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Welcome to the “summer” edition of theDigest.Well its been a pretty momentous few
months since the last Digest. Almost as soon asthe last issue went out the Eurozone crisis gotworse. The Greek elections produced noGovernment so the Greeks had to vote againcausing much instability in Europe aboutwhether they were staying in or out. Secondtime around they got a Government but manystill question how long Greece can stay in forand what the knock on effects will be. And inthe meantime the Spanish banks needed ahuge bailout as well. And now there arequestions about whether Spain itself needsone. And who is next? These are all big bills forthe Germans to pick up – and Angela Merkeldoes not seem very keen on doing it whateverthe IMF or the G20 urge. Then we have our own Mervyn King looking
very gloomy and saying that over the recentpast the outlook for the UK has worsened as aresult of turmoil in the Eurozone. The countryis, of course, already in a second recession. Butit is not just Europe Mr King seems to beworried about. Asia causes concern. And evenAmerica. One asks what is going to happen?That seems to be very difficult to answer. All inall we seem to be in uncharted territory.So what else has been happening to Britain?
A bankers’ Libor fixing scandal, the resignationof Bob Diamond and more QE (another £50billion) is the perhaps less than good newsfrom the City. However, the Diamond Jubileeseems to have gone down pretty well,although the river pageant was very wet (andthe BBC copped it for its coverage). Irelandwent early in Euro 2012. England went a bitlater (but not much and on penalties). Therehas been masses more rain and for many
unfortunate people some pretty extraordinaryflooding. Indeed, there has now been so muchrain that all of the hosepipe bans have gone.What a lovely summer we have had. But the rain was not enough to stop the
England cricket team beating Australia (alwaysgood to record). Nor was it enough to stopFederer beating Andy Murray once theWimbledon centre court roof was closed. Andnow we have the Olympics! Time to escapethe likely chaos in London... So what have we got for you in this edition
of the Digest? Firstly, an article by SimonMortimore QC on systemically importantfinancial institutions. Secondly we have anarticle by Hannah Thornley on using HumanRights concepts in company law. Thirdly wehave an article by David Marks QC on possiblereforms in relation to the EC Regulation. Nextwe have the usual Case Digests but with adifferent editor this time: Lloyd Tamlyn, whohas kindly agreed to share the burden ofmaking sure you get all of these with HilaryStonefrost. Finally we of course have news inbrief, diary dates and the now infamous SouthSquare challenge.I hope that you enjoy reading this issue of
the Digest as much as I know people haveenjoyed previous issues. As always if you findyourself reading it and you are not on our listplease just send an email to my PA,kirstendent@southsquare.com asking to beadded and we will do that. Please also emailKirsten if your contact details have changed sothat we can make sure all those on the listcontinue to receive the latest issue.Finally all members of Chambers at South
Square join with me in wishing you a veryhappy summer.
David Alexander QC, Editor
Oh what a lovelysummer!
IN THIS ISSUE
FEATURE ARTICLE
Resolution powers for SIFIs and the rule of law p2
CASE DIGESTS
Banking and Financial Services p8
Civil Procedure p10
Commercial court p10
Company Law p11
Corporate Insolvency p13
Personal Insolvency p19
FEATURE ARTICLE
Using Human Rights concepts in company law p20
FEATURE ARTICLE
Possible reforms in relation to the EC Regulation p26
NEWS IN BRIEF p36
SOUTH SQUARE CHALLENGE p42
AUGUST 2012 A REGULAR REVIEW OF RELEVANT NEWS, CASES AND ARTICLES FROM SOUTH SQUARE BARRISTERS
SOUTH SQUARE DIGEST IS PUBLISHED BY SOUTH SQUARE BARRISTERS,AT 3-4 SOUTH SQUARE GRAY’S INN, LONDON WC1R 5HP. TEL 020 7696 9900. PUBLICATION PRINT AND PRODUCTION BY WENDOVER PUBLISHING. TEL 01428 658697.
2
to refer to the situation where a govern-
ment or person makes money available to
a failing business to save it from
collapse.6 It is interesting to note that no
such meaning is given in the Oxford
Shorter English Dictionary (2007). That
identifies many interesting meanings of
the noun and verb “bail”, but none
comes close to describing the rescue of a
failing business. Perhaps the nearest is the
use of the verb “bail” to describe the
process of scooping water out of a boat,
so that the boat remains afloat. This is
precisely the opposite of what happens in
a financial bailout, where money is
poured into the failing business to keep it
afloat. Where the verb “bail” is followed
by “out” it means “jump out of an air-
craft, make an emergency descent by
parachute, or (of a surfer) leave the surf-
board”, which may be a useful metaphor
for the conduct of some less scrupulous
directors of failing businesses, but does
not describe a financial bailout. I think we
can deduce from this that the usage of
the noun “bailout” to describe the rescue
of a failing business is of recent origin
and that it comes from America.
What then does the noun “bail-in”
mean? The short answer is that it is the
opposite of “bailout”. It is a tool or
power for resolving a financial institution
in financial difficulties, which is recom-
mended by the FSB in its Key Attributes
On 18 June 2012 I had the great good
fortune to be the only practicing member
of the English Bar invited to attend a
Cross-Border Resolution Symposium
organised by the Bingham Centre of the
Rule of Law.1 The purpose of the
Symposium was to discuss the recently
published proposals for resolving the
affairs of financial institutions that are
“too big to fail” without exposing
taxpayers to loss and instead ensuring
that losses are absorbed by shareholders
and creditors. Sadly, but inevitably, the
symposium took place under Chatham
House rules, so that I am not able to share
with the readers of the Digest the insights
of the experts from England, Europe and
the USA who attended.2 What I can do is
discuss some of the resolution powers
that the authorities soon may have at
their disposal to resolve the affairs of
systemically important financial
institutions (“SIFIs”). When a SIFI faces
financial difficulties the objectives are to
protect the market from systemic
disruption and to protect depositors. To
achieve those objectives the rights of
other creditors and shareholders may
have to be sacrificed. One of the most
potent new resolution powers for
achieving those objectives is the “bail-in”
power, which is intended to become
available to the resolution authorities in
2018.3
Resolution powers forSIFIs and the rule of lawSimon Mortimore QC discusses proposals for new resolution powers for systemically
important financial institutions.
Some definitionsWhether a financial institution is too big
to fail is a matter of judgment. The
largest of such institutions are called “G-
SIFIs”, because they are global systemi-
cally important financial institutions. The
Financial Stability Board (“FSB”) has iden-
tified 29 G-SIFIs: eleven are incorporated
in Euro countries, eight in the USA, four
in the UK, three in Japan, two in Switzer-
land and one in China.4 The four UK G-
SIFIs are Barclays, HSBC, Lloyds Banking
Group and Royal Bank of Scotland, but
several of the G-SIFIs incorporated abroad
have a significant presence in the UK. In
addition the authorities in each country
will regard other financial institutions as
SIFIs since they are systemically important
to it.5 No one could doubt that the four
English G-SIFIs are systemically important
to the UK, but there are no objective cri-
teria by which to assess whether a finan-
cial institution is a SIFI. That is a matter
left to the judgment of the resolution au-
thorities, which may change from time to
time and be heavily influenced by the
pressures of the moment. Consider
Metrobank. Is it a SIFI? If is not yet system-
ically important, may it become so in the
future, and if so when? The issue is impor-
tant because of the proposed new regime
for handling SIFIs in financial difficulty.
The noun bailout, when used in a fi-
nancial context, is generally understood
1/. Professor Ian Fletcher of South Square was also present.
2/. Professor Sir Jeffrey Jowell, the Director of the Bingham Centre was chairman and the discussion leaders were Professor Howell Jackson of Harvard Law School, Professor Rosa Lastra of
Queen Mary, University of London, and Charles Randell of Slaughter and May.
3/. In the UK the resolution authorities are the Bank of England, the Treasury and the Financial Services Authority (“FSA”), which will be replaced by the Prudential Regulation Authority and
the Financial Conduct Authority when the Financial Services Bill 2012 is enacted and comes into force.
4/. Press Release dated 4 November 2011 of the FSB: Policy Measures to Address Systemically Important Financial Institutions.
5/. So the Irish government considered that Bank of Ireland and Allied Irish Banks were too systemically important to it economy to be allowed to fail.
6/. See Black’s Law Dictionary (9th ed, 2009): “a rescue of an entity, usually a corporation or an industry, from financial trouble”.
� �
3
AUGUST 2012
of Effective Resolution Regimes for Finan-
cial Institutions, published in October
2011 (“Key Attributes”), and taken up by
the European Commission in its draft di-
rective establishing a framework for the
recovery and resolution of credit institu-
tions, published in May 2012 (the “Draft
Directive”). These propose that the reso-
lution authorities should have power to
write down the debt of a failing financial
institution or convert it into equity. In
other words debt is scooped out of the
sinking vessel so that it can re-float; so we
are back with one of the traditional
meanings of the verb “bail” in the Oxford
Shorter English Dictionary.
There is no established meaning of the
word “resolution” when used in the con-
text of failing SIFIs, but it is generally un-
derstood to mean the exercise by the
authorities of their powers to deal with a
SIFI in financial difficulties to preserve the
essential functions of its business and
avoid systemic damage.
It is evident that the “bail-in” power
represents a serious incursion by the reso-
lution authorities into creditors’ rights
and it is not surprising that the proposed
reforms for dealing with failing financial
institutions have attracted the interest of
the Bingham Centre for the Rule of Law.
To some extent the “bail-in” power has
been made law in the USA by the Dodd-
Frank Act 2010. In his recent Reith
Lecture7 Niall Ferguson held up this Act
as an egregious example of bad regula-
tion, citing not just the vast number of
new regulations to which banks are made
subject, but also the power of the Treas-
ury Secretary and the Federal Deposit In-
surance Corporation, subject only to the
most limited judicial review, to seize con-
trol of a failing firm if they agree that its
collapse would cause general instability.
Before returning to consider the impli-
cation of the “bail-in” power, it is worth
going back to see how bank failures were
dealt with in the recent past.
UK bank failures in the 1990sThe property crash of the early 1970s
brought down several “tertiary banks”
such as David Samuel Trust Ltd, but none
was big enough to cause systemic
problems. The 1990s saw two high-
profile, but contrasting, banking collapses
which did not create systemic risk and
which were dealt with under normal
insolvency procedures.
The first was Bank of Credit and Com-
merce SA (“BCCI”),8 a Luxembourg bank,
which carried on its main business in Eng-
land. It had 34 branches in England and
had many deposit customers. Just before
lunch on 5 July 1991 the Bank of England
obtained the appointment of provisional
liquidators, who closed down the business
of BCCI. The reason the Bank of England
petitioned for the winding up of BCCI was
SIMON MORTIMORE QC
that it had received an accountants’ re-
port which showed that over several years
BCCI had engaged in fraud and dishon-
esty. It was a rotten bank. In January 2002
BCCI was ordered to be wound up in Lux-
embourg and England, with a deficiency
of the order of US$9.25 billion, making it
the largest UK bankruptcy up to that time.
A wave of litigation followed, including
criminal proceedings against some of
those responsible for the frauds. Eventu-
ally unsecured creditors received dividends
of more than 90%.
One Sunday night in February 2005 Bar-
ings, one of the most venerable names in
� �
7/. The Darwinian Economy, 26 June 2012.
