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Insolvency Insights - Edition 2
11th July 2023
Welcome back to this quarter’s edition of Insolvency Insights.
In this edition we explore the elusive world of cryptocurrency and how Office Holders can prepare themselves in dealing with digital assets. We also hear from Jonny Jones, who warns Directors of the consequences faced by the re-use of prohibited company names under of s.216 Insolvency Act 1986. As well as discussing other relevant Restructuring and Insolvency issues and announcing our upcoming events.
We are delighted to have received such a positive response to our first edition of Insolvency Insights, and we hope that you all enjoy this edition just as much.
The battle continues: Are Office Holders able to weather the Crypto Winter?
In 2009, the world was introduced to Bitcoin; the first decentralised cryptocurrency that sparked a new world of trading. Since then, we have embraced technology and now have access to over 9,000 other cryptocurrencies in the marketplace, of which more than 70 had a market capitalisation exceeding $1 billion.
Cryptocurrencies have not been without uncertainty and the idea of owning intangible assets has caused some confusion when it comes to ascertaining and dividing wealth. Despite the ambiguity, it is now widely accepted that cryptocurrency falls within the broad definition of Property and the elusive world of crypto is starting to come under siege of insolvency procedures.
In this edition, Trainee Solicitor, Chloe Shilton discusses how the unpredictable nature of crypto manifested itself in the worst slump in digital currency, resulting in the loss of billions of pounds and the introduction of ‘Crypto Winter’, which now presents new challenges for office holders.
Despite the shake in the market, it is clear that crypto is here to stay and office holders are left with little choice but to equip themselves in dealing with multifaceted recovery steps of digital assets.
Whilst the Crypto Winter shook the market, seeing a decline in the value of many cryptocurrencies, others still hold significant value. Office holders must work diligently with directors, officers of the company and any service providers to reduce the risk of dissipation.
To continue reading the full article, follow the link below:
A Cautionary Tale for Directors – the Risks of Re-using prohibited Company names
Section 216 of the Insolvency Act 1986 prohibits anyone who was a director or shadow director of a company in the 12 months prior to that company entering into an insolvent liquidation, from being a director of any company with the same or similar name of the insolvent company (a “prohibited name”), for a period of 5 years from the date of liquidation.
The individual need not be registered as a director of the new company, it would be enough to be simply be, whether directly or indirectly, concerned or take part in the carrying on of a business carried on under a prohibited name. The Act prevents such individuals being involved in the promotion, formation or management of the company and the courts will not be shy to impose strict sanctions on those who do not abide.
In his most recent article, Associate, Jonny Jones highlights how the provisions of s.216 can be merciless, however innocent the intention of the director may be.
The article sets out what names or categories of names will be prohibited under the act, as well as providing guidance on avoiding liability under the act.
To read the full article, follow the link below:
Suky Mann successfully defends £1 million misfeasance claim
Suky Mann has recently secured a fantastic result for a director, effectively defending the insolvency claims brought against him by an administrator for misfeasance and breach of fiduciary duties.
Suky’s astute analysis of the alleged claims allowed her to dismantle the administrator’s evidence on an allegation-by-allegation basis and advance a compelling defence that ultimately caused the claim to fall away in its entirety.
To read the full article, follow the link below:
News and Events
Summer Curry Night
Last month, the team enjoyed hosting a wonderful evening at the Indian Tavern and we would like to thank the attendees for joining us. It was great to catch up with professional contacts in a more relaxed and casual setting, and we look forward to organising more informal dinner events in the future.
Breakfast of Champions
Higgs have joined forces with a leading Chambers to host a breakfast seminar on Tuesday 17 October at our offices in Brierley Hill. Further details to follow shortly.
Ladies Prosecco and Putt
Our Autumn Ladies Event is back for a second year running! This November we will be hosting an informal evening of networking with drinks and mini golf, and we would be delighted if you would join us. If you are interested in attending this event, please click here to register your interest.
Any Questions
In this edition of Insolvency Insights, we are introducing our 'Ask Section', where we look to provide answers to frequently asked questions within the industry. In this quarter we respond to the following queries:
Question 1:
Can a Liquidator claim fraudulently obtained furlough funds from the director of the company?
Answer:
Broadly, a liquidator may make two "types" of claim: they may make a claim against someone in respect of a cause of action that they have as an officeholder (for example, a fraudulent trading claim under section 213 of the Insolvency Act 1986 (IA 1986)) or they may cause the company to bring a claim against someone in its name in respect of a cause of action that it has (for example, claims for debt, breach of contract, breach of duty, tort or restitution and recovery of property).
Ultimately, whether a liquidator has grounds to claim against a director personally for fraudulently obtained furlough funds will depend on an analysis of the specific facts. However, you might want to start by considering whether the director's conduct has caused a loss to the company or its creditors, or both. For example, as a result of the furlough fraud, does the government have a claim in the liquidation that otherwise it would not? Perhaps, for the return of the furlough payments? If so, you should consider the impact on the insolvent estate, as well as returns to creditors.
Assuming that the director's conduct caused a loss, you might then consider the liquidator's and the company's potential causes of action against the director. Often, claims are pleaded in the alternate: for example, claims for misfeasance under section 212 of the IA 1986 and wrongful trading under section 214 of the IA 1986. It may also be the case that fraudulent trading could be pursued under s.213 IA 1986.
Question 2:
Where a creditor of the bankruptcy has offered over market value to purchase the Property, are there any restrictions of a trustee in bankruptcy to prevent them selling the property to that creditor?
Answer:
The function of a trustee in bankruptcy is to get in, realise and distribute the bankrupt’s estate, in accordance with the relevant statutory provisions. Thus, the trustee is entitled, subject to those provisions, to use their own discretion in accordance with s.305(1) IA 1986. The Trustee also has a duty to dispose of assets at the highest possible price to maximise the amount available for creditors.
There is no statutory restriction on the trustee preventing them from selling property comprised in the bankrupt’s estate to a creditor of the bankrupt.
Indeed, the trustee has the power to make such compromise or other arrangement as may be thought expedient with creditors or persons claiming to be creditors, in respect of bankruptcy debts (paragraph 9, Schedule 5, IA 1986). However, where the trustee (not being the official receiver) in exercise of their powers, dispose of any property comprised in the bankrupt's estate to an associate of the bankrupt, they shall, if there is for the time being a creditors' committee, give notice to the committee of that exercise of their powers (section 314(6), IA 1986).
If you have any specific insolvency queries that you would like us to feature in the next edition, please submit your entries to: chloe.shilton@higgsllp.co.uk
Get in touch
For advice on any of the topics discussed in this update or further information about the services offered by the Team please contact the Head of Restructuring & Insolvency, Lauren Hartigan-Pritchard on: lauren.h-pritchard@higgsllp.co.uk
