period is further shortened by the fact that the D Report filed with the Secretary of State by Liquidators and Administrators is not due until 6 months after the commencement of insolvency, and is often prepared towards the end of that period as it takes some time to ascertain whether there is anything to report. 

This often leaves a very short period for the Insolvency Service, which is an executive agency of DBIS and acts on behalf of the Secretary of State, to review the matters, investigate any misconduct by directors, obtain approval to commence proceedings, draft evidence and negotiate with directors before the limitation period expires.

I also refer to my previous blog on the amendments to the deadline for submission of a D Report, which is proposed to be shortened to 3 months. Additionally, Section 96 of the Bill now also proposes that the limitation period be extended from 2 to 3 years (although Vince Cable had proposed 5 years in his initial discussion paper published in July 2014).

The extension of this investigation period will obviously mean that the Secretary of State will be able to put together a stronger case in future disqualification claims, which are issued to protect the public interest. Conversely, this will leave the potential consequences of having been a director of an insolvent company to last longer with the ongoing threat of a disqualification claim hanging above directors.

It is always recommended by us that former directors confront any initial enquiries early on rather than ignoring them and the above changes will make this even more important. Please contact Francis Wilks & Jones should you require any further assistance with regard to these matters.

Insolvency Practitioners And Amendment To D Report Duties

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015.

Until the commencement of the Bill, there is a legal requirement for the Official Receiver, appointed Liquidators, Administrators and Administrative Receivers to file a report with the Secretary of State on a director’s conduct in the period leading up to the commencement of insolvency. This report is often referred to as a “D-Report”.

The Bill now proposes to make the compilation of a D Report more onerous by requiring that it be filed within 3 months (subject to any agreement by the Secretary of State to extend this period) of the commencement of insolvency, which could provide little opportunity for Insolvency Practitioners to properly report on a director’s conduct.

Additionally, the appointed Liquidator or Administrator will also have the additional duty to provide the same report on an ongoing basis where any information appears that would ordinarily have been referred to or included in the D Report. This will increase the reporting duties of Insolvency Practitioners and also serve to extend the reporting period (and thus the likelihood of disqualification proceedings being commenced against former directors).

Obviously for both Insolvency Practitioners and Directors these changes will have a serious impact and should you require advice on these changes please do not hesitate to contact Francis Wilks & Jones.

Determining Directors’ Unfitness

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015.

Section 94 of the Bill makes further provision for increased transparency in companies by widening the matters which the Court may consider when determining whether a director is unfit, in respect of director disqualification proceedings. These changes refer to the Court’s consideration of matters relating to overseas companies which have been placed into insolvency proceedings.

As stated in our previous blogs, this continues the theme of transparency and seeks to add an international element such that directors cannot simply commit acts of misfeasance in one jurisdiction and then move to another with a clean slate.

It remains difficult to understand whether such evidence will actually be available to the government’s investigators and the impact on a defendant’s human rights in terms of the difficulties in getting information and documents from a foreign jurisdiction (especially overseas jurisdictions) in defending such claims. This could also make the prosecution of such claims lengthier and more expensive for both government and defendants.

At Francis Wilks & Jones we are specialists in director disqualification matters and should any of the above matters cause concerns please do not hesitate to contact us.

Disqualification Following Convictions Abroad

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015.

The Bill has introduced new dimensions into director disqualification, in terms of an individual being disqualified from acting as a director as a result of non-UK convictions. This only applies to convictions which are comparable to indictable offences in the UK. An indictable offence is a criminal offence that can be tried in the Crown Court (rather than a less serious summary offence, which is normally considered in the Magistrates Court).

This presents an entirely new range of disqualification claims which may be made by the Secretary of State against directors, in a similar way to current disqualification claims, solely on the basis of non-UK offences. This will obviously present difficulties in defending such claims, collating the evidence in answer, dealing with technical aspects relating to the original jurisdiction and human rights aspects.

The proposed amendment also provides for individuals to offer disqualification undertakings upon receiving notice of such steps (usually with a view to avoiding legal costs).

This will have incredible consequences for UK directors who may be involved in international companies and who may now be potentially disqualified despite having a clean record in the UK.

Should you require advice on this, or consider that this may impact on you or your clients, please contact Francis Wilks & Jones and we can assist by reference to our long history of dealing with director disqualification matters.

Dissolution/Striking Off Of Companies

Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015.

It is not uncommon for dormant or non-trading companies to be overlooked or company filing requirements not strictly adhered to, especially when the purpose for which they were set-up has not yet been finalised. Often, without close monitoring, the Registrar of Companies will seek to strike such companies off the register, effectively leading to a dissolution of the company and its legal title.

If a director continues to use such a company that fails to adhere to its filing requirements he can be prosecuted under the Companies Act 2006. Additionally, if the Registrar of Companies serves a notice of striking off of such a company from the register, then it may be the case that a director who continues to use the former company’s name will be personally liable for all contracts entered into and matters to which the company would have been liable (had it not been struck off).

Accordingly it is vital to ensure filings at Companies House are kept up to date, both to prevent any personal liability by directors but also to protect against the company being struck off.

Section 91 of the Bill seeks to shorten the notice period for the striking off of such companies, providing for the following amendments to the notice period provided to the company of striking off:

• That the Registrar of Companies will decide to strike off a company if it does not receive a response within 14 days (rather than one month as currently required) of appropriate notice of striking off;
• That the Registrar of Companies will publish a notice of striking off in the Gazette 14 days (rather than one month as currently required) after sending a second notice letter (if no response received);
• That the Registrar of Companies will notify the company of an automatic striking off 1 month thereafter (currently three months).

The above amendments will provide for a striking off over a total period of two months, rather than 5 months as is currently the case (with the likely consequences as outlined above).

Should you require any advice or assistance with these matters, please contact Francis Wilks & Jones who can assist in this regards.

Changes To Company Filing Requirements

Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015.

Part 8 of the Bill provides for an alteration to Part 24 of the Companies Act 2006 such that instead of filing an Annual Return, a company will only be required to file a statement confirming that all duties (to notify changes to registered office address, directors, company secretaries etc) have been adhered to and to file a Statement of Capital only where changes have occurred. These requirements are slightly expanded or altered in respect of listed companies and non-trading companies.

This is a useful amendment to the Companies Act legislation, as the filing duties have become onerous in recent years and we often see prosecutions and directors disqualified for failing to file a return which merely repeats what is already on the register. Conversely, there will still be a requirement to file an annual “Confirmation Statement” and the reduction in filings, which may lead to aged information registered at Companies House, will mean that it will become more difficult to place the blame on inaccurate or missing information.

These amendments also require that a company provide details of all individuals with “significant control” over the company and as stated in its “PSC register”. A previous blog in this series refers to these changes as a result of the government’s desire for increased levels of corporate transparency.

At Francis Wilks & Jones we can assist with advising on and making the necessary arrangements