8/. Politely called the Bank of Competence and Credibility and, perhaps more accurately called the Bank of Crooks and Criminals.
4
the City, presented its own petition for ad-
ministration. It had been brought down
by the misconduct of a rogue trader in Sin-
gapore, Nick Leeson, who had incurred
massive losses on unprotected derivative
trades which had been exposed by the
Kobe earthquake. The deficiency was
thought to be about £1 billion. The struc-
ture of the Barings group was the familiar
one of holding company, intermediate fi-
nance companies which issued notes of var-
ious classes, and trading subsidiaries. This
made it possible to sell the trading business
in spite of the group insolvency. The im-
pediment to sale was uncertainty about
the extent of the liabilities under the deriv-
ative trades, but within a week or so the
administrators were able to sell the operat-
ing companies to ING for £1 plus a £62 mil-
lion buffer fund to cover some uncertain
obligations of Barings and the costs of the
administrations and liquidations of the
companies that were not sold.9 Several di-
rectors were disqualified for incompetence
in failing adequately to supervise Nick Lee-
son.10 Using the funds provided by ING,
claims for negligence were brought against
auditors which led to the senior creditors
of the liquidated companies receiving divi-
dends in the order 60%, while the subordi-
nated creditors and shareholders got
nothing.
Bailout: the traditional approachThe traditional view of bailout is that it
should be used where a firm of sufficient
importance to the market suffers from a
temporary liquidity problem, but is not
insolvent in the sense of suffering from “an
endemic shortage of working capital”.11
So, when the US hedge fund Long-Term
Capital Management LP suffered a US$4.6
billion loss following the Russian rouble
default in August 1998, the Federal Reserve
organised a US$3.625 billion bailout by
LCTM’s major creditors who took 90% of
the equity in the firm. The bailout
succeeded and within two years the banks
that financed the bailout were repaid.
By 14 March 2008 Bear Stearns could no
longer obtain liquidity from the market as a
result of its exposure to the failing sub-
prime market. It turned to the Federal Re-
serve Bank which was prepared to provide
a US$25 billion loan, secured on its assets,
for 28 days to enable Bear Stearns to obtain
a market solution. JP Morgan was prepared
to buy Bear Stearns for US$2 per share,
which was more than US$90 less than the
trading price of the shares a month earlier.
The share sale, which took the form of a
stock swap, was completed on 16 March
2008. In order to facilitate the sale the Fed-
eral Reserve Bank made a non-recourse
US$29 billion loan to JP Morgan, secured on
some of Bear Stearns’ more toxic assets. A
few days later a class action was launched
challenging the sale. JP Morgan then in-
creased its offer to US$10 per share, which
was approved at a shareholders’ meeting in
May 2008. By June 2012 the Federal Reserve
Bank’s non-recourse loan had been fully re-
paid with interest.
Bailout – no market solution The bailout position is rather different
where no market solution is available. This
was the position in New York in September
and October 2008 when Lehman, several
other US banks and the insurer AIG faced
acute financial difficulties. Lehman went
into Chapter 11, but the other institutions
were rescued by the US Government’s
US$700 billion Troubled Asset Relief
Programme. This was successful in
stabilising the financial system and it is
thought that the US Government’s net loss
may be of the order of US$30 billion.
Nor was there a market solution for
Northern Rock, the fifth largest UK mort-
gage lender and eighth largest UK bank by
market capitalisation. In August 2007 it be-
came unable to repay its money market
loans and the Bank of England stepped in
to provide it with liquidity support. This
did not calm the nerves of anxious savers
who on 14 September began a run on the
bank. At the time the deposit holders’ pro-
tection scheme only offered limited pro-
tection. To keep the bank in business the
Chancellor of Exchequer had to promise to
pay in full not only depositors, but all
other creditors. By December 2007 the
Bank of England had leant Northern Rock
£27 billion and the Treasury had given
guarantees to the order of £29 billion.12
In February 2008 Northern Rock was taken
into temporary public ownership,13 where
it remained until January 2012 when it was
acquired by Virgin Money.14 Northern
Rock’s shareholders lost everything,15 but
its creditors were saved and the Bank of
England loan is being repaid.
Northern Rock was certainly not a G-SIFI.
In fact it is debateable whether it was even
a SIFI. Perhaps judgments on what is strate-
gically important have changed since the
1990s. Governments are much more con-
cerned to protect the interests of deposi-
tors than they used to be. Depositors are
voters and students of politics will recall
that Gordon Brown had become Prime
Minister in June 2007 and the autumn of
that year was the time of the election that
never was. Northern Rock was undoubt-
edly a politically important financial institu-
tion (which could be called a PIFI).16
Governments are much more concernedto protect the interests of depositorsthan they used to be...
9/. Re Barings plc (No 7) [2002] 1 BCLC 401 at [6].
10/. Re Barings plc (No 5) [1999] 1 BCLC 433; [2000] 1 BCLC 523, CA.
11/. Re Cheyne Finance plc (No 2) [2007] 1 BCLC 741 at [51].
12/. R (SRM Global Master Fund LP) v Treasury Commissioners [2010] BCC 558 at [4], [18].
13/. Following the enactment of the Banking Special Provisions Act 2008.
14/. In 2010 Northern Rock was split into a “good bank”, Northern Rock plc, which carries on the banking business and a “bad bank”, Northern Rock (Asset Management) plc which holds
the more troubled assets.
15/. Subject to the outcome of an appeal to the Court of Appeal from a decision of Warren J, upholding a £nil valuation of the shares.
16/. In October 2008 the Government made an ingenious use of anti-terrorism legislation to rescue UK savers in the Icelandic banks’ Edge and Icesaver accounts, thereby exposing taxpayers
to the risk of loss. It is difficult to see how this intervention could be justified on systemic grounds.
� �
5
AUGUST 2012
In October 2008, following Lehman en-
tering administration in England, the Gov-
ernment had no choice but to provide a
bailout of Royal Bank of Scotland and
Lloyds Banking Group, which was in the
process of acquiring HBOS. These were un-
doubtedly G-SIFIs and the scale of their li-
abilities prevented a market solution. In
these cases the bailout took the form of
investment in share capital, not debt. As a
result the Government now owns about
84% of Royal Bank of Scotland and about
41% of Lloyds Banking Group. At the mo-
ment shares in these banks are trading at
a significant discount to the share price
paid by the Government, so that taxpay-
ers are facing a loss.
The two unsatisfactory features of a
bailout are (i) the exposure of the taxpayer
to loss if the bank fails to return to suffi-
cient good health so that the bailout
money can be recovered, and (ii) moral
hazard. It is a notable feature of the UK
bailouts of 2007 and 2008 that so far there
have been no proceedings to disqualify the
directors of the bailed out banks (although
recently the Secretary of State for BIS an-
nounced his intention to bring such pro-
ceedings against Fred Goodwin). That is in
marked contrast to what happened after
Barings went into administration.
UK reformIn order to increase the armoury of the
Bank of England, the Treasury and the FSA,
the Banking Act 2009 introduced a special
resolution regime for UK banks. This
consists of (i) three stabilisation options
under which all or part of the bank may be
transferred to a private sector purchaser, a
bridge bank or into temporary public
ownership, (ii) a bank insolvency under
which a bank liquidator is appointed to
protect the interests of eligible depositors
and also to wind up the bank, and (iii)
bank administration, where the business of
a bank is sold to a commercial purchaser or
transferred to a bridge bank and a bank
administrator is appointed to provide
support for the commercial purchaser or
bridge bank and, subject to that, to
conduct a normal administration. Soon
after the Act came into force, in March
2009 the Bank of England used these
powers to transfer the business of the
insolvent Dunfermline Building Society to
Nationwide. To cover the asset shortfall the
Treasury provided Nationwide with £1.6
billion cash, for which it would be a
creditor of Dunfermline.
More recently the Investment Bank Spe-
cial Administration Regulations 2011, made
under the Banking Act 2009, have intro-
duced a new special administration regime
for UK investment banks under which the
objectives are (i) the prompt return of
client assets, (ii) timely engagement with
market infrastructure bodies and authori-
ties, and (iii) rescue as a going concern or
winding up in the best interests of credi-
tors. These new regulations were soon put
to the test by MF Global, which entered
the new regime in November 2011. The
Lehman client money case shows that there
are likely to be real difficulties in identify-
ing what is client money and what belongs
to the firm.17
Progress towards further reform forresolving SIFIsIn April 2009 the G20-Leaders called for a
“review of resolution regimes and
bankruptcy laws in light of recent
experience to ensure they permit an
orderly wind-down of large complex cross-
border institutions”; i.e. G-SIFIs.
The FSB responded to the challenge and
in July 2011 published a consultative docu-
ment with recommendations and timelines
for the effective resolution of SIFIs. In Octo-
ber 2011 the FSB published Key Attributes
of Effective Resolution Regimes for Finan-
cial Institutions, which sets out the core ele-
ments that the FSB considers to be
necessary for an effective resolution
regime. It explains that the objective of an
effective resolution regime is to “make fea-
sible the resolution of financial institutions
without severe systemic disruption and
without exposing taxpayers to loss, while
protecting vital economic functions
through mechanisms which make it possi-
ble for shareholders and unsecured credi-
tors to absorb losses in a manner that
respects the hierarchy of claims in liquida-
tion”. In other words creditors and share-
holders, rather than taxpayers, should bear
the losses, but no one should be worse off
than they would have been in liquidation.
The G20-Leaders’ Final Declaration at the
Cannes summit on 4 November 2011 en-
dorsed the Key Attributes and said “We are
determined to ensure that no financial firm
is “too big to fail” and that taxpayers
should not bear the costs of resolution”.
Key Attributes, which runs to 41 pages,
describes the resolution regime that should
be available to deal with SIFIs that are no
longer viable or likely to be no longer vi-
able. One attribute of real practical value is
that at least all domestically incorporated
G-SIFIs should have in place a recovery and
resolution plan (“RRP”). Key Attributes cov-
ers a range of other important issues, but I
will concentrate on the general resolution
powers which the FSB considers that all au-
thorities should have at their disposal.18
Several of these powers are already avail-
able to the UK authorities in the Insolvency
Act 1986 or the Banking Act 2009, but oth-
ers would be new, if enacted. The Financial
Services Bill 2012, currently before Parlia-
ment includes amendments to the Banking
Act 2009. These amendments include a
power for the authorities to require SIFIs to
put in place RRPs, but they do not include
resolution powers to override the rights of
shareholders or to “carry out bail-in within
resolution”.
In May 2012 the European Commission
published the Draft Directive with a trans-
position deadline of 31 December 2014 for
all measures except the bail-in tool which
should not come into force until after 1
January 2018. Over 171 pages the Draft Di-
rective contains 97 Recitals, 117 Articles
and an Annex. It follows the Key Attributes
and covers the following matters:
1) Scope, definitions and authori
ties (Articles 1-3);
2) Preparation, including (i) recovery
and resolution planning, (ii) as
sessment by the authorities of
resolvability and preventative
powers and (iii) intra-group fi
nancial support (Articles 4-22);
3) Early intervention measures and
special management (Articles 23-
25);
� �
17/. [2012] 1 BCLC 487, SC.
18/. Charles Randell has written an illuminating article on the application of the Key Attributes to UK banks in Law and Financial Markets Review (January 2012, pages 39-51).
6
4) Resolution, including (i) objec
tives, conditions and general prin
ciples, (ii) valuation of the assets
and liabilities of the institution on
a fair and realistic basis, (iii) reso
lution tools (sale of business,
bridge institution, asset separa
tion and bail-in), (iv) write-down
of capital instruments, (v) resolu
tion powers, (vi) safeguards, (vii)
procedural obligations, and (viii)
right of appeal by way of judicial
review only (Articles 26-79);
5) Group resolution (Articles 80-83);
6) Relations with third countries
(Articles 84-89);
7) European system of financing
arrangements (Articles 90-99);
8) Sanctions (Articles 100-102);
9) Powers of execution (Article 103);
10) Amendments to other directives
(Articles 104-112); and
11) Final provisions (Articles 113-117).
In a statement to the House of Com-
mons on 14 June 2012 the Financial Secre-
tary to the Treasury welcomed the Draft
Directive.
This review of the progress of reform
shows that there is a strong political will to
bring the Key Attributes into effect in the
UK. Several of the reforms are already in
place under the Banking Act 2009 and oth-
ers will follow when the Financial Services
Bill is enacted. The introduction of the
bail-in power has the potential to trans-
form the way failing SIFIs are handled. In
theory the bail-in power will enable the
authorities to reconstruct a failing SIFI in
the interests of avoiding systemic damage
and of protecting depositors, without
going near a court. Administration and liq-
uidation procedures will be a last resort.
On the other hand, it should be recognised
that exercise of the three stabilisation
powers under the Banking Act 2009 does
not involve the court and may lead to
some creditors becoming separated from
the bank’s assets or part of them, so that
they suffer the same economic conse-
quences as they would suffer if their debts
were bailed-in and written off or con-
verted to equity.
The Key Attributes and the Draft Direc-
tive raise many interesting issues, but to an
insolvency lawyer the issue that stands out
concerns the overriding shareholders’ and
creditors’ rights in the interests of market
stability and depositors. This raises funda-
mental issues of the rule of law as identi-
fied by the late Lord Bingham in his book
The Rule of Law (2010), including: (i)
whether the rights of shareholders and
creditors of a SIFI are intelligible, clear and
predictable (including whether it is appar-
ent that the financial institution is a SIFI to
which the resolution powers apply); (ii)
whether there is sufficient justification for
the rights of creditors and shareholders
being resolved by the exercise of discretion
of the resolution authorities rather than
by application of law; and (iii) whether an
after the event application for judicial re-
view is an adequate remedy.
Overriding shareholders’ rights Paragraph 3.2(v) of Key Attributes says
that the resolution authorities should have
the power to override the rights of
shareholders and need not obtain their
approval of a transaction, recapitalisation
or restructuring. Article 56 of the Draft
Directive states that Member States should
ensure that resolution authorities have
those powers.
Where shareholders are “out of the
money” it is usually possible to carry out a
reconstruction without their involvement,
but that is not so where they continue to
have a real interest. The Key Attributes in-
dicates that in all cases shareholders should
yield to the greater good of avoiding sys-
temic disruption and accept the judgment
of the resolution authorities.
Before accepting the wisdom of this, it is
worth pondering on what happened in the
case of Bear Stearns. The Federal Reserve
Bank supported a sale of the firm at US$2
per share. Shareholders evidently had a le-
gitimate grievance about the price, since
within days JP Morgan increased the price
to US$10. Under the Key Attributes
regime, the shareholders would have had
no bargaining position with JP Morgan
and would have been left with the uphill
struggle of persuading a court on a judicial
review application that in liquidation of
Bear Stearns they would have got more
than US$2.
If shareholders in a SIFI fear that they
will be disenfranchised if it enters resolu-
tion procedures, they are likely to head for
the exit. This will lead to a crash in the
share price, which may trigger defaults,
precipitate the SIFI’s insolvency and make
resolution more difficult.
Overriding creditors’ rightsKey Attributes explains that the purpose
of the bail-in power is to achieve
continuity of the institution’s essential
functions, so avoiding systemic disruption,
by either recapitalising the institution, or if
that is not possible by capitalising a new
entity or bridge institution to which the
functions are transferred.19Where the
institution is subject to resolution by the
authorities, they should be able to carry
out “bail-in”, which involves (i) writing
down debt and equity to absorb losses,
but in a way that respects creditor
hierarchy and the “no creditor worse off
than in liquidation” principle, (ii)
converting debt into equity, and (iii)
crystallising contingent liabilities and
treating them as in (i) or (ii).20 The Draft
Directive contains detailed provisions
about the scope of the bail-in tool, the
minimum requirement for liabilities
subject to write-down and conversion
powers, the assessment by the resolution
authorities of the amount of the bail-in,
the treatment of shareholders, the
hierarchy of claims and safeguards so that
creditors and shareholders are no worse
off than they would have been under
normal insolvency proceedings.21
The writing down of debt or the conver-
sion of debt into equity are familiar fea-
tures of modern reconstructions. They are
achieved by obtaining the creditors’ con-
sent or by binding all creditors or class of
creditors through a scheme under Part 30
of the Companies Act 2006 or a voluntary
arrangement under Part I of the Insol-
vency Act 1986. These procedures involve
both creditor democracy and a measure of
court control. Under the Key Attributes
there will be no consultation with credi-
tors and their only access to court is subse-
quently by way of judicial review under
the “no creditor worse off than in liquida-
19/. Paragraph 3.2(ix). Article 37(2) of the Draft Directive.
20/. Paragraph 3.5.
21/. Articles 37-42 and 65.
� �
7
AUGUST 2012
tion” principle.22 In this connection the
creditor’s position will assessed as it would
have been “under normal insolvency pro-
ceedings immediately before the writing
down or conversion”.23
There is a serious question as to
whether giving the authorities the bail-in
power is necessary and whether it is likely
to reduce the risk of taxpayers bearing the
burden of insolvent SIFIs. If the bail-in
power cannot be used promptly its advan-
tages over the traditional procedures be-
come questionable. A bank, unlike other
businesses, cannot function if there are
doubts as to its ability to meet its engage-
ments. So there can be no delay in the
restoration of confidence and liquidity.
There are three particular features of in-
solvencies of a bank or other financial in-
stitution that are likely to impact on the
prompt and effective use of the bail-in
tool.
The first feature concerns liquidity, the
lack of which will have placed the financial
institution in difficulties. The writing off of
debt will only directly improve the institu-
tion’s liquidity if the debts written off in-
clude debts that are immediately due. In
this connection the Draft Directive ex-
cludes from the bail-in power many of the
debts that would be expected to be imme-
diately due: deposits, secured liabilities,
client money liabilities, debts with an orig-
inal maturity of less than one month and
employee, trade and tax liabilities.24 On
the other hand, the bail-in should improve
the institution’s balance sheet and this
may indirectly assist in attracting new liq-
uidity. In other words the bail-in may assist
in encouraging a bailout.
It may be worth considering whether
Northern Rock, Royal Bank of Scotland and
Lloyds Banking Group would have been
handled differently if the bail-in tool had
been available to the authorities. This
rather is doubtful. The write-down or con-
version to equity of Northern Rock debt
would not have calmed the fears of its de-
positors or solved its liquidity problem and
might have accelerated the financial crash
that reached its critical point a year later,
when Royal Bank of Scotland and Lloyds
Banking Group needed rescuing. By that
stage only the Government could save
them and the availability of the bail-in
power would have made no difference.
The second feature is the complexity of
the institution’s affairs and the difficulty of
segregating client assets from its own. This
has been a major problem in the Lehman
and MF Global administrations. It would
be optimistic to think that the analysis in
the RPP will be agreed by clients and other
creditors. Similarly creditors may not share
the institution’s view on the hierarchy of
claims. For example, Barings issued two ap-
parently similar series of notes, but after it
had gone into administration it emerged
that a slight difference of wording re-
sulted in holders of one series being credi-
tors of the business bought by ING, so that
they would be paid in full, while holders
of the other series were left behind as
creditors of the insolvent companies.
Therefore the resolution authorities may
require time to investigate the assets and
liabilities of the institution and even then
they may not have sufficient confidence to
exercise the bail-in power.
The third feature is that ultimate return
to creditors of a failed financial institution
tends to be high and the problem is one
of delay in returning money to creditors
and clients. Even BCCI ultimately produced
a dividend or unsecured creditors of over
90%. This means that the write down of
debt may not be justifiable, but a conver-
sion of debt for equity may be. While the
bailing-in of debt may help to resolve the
financial institution, it may spread the con-
tagion to the creditors who have been
bailed in who have to wait for their money
just as they would have done in insolvency
proceedings. This may lead to the systemic
disruption that the resolution authorities
sought to avoid.
How will creditors react to the risk of
their debts being bailed-in? They will not
be able to contract out, but they may be
reluctant to extend credit to a financial in-
stitution whose situation causes concern.
They may not be able to determine
whether or not the institution is a SIFI so as
to expose them to the risk of bail-in. If it is
a SIFI, creditors may have concerns about
the potential conduct of the resolution au-
thorities, particularly if they are called
upon to exercise their resolution powers in
circumstances of near chaos, as was the
case in the autumn of 2008.
There are two ways in which firms deal-
ing with a possible SIFI may be able to
achieve some protection from the risk of
bail-in. One way is to stipulate that any
obligations owed to the SIFI are not
payable if a debt owed by it is not paid or
is subject to bail-in.25 This is likely to raise
issues under the anti-deprivation
principle.26 Another way would be to
make contracts subject to a system of law
which would not recognise that the debt
has been discharged by being bailed-in
under English law.27 This may be difficult
to achieve, because the Key Attributes en-
visage recognition of the effectiveness of
the exercise of resolution powers in courts
in jurisdictions where G-SIFIs are found.
ConclusionIf it does nothing else, this short review of
the proposals for resolving SIFIs in financial
difficulties reveals that there are
fundamental issues about the proposals to
give resolution authorities discretionary
powers which may be used to override the
rights of shareholders and creditors. It is far
from clear that the bail-in power is
necessary or will be of practical value.
There is a nagging concern that this may be
an example of a bad case (the exceptional
financial crisis of 2008) making bad law.
There are fundamental issues about the proposals to give
resolution authorities discretionary powers which may be
used to override the rights of shareholders and creditors
22/. Paragraph 5 of Key Attributes and Articles 65 and 78 of the Draft Directive.
23/. Article 65 of the Draft Directive. Compare s 57(3) of the Banking Act 2009.
24/. Article 38(2) of the Draft Directive.
25/. Lomas v JFB Firth Rixson Inc [2012] EWCA Civ 419.
26/. Perpetual Trustee Co Ltd v BNY Corporate Trustee Service Ltd [2012] 1 AC 383, SC.
27/. Global Distressed Alpha Fund 1 Ltd Partnership v PT Bakrie Investindo [2011] 1 WLR 2038.
� �
CASE DIGESTS
8
CASE DIGESTS Edited by LLOYD TAMLYN
BANKING AND FINANCIAL SERVICES
LLOYD TAMLYN
One side effect of litigants’ desire to
litigate in this country is the reap-
pearance of the doctrine of piercing
of the corporate veil, as litigants
claim that jurisdiction clauses are
binding not only on the company
which actually agreed the clause, but
also the puppeteers who were pulling
the company’s strings.
The Court of Appeal in VTB Capital,
[page 11], has held, however, that
whilst the doctrine of piercing the
corporate veil does exist, its effects
do not extend to making puppeteers
parties to their puppet’s contracts.
The debate over the Minmar deci-
sion on the effects of failure to give
due notice before appointing admin-
istrators (Digests, passim) reappears
in this edition, providing two more
first instance decisions (Re Ceart Risk
Services, [page 14]; Re BXL Services,
[page 15]. HHJ Purle QC in Re BXL has
decided that it is time for the debate
to stop and that all first instance
Judges should take the same prag-
matic Virtualpurple line in holding
that absence of notice is a mere de-
fect. We shall see.
In the world of personal insolvency,
the Court of Appeal has reasserted
the primacy of the bankruptcy regis-
trars and chancery judges in matters
of bankruptcy in Sofia Arif, [page 19];
whilst (at first sight) the world turned
upside down in Bramston v Haut,
[page 19], where a bankrupt applied
to suspend his discharge on the basis
that he had failed to comply with his
duties to the trustee, whilst the
trustee himself opposed the applica-
tion. Lloyd Tamlyn
Digested by WILLIAM WILLSON
The Supreme Court has handed down
judgment in the Lehman Brothers Client
Money Application. The majority
dismissed the appeal by 3-2. Lord Dyson
gave the lead judgment for the majority
and held: (1) that the client money trust
arises upon receipt and not upon the
segregation of client money, irrespective
of whether the firm adopted the
“normal” or “alternative” approach to
segregation of client money; (2) that on
a firm’s insolvency all client money
identifiable, in whatever account of the
firm into which client money has been
received, is pooled for distribution; and
(3) that the client money pool is to be
distributed to all clients in accordance
with each client’s respective contractual
entitlement to have had client money
segregated for it at the date of pooling
and irrespective of whether any money
had in fact been so segregated or had
been recorded by the firm as having
been so segregated.
The first key issue was whether the
statutory trust arose upon the receipt of
client money or only upon its
segregation. It was common ground
that the “normal approach” did not
allow the firm any freedom to deal with
client money, so that the trust arose
upon receipt of the funds. The Supreme
Re Lehman Brothers Europe (in administration), [2012] UKSC 6,
Supreme Court (Lords Collins, Clarke, Dyson, Hope and Walker),
22 February 2012
Court held that the “alternative
approach”, which allowed a firm to
receive client money into its own
account for a time, was only one
method that a firm might adopt to
comply with its obligation to segregate
client money and that that method did
not affect or undermine the obligation
to hold client money as trustee from
the moment of receipt.
The second key issue was whether the
pool of client money constituted upon a
firm’s failure extended to all client
money, in whatever accounts, or only to
money which had been segregated as at
the date of pooling. No judge in the
ANTONY ZACAROLI QC
DAVID ALLISON RICHARD FISHER
9
AUGUST 2012
WILLIAM WILLSON
Supreme Court accepted the first
instance judge’s conclusion that money
outside the firm’s segregated account
was not pooled but might be traced
and claimed in equity. The majority held
that the pool extended to all client
money in whatever account.
The third key issue, and in respect of
which the Supreme Court was divided
sharply, was whether the pool of client
money should be distributed on a
‘claims’ basis or a ‘contributions’ basis.
The former required a distribution
relative to clients’ contractual
entitlements as at the date of pooling,
and irrespective of whether or not any
client money had been segregated for
a given client, whereas the latter
required a distribution relative to what
had been contributed by or for a client
and which remained identifiable as at
the date of pooling. The majority
favoured the claims basis whereas the
minority favoured the contributions
basis.
[Antony Zacaroli QC, David Allison,
Richard Fisher and Adam Al-Attar]
The claimants (“C”) applied for summary
judgment on their claim for breach of a
contract to purchase loan notes: the
defendants cross-applied for summary
judgment and/or striking out of all or
part of C's claim. D2 issued loan notes,
subject to the terms of a trust deed, and
D3 was later substituted as issuer. Under a
restructuring plan three proposals were
sent to creditors: C consented to the first
two amendments in return for a
payment. C claimed repayment of the
sums lent under the notes, plus damages
for breach of contract. The Ds sought to
strike out the claims by relying on a
clause in the trust deed that expressly
precluded direct action against the issuer.
C argued that (1) D2 was not discharged
from liability under the contract by the
substitution of D3; (2) D could not rely on
the no action clause where they were in
repudiatory breach, and they were
because the offer of a consent payment
was a bribe or illegal and amounted to
differential treatment of note holders
and was contrary to the principle of pari
passu. Held that D2 had been released,
the consent of note holders was not
Sergio Barreiros Azavedo & Anor v Imcopa ImportacaoExportacao e Industria de Oleos Ltda (2) Imcopa International SA(3) Imcopa International Cayman Islands Ltd [2012] EWHC 1849(Comm) (Hamblen J), 20 May 2012
required for substitution and there was
no real prospect of success against D2.
Consent payment offers were not bribes
when made openly and where no note
holders were incapacitated from voting,
The payments were not inconsistent with
the pari passu requirements. There was
nothing in the trust deed or notes
preventing the payments. Finally, by
voting in favour of the first two payments
C were in effect acknowledging that the
payments were lawful and restructuring
had been approved by the Brazilian
courts [Ben Valentin]
BEN VALENTIN
The appellants, Maybourne Finance
Limited (“MFL”) and National Asset Loan
Management Limited (“NAMA”)
appealed against a decision on a
preliminary issue of law concerning the
correct interpretation of a clause in a
facilities agreement (“Clause 40.3”).
Two banks had loaned money to a
company (“C”). NAMA acquired the
beneficial interest in the loan, while the
banks remained the legal owners of the
loan. The facilities agreement was then
amended and extended. NAMA and the
two banks subsequently purported to
transfer, by way of novation, all their
interests under the agreement to MFL.
The central issue on appeal was
whether certain transfer requirements
in Clause 24 of the facilities agreement
(including a requirement for
consultation) were disapplied by Clause
40.3. Held that NAMA had been formed
to acquire, and then to sell, many of the
bank loans which were causing
difficulties to the Irish banks, and both
the arrangements set out in the
National Asset Management Agency Act
2009 (the “NAMA Act”) to achieve that
aim, and their implementation, had to
be completed as quickly as possible.
NAMA's objective under the NAMA Act
was to achieve the best financial return
as soon as practicable. If Clause 24.3
applied to a disposal such as that
McKillen v Maybourne Finance Ltd & Ors [2012] EWCA Civ 864,
Court of Appeal (Neuberger MR, Toulson, Lewison LJJ)
effected by the instant transfer, in
effect NAMA would have voluntarily
accepted an impediment in the
agreement to effect a transfer or
disposal of the loan which was
inconsistent with its statutory right.
MFL and NAMA were right as to the
effect of Clause 40.3 if Clause 24.3
would otherwise have applied. Given
the commercial and statutory
background, the restrictions in Clause
24.3 would not have been expected to
apply to any disposal or transfer by
NAMA. In any event, MFL and NAMA's
interpretation of Clause 40.3 was more
natural than that advanced by C.
[Robin Dicker QC; William Willson]
ROBIN DICKER QC
CASE DIGESTS
10
Amatra, Ajial, AA and GA commenced
an FINRA arbitration in NY seeking
damages from CGMI for losses allegedly
sustained under options transactions
structured by Citigroup. CGML, as the
Citigroup entity which was the party to
the options transactions, commenced a
claim before the English court against
Amatra, Ajial, AA and GA for negative
declarations that neither it nor its
Affiliates (including CGMI) were liable in
respect of the options transactions,
relying on a number of statements of
non-reliance in the relevant contractual
documentation entered into by Amatra,
Ajial, and AA. The Court gave CGML
permission to serve the defendants
outside the jurisdiction.
Each of the defendants applied to set
aside the order for service outside the
jurisdiction in respect of the claim of
CGML for declaratory relief that its
Affiliates were not liable. Despite
deciding that CGML had sufficient
standing to seek the Affiliate declarations
and that the Affiliate declarations fell
within the jurisdiction clauses in the
agreements, the Judge set aside the order
for service out in respect of the Affiliate
declarations as he was not satisfied that
there was "a serious issue to be tried" as
between CGML and the defendants.
AA and GA also applied to set aside the
order for service outside the jurisdiction
in respect of the claims of CGML for
declaratory relief on its own behalf. The
Judge rejected the argument that CGML
did not satisfy the forum conveniens
requirements for service out in respect of
its claims against AA and GA. However,
the Judge found that AA was not a
proper party for the purpose of the
service out requirements as he was not a
party to any contracts with CGML.
The Judge then proceeded to granted a
case management stay of CGML’s
remaining claims until the resolution of
the FINRA arbitration, relying on the fact
that the FINRA reference was brought
pursuant to a mandatory regulatory
regime to which CGML's affiliate (CGMI)
was subject as a matter of American
public policy.
[Antony Zacaroli QC; David Allison]
Citigroup Global Markets Ltd v Amatra Leveraged Feeder
Holdings Ltd & Ors [2012] EWHC 1331 (Comm) (18 May 2012)
Andrew Smith J
CIVIL PROCEDURE Digested by ADAM AL-ATTAR
ADAM AL-ATTAR
COMMERCIAL COURT Digested by STEPHEN ROBINS
The applicant shipyard operators (“W”)
applied for summary judgment on a
payment guarantee issued by the
respondent bank (“E”) in respect of the
second instalment of the price of a
vessel under a shipbuilding contract. W's
case was that E's payment guarantee
was a demand or performance bond and
that payment was due on a written
demand, whether or not the payment
which the bond guaranteed was actually
due by B to W. E contended that the
instrument was a guarantee and that, if
the second instalment was not due,
there could be no liability under the
guarantee. The Court held that E's
payment guarantee was not to be
regarded as a demand bond. The
instrument set out the core obligation in
the classic language of a guarantee.
Wuhan Guoyu Logistics Group Co Ltd v Emporiki Bank of Greece
SA [2012] EWHC 1715 (Comm) Commercial Court (Christopher
Clarke J) 22 June 2012
Clause 3 contained a guarantee of
interest after B was "in default", which
was inconsistent with a free-standing
obligation to pay interest from any
given date or following demand. Caja
de Ahorros del Mediterraneo v Gold
Coast Ltd [2002] 1 All E.R. (Comm) 142
and Carey Value Added SL v Grupo
Urvasco SA [2011] 2 All E.R. (Comm) 140
considered.
STEPHEN ROBINS
The appellant shipowner (“L”) entered
into a contract of affreightment with the
respondent charterer (“C”) for the
carriage of ten cargoes of coal from
Indonesia to Spain on the American
Welsh Coal Charter form (1979
amendment). Clause 9, which governed
the calculation of laytime at the
discharging port, provided that delay as a
result of strikes was not to count as
laytime unless the vessel was already on
demurrage. When four of the vessels
were delayed at the discharge port by
congestion following strikes, C
maintained that it could rely on the
strikes exception in clause 9 and the time
Carboex SA v Louis Dreyfus Commodities Suisse SA [2012] EWCA
Civ 838 Court of Appeal (Lord Neuberger MR, Moore-Bick LJ,
Toulson LJ) 19 June 2012
lost was not to count as laytime. L
maintained (inter alia) that time ceased
to count only if the vessel was in berth
and ready to discharge cargo or had
begun cargo handling operations. The
Court of Appeal held that there was
nothing in clause 9 to support the
contention that its operation was limited
11
AUGUST 2012
to interruptions and delays occurring
during the period of the excepted causes;
rather, clause 9 was concerned only with
the consequences of the excepted causes,
not with their duration. London and
Northern Steamship Co Ltd v Central
Argentine Railway Ltd (1913) 108 L.T. 527
considered. In order to obtain the
protection of clause 9, the charterer had
to show that the event on which he relied
fell within the clause and was the
effective cause of delay to the vessel; L
was wrong to contend that clause 9
protected the charterer only once the
vessel had reached the discharge berth.
Central Argentine Railway Ltd v Marwood
[1915] A.C. 981 considered. Accordingly, if
and to the extent that C could establish
that the strike was the effective cause of
delay to the discharge of any of the
vessels, the time lost as a result would not
count against laytime. Whether the strike
was the effective cause of delay was a
question of fact. On the facts of the case,
the necessary causal connection could be
established even in relation to vessels
arriving after the strike had ended.
The claimant (“R”) was a state-owned
Russian airline which claimed that it
was the victim of frauds perpetrated by
D1 and D2 using companies controlled
by them, D3, D4, D5, D6 and D6 (“the
Company Defendants”). Agreements
between R and D5 contained Swiss law
and Swiss jurisdiction/arbitration
clauses. R sued D1 and D2 in England
on the basis that they were domiciled
in England. R sued the Company
Defendants as necessary and proper
parties. D3, D4, D5 and D7 challenged
the jurisdiction of the English court to
entertain the actions against them. The
Court declined jurisdiction over D5 on
the basis of the Swiss
jurisdiction/arbitration clauses but held
Aeroflot v Berezovsky [2012] EWHC 1610 (Ch) Chancery Division
(Floyd J) 18 June 2012
that it retained jurisdiction over other
foreign company defendants since the
claims against them were so closely
connected with the claims against
defendants in England that it
remained expedient to hear and
determine them together. Powell
Duffryn Plc v Petereit (C-214/89) [1992]
E.C.R. I-1745 applied.
H was an investor in distressed assets
which had purchased arbitration awards
against the Democratic Republic of the
Congo (“D”). The Jersey courts had
applied the common law test in
Trendtex Trading Corp v Central Bank of
Nigeria [1977] Q.B. 529 to determine
whether a state-owned mining
corporation (“G”) was an organ of D,
and had permitted H to enforce against
G's assets in Jersey. G appealed
submitting that the Trendtex test
related solely to the question of
immunity and could not be used to hold
G responsible for D's indebtedness.
Given that there had been no
suggestion that G or its corporate
existence was a sham, D submitted that
G and its assets should be treated no
differently from any other company, and
that G's separate legal identity should
be respected unless there had been
impropriety and the case was so
exceptional that the corporate veil could
La Generale des Carrieres et des Mines v F.G. Hemisphere
Associates LLC [2012] UKPC 27 Privy Council (Lord Hope, Lord
Walker, Lord Mance, Lord Wilson, Lord Carnwath) 17 July 2012
be lifted. H argued that the differences
between a state-owned corporation and
a regulated stock company, which
protected the interests of creditors,
justified a different approach. The
appeal was allowed. The courts below
had applied the incorrect test. It was
apparent from G's accounts that it was a
real and functioning corporate entity
with substantial assets and business.
There was no basis for holding G
responsible for the debts of D.
COMPANY LAW Digested by MARCUS HAYWOOD
It would be contrary to principle and
authority to hold that where the court
pierced the corporate veil it could find
that those who had misused the
corporate structure were parties to the
company's contracts.
The Court of Appeal so held on the
appeal of VTB Capital Plc ("VTB") against
a decision of Arnold J, amongst other
things, refusing permission to VTB to
amend its Particulars of Claim so as to
allege a liability on the part of certain of
the Defendants in contract, in the
alternative to the claim in tort originally
VTB Capital PLC v Nutritek International Corp [2012] EWCA Civ
808 Court of Appeal (Lloyd, Rimer, Aikens LLJ) 20 June 2012
pleaded.
VTB was a subsidiary of a Russian state-
owned bank. It lent money under a
facility agreement to a Russian company
("R") to fund the acquisition by R of
Russian companies from the first
defendant ("D1"). The agreement
MARCUS HAYWOOD
CASE DIGESTS
12
provided for English law and jurisdiction.
R had defaulted on the loan. VTB alleged
that it had been induced to enter into
the facility agreement by fraudulent
misrepresentations made by D1, for
which the other defendants were alleged
to be jointly liable. VTB's case against the
Defendants was pleaded in deceit and
unlawful means conspiracy. It applied to
amend to add claims in contract on the
basis that the Court should pierce the
corporate veil of R so as to make certain
of the Defendants liable as parties under
the facility agreement.
The Court of Appeal held: (1) The
contract claim that VTB wished to
advance was not founded on a cause of
action known to English law.
Furthermore, there was no principled
basis upon which the law might be
incrementally developed so as to
recognise such a claim. (2) It was
appropriate to pierce the corporate veil
only where special circumstances existed
indicating that it was a mere facade
concealing the true facts. Once the veil
was pierced, however, the court could
not treat those in control of the company
as themselves parties to its contracts. (3)
VTB's submission amounted to the
proposition that there is a principle of
English law that a person can be held to
be a party to a contract when, assessed
objectively, none of the undisputed
parties to the contract had any thought
that he was, let alone an intention that
he should be. To accede to VTB's
submission would be to make a
fundamental inroad into the basic
principle of law that contracts are the
result of a consensual arrangement
between, and only between, those
intending to be parties to them. (4) In
the circumstances, the Judge was right to
refuse VTB permission to amend.
The definition of "existing transfereecompany" in the Companies (Cross-Border Mergers) Regulations 2007reg.3(1) ("the Regulations") was wrong.It did not mean to exclude transfereecompanies formed specifically for thepurposes of, or in connection with, across-border merger, only those formedfor the purposes of, or in connectionwith, a merger by formation of a newcompany. The words "by formation of anew company" were to be added at theend of the definition of "existingtransferee company".
It was clear that something had gonewrong with the language and draftingof reg.3(1) of the Regulations. There isno discernible policy reason forexcluding transferee companies formedspecifically for the purposes of themerger, and none was to be found in theEU Directive which the Regulations weremade to implement (Directive2005/56/EC of 25 October 2005 on cross-border mergers of limited liabilitycompanies). If the restriction had beenintended, it would be necessary to knowfor how long the company needed to
Re Itau BBA International Ltd [2012] EWHC 1783 (Ch); Chancery
Division (Henderson J) (28 June 2012)
have been in existence, the test fordetermining whether it had sufficientassets, the activities it would need tohave carried on, and so forth. Thedefinition had been intended to do nomore than exclude a transfereecompany formed for the purposes of, orin connection with, a merger byformation of a new company. Thesimplest way to make that clear was byadding the words "by formation of anew company" at the end of thedefinition of "existing transfereecompany".
The appellant directors had run a
business which had been loss-making for
some time and which failed to pay PAYE
and NIC due to HM Revenue and
Customs ("HMRC") for a period of some
15 months. A disqualification order was
sought on the basis that the company
discriminated against HMRC by failing to
pay it while it paid other creditors. The
directors defended the proceedings,
saying that they had kept HMRC
informed of the company’s position and
that it had not objected to the company
continuing to try to trade its way out of
difficulties.
The directors were disqualified by the
District Judge at first instance because
they had failed to disclose all relevant
facts to HMRC. The directors’ appeals to
the High Court (Henderson J) and the
Court of Appeal failed.
The Court of Appeal held as follows: (1)
The correct test for the court to apply is
to consider the evidence as a whole,
including extenuating circumstances,
and to decide whether the director has
fallen below the standards of probity
and competence appropriate for persons
fit to be directors of companies. It was
not unhelpful to use expressions such as
Cathie v Secretary of State for Business [2012] EWCA Civ 739
Court of Appeal (Pill, Sullivan, Kitchin LLJ) (1 June 2012)
“exceptional circumstances” to refer to
situations where misconduct is proved
but there are reasons not to make a
disqualification order. (2) The burden of
proving misconduct is on the Secretary
of State, but if directors seek to defeat
the inference of misconduct which arises
from prolonged non-payment of tax, it is
for them to provide the evidence. (3) The
conduct of the Secretary of State in the
proceedings (including the loss of a file
and errors in the evidence) were not so
serious as to amount to an abuse of
process requiring the claim to be struck
out.
13
AUGUST 2012
Where a director and shareholder had
undertaken to keep adequate records to
allow damages to be determined if he
were found to have breached his
fiduciary and confidential duties, it had
been within a Judge’s discretion to deny
an application for an interim injunction
to enjoin him from competing against
the company. The appellant ("Wright")
appealed against a decision of HHJ
Hodge QC refusing an application for an
interim injunction. Wright and the first
respondent ("Pyke") had been equal
shareholders in a dental laboratory
business ("the Company"). Pyke had
been the sole director of the Company.
Without Wright's knowledge, Pyke had
formed a new dental laboratory
business, which he operated from the
Company's premises with the Company's
employees. Wright filed a derivative
action against Pyke alleging breach of
confidence and fiduciary duty. Wright
also applied for an interim injunction to
prevent Pyke from using or disclosing
the Company's confidential information
or competing with the Company. The
Judge denied the application on the
ground that the balance of convenience
lay in allowing Pyke to continue doing
business subject to his undertaking to
keep adequate financial records so that
Wright v Pyke [2012] EWCA Civ 931 Court of Appeal (Mummery,
Hooper, Pitchford LLJ) (15 May 2012)
Wright could establish damages.
Dismissing the appeal, the Court of
Appeal held that the Judge had not
erred in the exercise of his discretion.
There was a real risk that, if the
injunction were granted, the parties
would get the worst of both worlds. The
injunction would inflict definite damage
on Pyke's business without any certainty
of a benefit for the Company or Wright.
The Judge's solution, on the other hand,
meant that there was some certainty
that there would be adequate
information available, if liability were
established at trial, to determine the
amount of damages payable.
In proceedings concerning a lender's
purported appropriation of charged shares
in a company, the Court of Appeal of the
British Virgin Islands had been wrong to
order that the continuation of interim
injunctive relief preserving the company's
management and control of itself and its
related companies pending the hearing of
its appeal should be conditional upon it
making a payment into court. Whilst it
Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd
Privy Council (British Virgin Islands) (Lord Walker, Lord Mance,
Lord Sumption) (23 May 2012)
could be appropriate to order security in
respect of indebtedness which would exist
if an appeal failed, there was, on the facts,
no question of such indebtedness in the
instant case.
CORPORATE INSOLVENCY Digested by HENRY PHILLIPS
HENRYPHILLIPSGABRIEL MOSS QCMARK PHILLIPS QC
The case concerned the legality of the
so-called “football creditor rule”
operated by the Football League. The
purpose and effect of the football
creditor rule is to ensure that in the
event of a member club becoming
insolvency particular classes of creditors,
such as players and other clubs in the
Football League, are paid in full in
priority to any other creditors.
HMRC contended that the rules of
membership to the Football League
which confer a priority to football
creditors’ claims were (a) contrary to the
pari passu principle (which requires the
assets of an insolvent person to be
distributed among creditors on a pari
passu basis) and (b) caught by the anti-
deprivation principle (which renders void
any provision by which a debtor is
deprived of assets by reason of
insolvency).
The Court considered the characteristics
of the pari passu and anti-deprivation
principles as articulated in the leading
case of Belmont Park Investments Pty Ltd
v BNY Corporate Trustee Services Ltd
[2011] UKSC 38. Significantly, David
Richards J held that the pari passu
principle and the anti-deprivation rule
are both potentially applicable to
companies in administration, albeit at
Commissioners for Her Majesty’s Revenue and Customs v
Football League Ltd [2012] EWHC 1372 (ch), David Richards J, 25
May 2012
different times.
As long as the survival of the company or
even the survival of the business as a
going concern remains a potential aim
of an administration, the application of
the pari passu principle could be very
damaging. Accordingly, the pari passu
principle comes into play only if the
purpose of the insolvency proceeding is
to effect a distribution. In an
administration, the Court held that the
principle is engaged only when the
administrator gives notice of a proposed
distribution under rule 2.68 Insolvency
Rules 1986.
As to the anti-deprivation rule, the Court
14
CASE DIGESTS
held that it applies on a company going
into administration as it does to a
company going into liquidation. Even
where the survival of the company or
business is still a potential aim of the
administration, the interests of creditors
are likely to be best served by preserving
the company’s assets.
David Richards J held that in most cases
where the Football League’s articles and
Insolvency Policy operates, they will not
be rendered void by the anti-deprivation
rule or the pari passu principle. Under
the terms of the FL's articles, a member
club has no right to the payment of any
sum derived from television and other
commercial contracts made by the FL
unless and until it has completed all its
fixture obligations for the relevant
season. If it ceases to be a member
before the end of the season it is
therefore not deprived of any debt or
accrued right to payment. However, the
Court left open the question of whether
either or both might be engaged in
particular circumstances, for example
where an administration or liquidation
commences after the end of a season.
[Gabriel Moss QC, Mark Phillips QC,
Daniel Bayfield]
A chargeholder bank was considering
appointing administrative receivers of an
insolvent company (the Claimant) to
carry out a pre-pack sale of its assets to a
third party. A fire had destroyed the
company’s premises, the company’s
insurers had refused cover and the
company considered that it had damages
claims against those insures and the
brokers who had arranged the cover.
Those claims were intended to be
assigned as part of the pre-pack sale.
Prior to their appointment, the intended
receivers instructed the Defendant
solicitors, who were already acting for
the bank, to advise on the strength of
the claims. The appointment of receivers
went ahead, and immediately on their
appointment the company, acting by its
receivers, sold its assets, including the
claims, by a pre-pack sale to a third
party. That third party then litigated
some of the claims, making a substantial
recovery. In due course the receivership
terminated and the Claimant company
was placed back into the control of its
directors. The Claimant company sued
the solicitors, claiming that their advice
on the claims was negligent and unduly
pessimistic, causing the claims to be sold
at a considerable undervalue as part of
the pre-pack. The Claimant alleged that
since the receivers were, on
appointment, its agents, the Claimant
was owed a duty of care both in contract
and in tort by the Defendant solicitors.
The Defendant solicitors applied to
strike out the claim, or enter reverse
Edenwest Limited v CMS Cameron McKenna [2012] EWHC 1258
(Ch), Hildyard J, 14 May 2012
summary judgment. Hildyard J struck out
the claim. The clients of the Defendant
solicitors at the time the advice was
given were, necessarily, the receivers in
their personal capacity, and their
subsequent appointment as receivers,
and hence agents, of the Claimant
company did not mean that the
Claimant company became their client at
that point. As to the duty of care in tort,
applying Raja v Austin Gray [2003]
Lloyd’s Rep PN 126 (CA), the Judge held
that the only relevant duty of care was
owed by the receivers, and not the
solicitors themselves, taking into
account, in particular, the potential
conflicts of interest which would
otherwise arise.
[Lloyd Tamlyn]
LLOYD TAMLYN
The case concerned the validity of the
appointment of joint administrators
made out of court by the directors of a
company authorised by the FSA. The
company resolved at a general meeting
that it should be placed into
administration. There was no qualifying
floating charge holder and therefore no
consent to the appointment of the
Administrator was required from such a
person. On the same day the company
filed a notice of appointment pursuant to
paragraph 22 of Schedule B1 on Form
2.10B. Section 362A Financial Services and
Markets Act 2000 provides that, in the
case of a company authorised by the FSA
an administrator “may not be appointed
under paragraph 22 of Schedule B1 to the
[Insolvency Act 1986]…without the
consent of the [FSA]”. No consent from
the FSA was sought, obtained or filed as
required under section 362A FSMA until
after the purported appointment of the
administrators. The Court considered the
conflicting decisions in Re Virtualpurple
Professional Services Ltd [2012] BCC 254
and National Westminster Bank v Msaada
Group [2012] BCC 226 but did not seek to
resolve the conflict (see [14]). Instead,
Arnold J held that as a matter of
construction section 362A FSMA did not
require the directors to obtain consent
Re Ceart Risk Services Limited [2012] EWHC 1178 (Ch), Arnold J,
Companies Court, 3 May 2012
from the FSA prior to the appointment of
administrators. The appointment
therefore took effect on the date when
the FSA’s consent was filed with the
Court. The purported earlier appointment
was defective, but not incurably so (see
Norris J in Re Virtualpurple Professional
Services Ltd). In those circumstances, the
Court made a declaration under
paragraph 104 of Schedule B1 that the
Administrators’ acts from the date on
which the notice of appointment was
filed to the date on which the FSA’s
consent was filed were valid
notwithstanding the defect in their
appointment.
15
AUGUST 2012
The case concerned the validity of the
appointment of joint administrators of a
charitable company limited by
guarantee made by the directors out of
court.
There was no person entitled to appoint
an administrative receiver or an
administrator under paragraph 14 of
Schedule B1 to the Insolvency Act 1986,
upon whom a notice of intention to
appoint had to be served. However, no
formal notice in a prescribed form was
given to the company. The Court
considered the conflicting decisions in
Re Virtualpurple Professional Services
Ltd [2012] BCC 254 and National
Westminster Bank v Msaada Group
[2012] BCC 226 and held, perhaps
questionably, that the conflict between
those two cases had been resolved by
Re BXL Services [2012] EWHC 1877 (Ch), HHJ Purle QC (sitting as a
High Court Judge), Birmingham District Registry, 10 July 2012
Arnold J in Re Ceart Risk Services
Limited (digested above). HHJ Purle QC
therefore held (a) that the failure to
give notice of an intended appointment
to one of the parties prescribed under
paragraph 26(2) of Schedule B1 does not
invalidate the appointment, even
assuming such notice is required and (b)
that the law must now be taken to be
settled at first instance.
The Court considered whether the
appointment of a “vorläufiger
Insolvenverwalter” – literally
“preliminary insolvency liquidator” –
over a German company amounted to
the opening of insolvency proceedings
within the meaning of the Insolvency
Regulation. In December 2011, an
arbitration award for over $11 million
was made in favour of the Applicant.
On the Respondent’s own initiative, an
application to open insolvency
proceedings was made to the local court
of Dusseldorf on 20 January 2012. A
“preliminary insolvency liquidator” was
appointed on 25 January 2012.
On 2 March 2 2012, after the filing of
documents with the Dusseldorf Court,
the Applicant issued an application in
this jurisdiction seeking: (a) permission
to enforce the award against the
Respondent and (b) the appointment of
receivers over the Respondent to bring
and enforce a claim against a third
party. Permission to enforce the
arbitration award and to serve the
application out of the jurisdiction was
given by Eder J at a without notice
application. At a further without notice
hearing, a freezing injunction was
obtained. Subsequently, the Applicant
was told of the German insolvency
proceedings.
The principle question before the Court
was whether the application to appoint
Receivers over the Respondent should
be dismissed. The resolution of this
question turned on whether the order
of the Dusseldorf court appointing a
preliminary insolvency liquidator
constituted the opening of insolvency
proceedings within the meaning of the
Insolvency Regulation. If it did, the
English Courts would be required to
give effect to the German moratorium
and German prohibition on new
enforcement proceedings. The Court
held, relying on the decision of the ECJ
Westwood Shipping Lines Inc and anor v Universal
Schiffahrtsgesellschaft [2012] EWHC 1394 (Comm) Christopher
Clarke J, Commercial Court, 25 May 2012
in Re Eurofood IFSC Ltd [2006] Ch 508,
that there had been a “divestment” of
the debtor’s powers of management
over its assets. While the divestment
was not absolute, as the German
proceedings allowed the Respondent to
dispose of its assets with the consent of
the preliminary liquidator, the
Respondent had lost its control of its
assets to a “not inconsiderable” extent
[67]. Accordingly, insolvency
proceedings had been opened in
Germany and the Court dismissed the
Applicant’s application to enforce its
arbitration award. Aside from the
European Regulations, the Court held
that there was “considerable force” in
Glen Davis QC’s argument that the
common law principle of universality in
insolvency proceedings would also
require the court to dismiss or, at the
very least, stay the Applicant’s attempts
to enforce the arbitration award.
[Glen Davis QC]
Three payments totalling £375,000 were
made by 727 companies to an associated
company. The associated company lent
that money to another company using
funds held in a designated account in its
name, which were held on trust for the
727 companies. The 727 companies were
insolvent by the time of the first
In the matter of Algrave Ltd & 726 Ors sub nom (1) Malcolm Cohen (2)Anthony David Nygate (Joint Administrators of Algrave Ltd & 726 Ors)v (1) Safe Solutions International Ltd (2) Dominic Hill (2012) Ch D, NStrauss QC, Companies Court, 25 June 2012
payment. The associated company had
provided administrative services to the
727 companies pursuant to the terms of a
management agreement. The agreement
FELICITY TOUBE QC
GLEN DAVIS QC
16
entitled S, in return for the services it
provided, to "an amount, the bank
administration charge, equivalent to all
interest from time to time arising in
respect of the bank account from time to
time administered by S for the
company". Schedule 1 of the agreement,
which dealt with the payment
procedure, stated that "the bank
administration charge shall be due to
the associated company from the
moment any interest accrued on the
relevant account and that such interest
shall be deemed to belong to the
associated company from such moment".
The associated company and its directors
asserted that £200,000 was therefore
held on trust for them. The
administrators and the 727 companies
contended that the agreement merely
provided a charge over the monies, and
that charge was void for lack of
registration. The administrators and the
companies applied for declarations that
payments totalling £375,000 made by
the companies to the associated
company were (a) as against the
associated companies, voidable
preferences within the meaning of the
Insolvency Act 1986 s.239 and (b) as
against the director of the associated
company (who was also a de facto
director of each of the companies), that
he caused the payments to be made by
the companies in breach of his fiduciary
duties and, as a result, an order for
payment of that sum to the companies
with interest.
The Deputy Judge held that the monies
were held on trust and not merely
caught by a charge. However as to the
remaining £175,000 the director of the
associated company (and de facto
director of the companies) breached his
duties to the 727 companies and also
caused a preference to be made to the
associated company. The director’s vague
and unsubstantiated suggestions that
the purpose of the payments was to
advance work on the VAT issues did not
establish the necessary basis for relief
under the Companies Act 2006 s.1157,
namely that he acted honestly and
reasonably. [Felicity Toube QC]
CASE DIGESTS
The United States District Court for the
Southern District of New York (the “US
Appeal Court”) upheld the decision of
the United States Bankruptcy Court
recognising the Bermuda winding up
proceedings of two hedge funds as
foreign main, alternatively non-main,
proceedings. The US Appeal Court
rejected the argument that the COMI of
the Funds was in the United Kingdom,
where the Funds’ investment manager,
one of their two prime brokers, many of
their investors and counterparties, and
their portfolio manager were located.
The US Appeal Court based its decision
of the fact that two of the Funds’ three
directors resided in Bermuda, where
calls concerning the management of the
Re Millennium Global Emerging Credit Master Fund Limited Case
No. 11-07865, United States District Court for the Southern
District of New York, 25 June 2012
Funds were initiated and where the
Funds’ books and accounts were
maintained. In addition, Bermuda law
governed the establishment and
operation of the Funds; and Bermuda
appeared to have been the only location
that was ascertainable to investors and
other interested third parties as the
COMI of the Funds. [Barry Isaacs QC]
BARRY ISAACS QC
The United States Bankruptcy Court for
the Southern District of New York (the
“US Bankruptcy Court”) approved a
motion by the Liquidators to compel
wide-ranging production of documents
under the US Bankruptcy Code.
The Liquidators had found evidence that
certain of the Funds’ investments had
been overvalued. In 2011, they successfully
filed a petition with the US Court for the
recognition of the Bermuda winding up
proceeding under chapter 15 of the
Bankruptcy Code, noting that the purpose
of filing the petition was to pursue
discovery against parties in the United
States. The Liquidators then served a
subpoena for the production of
documents on BCP, a broker alleged to
have been involved in certain
overvaluations. BCP filed objections to the
subpoena and the Liquidators filed a
motion for an order under section
1521(a)(4) of the Bankruptcy Code
compelling BCP to produce documents
requested in the subpoena. Section
1521(a)(4) authorises US bankruptcy courts
to order “the delivery of information
concerning the debtor’s assets, affairs,
Re Millennium Global Emerging Credit Master Fund Limited Case
No. 11-13171, United States Bankruptcy Court for the Southern
District of New York, 25 May 2012
rights, obligations or liabilities.” The US
Bankruptcy Court allowed the Liquidators’
motion to compel, on the basis that: (i)
section 1521(a)(4) enables a foreign
representative to obtain broad discovery
concerning the property and affairs of a
debtor; (ii) the documents sought
concerned the financial affairs of the
Funds; and (iii) the documents sought
related to potential causes of action
against BCP, so as to qualify as the taking
of evidence concerning the debtors’ assets
under section 1521(a)(4).
[Barry Isaacs QC]
17
AUGUST 2012
The issue before the court was whether
or not Office Metro Limited (the
“Company”) could be wound up in this
jurisdiction in light of the fact that,
despite its being an English registered
company, its centre of main interests was
in Luxembourg. The question to be
determined was whether or not it had
an “establishment” within the
jurisdiction for the purposes of the
Insolvency Regulation. The Company had
guaranteed the liabilities of a number of
tenants of properties in England and
abroad. Until 2008 its registered office
was at an address in Chertsey, Surrey.
The Petitioner was one of the landlords
to whom a guarantee was given in
respect of a property in this jurisdiction.
The Company changed its centre of main
interests in 2008. From that time it
retained a registered office at the
Chertsey address but had no interest in
any part of those premises either as a
tenant or as a licensee. It maintained
and employed no staff in those premises
or in the United Kingdom. So far as any
activities of the company had to be
conducted in England, they were
conducted by a service company in the
same group of companies.
The definition of “establishment” in the
Insolvency Regulation requires a non-
transitory economic activity to be carried
out with human means. The Court held
that it was not necessary for the humans
in question to be employees of the
company. It was sufficient if the humans
were employed by another group
Trillium (Nelson) Properties Limited v Office Metro Limited [2012]
EWHC 1191 (Ch) Mann J, 9 May 2012
company. However, by the time the
petition had been presented, the only
“activity” of the Company was its
exposure to liabilities as guarantor. The
Court held that being in a state of
liability, with the need sometimes to pay
out on that liability, was not an
“economic activity” for the purposes of
the Regulation. Even if they were
“economic activities” they were
transitory as the activity involved in
paying up on a guarantee does not have
the character of a consistent business or
business like activity.
The Court also held that the date on
which the existence or otherwise of an
establishment is to be judged is the date
of presentation of the petition.
[Lucy Frazer]
LUCY FRAZER
It was established on the evidence that
the statement “I confirm that the debt for
which the charge described above was
given has been paid or satisfied in full” in
two Forms MG02 registered at Companies
House as Statements of Satisfaction of
Re OC Realisations 2011 (in liquidation) HHJ Langan QC,
Newcastle Upon Tyne District Registry, 4 July 2012
liquidators, the Court decided that
notwithstanding the registration of the
Forms, the relevant debentures constituted
valid and subsisting security and directed
the liquidators to pay the secured creditors
accordingly. [Glen Davis QC]
charges was incorrect. The fact that the
Forms had been entered on the Register
did not affect the continuing validity of
the security. On an application for
directions commenced by the
Administrators and continued by them as
This was an application for freezing
orders against individuals and for the
appointment of a provisional liquidator
against individuals/a company. The Serious
Organised Crime Agency (“SOCA”) had
strong evidence that the Company was
involved in money laundering and that
the Company/individuals had not declared
their true income on their tax returns.
SOCA made the application as it had had
vested in it the general revenue functions
usually conferred on HMRC. The Judge
made the orders including a freezing
injunction against a third party without
Serious Organised Crime Agency v Dong & Ors, Proudman J, 21
May 2012
requiring SOCA to give a cross undertaking
in damages on the basis that collecting
revenue was nearer to the spectrum
represented by law enforcement rather
than proprietary right enforcement,
seeking to protect its ability to recover
sums publicly due. [Lucy Frazer]
18
CASE DIGESTS
The Court had jurisdiction under the EC
Regulation on Insolvency Proceedings
(No. 1346/2000) (“the Insolvency
Regulation”) to make a winding-up
order in relation to Olympic Airlines SA
("the Company") on the petition of the
trustees of the Company's pension
scheme as, when the petition was
presented, the Company had an
"establishment" in England for the
purposes of art.2(h) of the Insolvency
Regulation.
The Company, which was the Greek
national airline, was placed into special
liquidation in accordance with a decision
of the Athens Court of Appeal ("the
Greek Liquidation Proceedings"). The
Greek Liquidation Proceedings were
main proceedings for the purposes of the
Insolvency Regulation. Accordingly, the
only insolvency proceedings that could
be opened in this jurisdiction were
secondary proceedings. Under Article 3(2)
of the Insolvency Regulation such
proceedings could only be opened if the
Company possessed an "establishment"
in the jurisdiction.
The Chancellor held as follows: (1) The
wording of the Insolvency Regulation
had to be interpreted in accordance with
the autonomous and uniform
interpretation indicated by the by the
ECJ in Interdill Srl Fallimento Interdil Srl
C-396/09. (2) The liquidation of an
insolvent company and the winding up
of its affairs were not incompatible with
the possession of an establishment. (3)
The relevant time when the existence or
not of an establishment has to be judged
is when this petition was presented.
However, the facts as established at that
date need to be evaluated in the light of
what came before and what followed
after. (4) Whilst in order for there to be an
"establishment" in the jurisdiction there
must be "non-transitory" activities, there
was no requirement that such activities be
permanent. (5) It was not a requirement
Re Olympic Airlines SA [2012] EWHC 1413 (Ch) Chancery Division
(Sir Andrew Morritt, Chancellor) (29 May 2012)
to the possession of an "establishment"
that the company was carrying out
external market activities; only that its
activities are "economic". External market
activities are inconsistent with the
generality of companies in liquidation
which, by definition, do not engage in
external market activities any longer. (5)
Applying those principles to the facts the
Company had an establishment in the
jurisdiction at the date of the
presentation of the winding up petition.
(6) It was appropriate for the Court to
exercise is discretion to make a winding
up order, the primary purpose of which
was to ensure that the pension scheme
was eligible for entry into the Pension
Protection Fund (s.121(3) of the Pensions
Act 2004 not listing a winding up outside
the UK as an “insolvency event” sufficient
to trigger the duty to assume
responsibility imposed on the Pension
Protection Fund by s.127 of that Act).
[David Marks QC; Marcus Haywood]
DAVID MARKS QC
On the first-ever application for the
Court to approve a Distribution Plan
under Rule 146 of the Investment Bank
Special Administration (England and
Wales) Rules 2011, the Judge considered
that it was appropriate to apportion the
costs incurred by the Administrators in
gathering in, protecting and preparing
to distribute, client assets pro rata to the
value of the assets to be returned to
them, with specific costs relating to
particular client assets and their return
to be borne by the respective clients. The
court was satisfied that the requirements
in the Rules as to content of the Plan
and the procedure for notification had
been satisfied and that the Plan was a
fair and reasonable way of effecting the
Re MF Global UK Ltd David Richards J, 18 July 2012
distribution of client assets in pursuit of
Objective 1 of a Special Administration:
the return of client assets as soon as
reasonably practicable (Regulation
10(1)(a)). The application was supported
by the FSA. The Distribution Plan was
approved.
[Martin Pascoe QC and Daniel Bayfield,
Glen Davis QC]
MARTINPASCOE QC
DANIEL BAYFIELD
19
AUGUST 2012
PERSONAL INSOLVENCY Digested by CHARLOTTE COOKE
H was made bankrupt in April 2011 and a
trustee in bankruptcy was appointed. H
would have been automatically
discharged from bankruptcy by the
operation of s 279 IA 1986 on 3 April
2012. H did not want to be discharged as
that would have denied him the
opportunity to enter into an IVA, which
was his proposed course of action and
had his creditors’ consent. On 28 March
2012 H’s solicitors sought the trustee’s
consent to an application for suspension
of H’s s discharge. The trustee responded
by stating that he did not see that it was
open to H to apply under s 279 IA 1986.
H successfully applied without notice for
the order, which the trustee then applied
to set aside. The issue was whether it
was unreasonable for the trustee not to
have made an application under s 279(3)
IA 1986. The trustee’s application was
dismissed. The test to be applied was
Bramston v Haut [2012] EWHC 1279 (Ch) (Arnold J) – 21 May 2012
Wednesbury unreasonableness, which is
a flexible standard to be moulded
depending on the relevant circumstances.
On the present facts the evidence was
that that 94% by value of H’s creditors
supported the proposal, and it was for
them to decide what is in their interests.
Accordingly the trustee had been
unreasonable in exercising his discretion
not to make an application under s
279(3) IA 1986.
CHARLOTTE COOKE
The trustee in bankruptcy for H applied
for declaratory relief and an order for
the possession and sale of the residential
property occupied by H and his wife, W.
The property had always been registered
in H and W’s joint names. In late 2007 or
early 2008 solicitors advised W that she
could protect the property from H’s
creditors if they executed a trust deed.
The deed, dated February 2008,
purported to record that as of July 2007
W was beneficially entitled to the whole
of the net equity in the property. H and
W claimed that the deed was evidence
of an oral declaration of trust made in
July 2007.
The trustee argued that no declaration
of trust had been made in July 2007 or, if
there was a trust, it was a transaction at
under value within the meaning of
Garwood v Ambrose and Ambrose [2012] EWHC 1494 (Ch) (Peter
Leaver QC) – 26 April 2012
section 339 IA 1986.
It was held that there was little to no
evidence to support a July 2007
agreement between H and W. In
particular, it was not until late 2007 that
W had sought advice from solicitors
regarding protecting the property from
creditors. Further, even if there was a
trust, it would have been a transaction
at undervalue under s 339 IA 1986.
Whilst divorce proceedings were
ongoing in the Family Division, the
husband made himself bankrupt. The
wife applied to annul, contending that
the husband was not, in truth, unable to
pay his debts. At a directions hearing in
the Family Division, the Judge invited
the Bankruptcy Court to transfer the
annulment application to the Family
Division to be heard alongside the wife’s
ancillary relief application, and the wife
therefore issued an application for
transfer in the Bankruptcy Court.
Registrar Derrett declined to order a
transfer: but the Family Division Judge
purported to exercise the power of the
Court under under CPR 3.1(7) to vary or
revoke its own orders, overriding the
Registrar’s Order and directing a
transfer. The Court of Appeal reversed
Sofia Arif v Arif Anwar Zar [2012] EWCA Civ 986, Court of Appeal
(Thorpe, Rimer, Patten LJJ), 3 July 2012
that Order, holding that the Court’s
power under CPR 3.1(7) (like the power
under s 375 of the Insolvency Act 1986)
was limited to cases where there has
been a material change of circumstances.
Besides, as shortly stated by Patten LJ,
“The regulation of proceedings in
bankruptcy is a matter for the registrars
and judges of the Chancery Division to
which it is assigned.”
20
Using Human RightsConcepts in CompanyLaw: The Defence ofLast Resort?
IntroductionThe Human Rights Act 1998 (“HRA”) was
brought into force on 2 October 2000 by
the Labour government and aimed to
give further and direct effect in UK law to
the European Convention for the
Protection of Human Rights and
Fundamental Freedoms (“the
Convention”).
Prior to becoming Prime Minister, David
Cameron had promised to repeal the HRA
if he was elected, due to its perceived
unpopularity, in favour of a UK Bill of
Rights. However, due to the strong views
of the Liberal Democrats in the coalition
on this issue, the HRA has not been
repealed and instead, a Commission was
set up by the Government to investigate a
Bill of Rights1. So the HRA survives for
now in its current form. Whatever
legislation replaces the HRA in the future,
it is highly likely to continue to provide
for human rights claims and defences.
This article aims to look at current
human rights arguments in the context of
companies. The Convention rights which
are most relevant in the context of the
law relating to companies are: (i) Article
6: the right to a fair trial; (ii) Article 10:
the right to freedom of expression; (iii)
Article 14: the prohibition on
discrimination; and (iv) Protocol 1: Article
1: the right to peaceful enjoyment of
property.
From a more “human” and individual
perspective, human rights defences are
often utilised by directors of companies in
response to proceedings that are issued
against them, especially in
disqualification proceedings or in
response to applications pursuant to
section 236 of the Insolvency Act 1986.
However, judges and practitioners tend to
be fairly sceptical of litigants trotting out
the “human rights defence”, or “defence
of last resort”.
CompaniesIt seems that, although human rights
concepts were originally created to
protect the individual from abuse,
companies now tend to rely on such
concepts quite regularly in respect of
complaints or claims that are made in
their name, and this appears to be
accepted by the Courts: see for example
Autronic AG v Switzerland (1990) 12 EHRR
485 at para 47: “neither Autronic AG’s
legal status as a limited company nor the
fact that its activities were commercial
nor the intrinsic nature of freedom of
expression should deprive the company of
the protection of article 10”; and Societe
Colas Est v France [2002] ECHR 421 at para
41 : “The Court reiterates that the
Convention is a living instrument which
must be interpreted in the light of
present-day conditions… Building on its
dynamic interpretation of the
Convention, the Court considers that the
time has come to hold that in certain
circumstances the rights guaranteed by
Art.8 of the Convention may be construed
as including the right to respect for a
company’s registered office, branches or
other business premises”. Further, the
decision of GJ v Luxembourg, Application
No. 00021156/93 (96) suggests that
shareholders, employees and creditors
may also fulfil victim status. This was a
case in which a 90% shareholder in a
Hannah Thornley analyses the current use of human rights
claims and defences by companies and their officers
� �
1/. The Commission on a Bill of Rights was set up on March 18th 2011 and intends to report its findings by the end of 2012
21
AUGUST 2012
company succeeded in alleging a breach
of article 6, where the winding up
proceedings in relation to the company
had gone on for too long (for 6 years).
Company as Victim?A company may only make a claim as a
“victim” if it is not a public authority. In
Foster v British Gas PLC [1991] 1 QB 405 at
427, a public body was described as: “a
body, whatever its legal form, which has
been made responsible, pursuant to a
measure adopted by the state, for
providing a public service under the
control of the state and has for that
purpose special powers beyond those
which result from the normal rules
applicable between individuals”.
Therefore, many public or quasi-public
bodies may be held not to have any
enforceable convention rights. A quasi-
public body which carries out both public
and private functions, such as, for
example, a security firm like G4S plc that
will be operating (some of!) the security
for the Government at the 2012 Olympics,
but also has many corporate and retail
clients, would be likely to fulfil “victim”
status in respect of its private functions.
Former state-owned companies or
companies that carry out both public and
private functions may also have
difficulties in showing their “victim”
status.
The Yukos oil company was a company
formerly owned by the Russian state. In
Neftyanaya Kompaniya Yukos v Russia
(2012) 54 E.H.R.R. 19, the European Court
of Human Rights (“ECHR”) ruled in
September 20112, that the Russian state
had violated the company’s Convention
right to a fair trial (Art.6), and that there
had also been violations of its right to the
protection of property (Art.1,Prot.1).
Yukos had been Russia’s largest oil
company and one of the world’s largest
non-state owned oil companies, after
having been privatised in the 1990’s by
the Russian government. Yukos filed its
complaint in 2004. It took another 5 years
before the complaint was considered
admissible to the ECHR. The complaint
centred on the fact that the Russian
authorities had made some large and
unexpected tax claims against it for the
period 2000-2003, prevented the
company from investigating and paying
the claims by freezing its assets at the
same time and then intentionally seeking
to break up the company. Yukos was later
liquidated in 2007. The ECHR ruled in
favour of Yukos on the following issues:
(i) (by a majority of 6 to 1) that there had
been a violation of Yukos’ right to a fair
trial in respect of a tax assessment for
2000 in the sum of $3.9bn, due to the
four days that Yukos was given to
respond to the assessment, once it had
raised a dispute; (ii) (by a majority of 4 to
3) that there had been a violation of the
right to the protection of property, in
respect of the imposition of fines and
penalties regarding the 2000-2001 tax
assessments and (iii) (by a majority of 5 to
2) that there had also been a violation of
article 1 protocol 1 in respect of the
measures employed in the enforcement
proceedings. The Russian authorities had
imposed massive fines and enforcement
fees which added up to 7% of the total
debt, had refused to accede to time to
pay proposals and had auctioned off one
of the company’s major assets which it
might have been able to sell itself, had its
assets not also been frozen by the Russian
authorities. However, the Court found
that the tax assessments themselves were
not disproportionate and that there was
not enough evidence to show that the
company had suffered from
discrimination in comparison with the
treatment of other companies, or that
there was political motivation behind its
treatment. Yukos is claiming
approximately $100bn in compensation.
HANNAH THORNLEY
2/. In a judgement which became final on 8 March 2012
� �
22
The ECHR does not traditionally award
large sums of compensation for claims by
companies or by individuals. The
compensation claim was held not to be
ready for decision pending further
submissions by the parties.
Other interesting recent cases of
companies asserting victim status include
the following:
• An Italian medical diagnostics company
alleged a violation of Article 6: see A.
Menarini Diagnostics S.R.L v Italy,
Application no. 43509/08, 27 September
2011. The Company had been
investigated for unfair competition and
had been fined €6m. All of its appeals
were rejected. It complained that it had
not had access to a court with full
jurisdiction or to judicial review of the
Italian competition commission. Its
complaint failed;
• Consideration by the ECHR of a
complaint by an educational firm
registered as a company in Moldova and
which runs a primary school, alleged
violations by the Moldovan authorities of
Art 6 and Art 1, Prot.1 and succeeded: see
Dragostea Copiilor Petrovschi-Nagornii v
Moldova, Application no. 25575/08, 13
September 2011;
• In Ringier Axel Springer Slovakia A.S. v.
Slovakia, Application No. 41262/05, 26
July 2011, a Slovak multimedia publisher
alleged a breach of its right to freedom
of expression, after it was sanctioned for
reporting that a Slovak member of
Parliament, aided by a high-ranking
police official, had urinated from a
restaurant terrace. The ECHR held that
there had been a breach of the Article 10
freedom of expression as the Slovakian
Court had failed to take into account
several factors in its decision-making
process, including the good faith of the
journalists involved, and the public
interest in the story. Another complaint
was made by the same company against
the Slovakian government pursuant to
articles 6 and 10 of the Convention, in
respect of a story in which it had
identified two men who had allegedly
committed a serious crime and the
conduct by the Court of the ensuing libel
proceedings that had been brought
against it. This complaint failed as
inadmissible in respect of both alleged
breaches: Application No. 35090/07 and
reported at (2012) 54 E.H.R.R. SE4.
Convention rights are not directly
enforceable against private companies or
individuals, but only against public
authorities or quasi-public bodies acting
in their public capacity. Therefore, in
litigation between private parties, the
parties themselves will not be able to use
convention rights against each other, but
will seek to ensure that the Court, as a
“public authority” acts compatibly with
their convention rights.
In addition to claims made by
companies, there are often situations in
which human rights concepts might be
applicable in the context of company and
insolvency applications, although not
being directly asserted by companies
themselves. For example, it may be
necessary for the Court to consider the
human rights of the residents of a nursing
home where the company that runs it is
threatened with an application to wind
up or other insolvency proceedings (and
care home insolvencies are common
occurrences in the current market).
DirectorsDirectors often resort to human rights
defences when proceedings are brought
against them by insolvency practitioners
in the context of an administration or
liquidation or by the Secretary of State
for their disqualification pursuant to the
Company Directors Disqualification Act
1986 (“CDDA”).
Use of InterviewsIt was decided by the Court of Appeal in
Official Receiver v Stern [2000] 1 WLR
2230, that the use of interviews obtained
by a liquidator pursuant to section 235 of
the Insolvency Act 1986 could be used in
disqualification proceedings and that
because the primary purpose of sectionTHE EUROPEAN COURT OF HUMAN RIGHTS
23
AUGUST 2012
The use of interviews and documentsobtained by liquidators does not breachthe right to a fair trial.
235 and 236 interviews was to obtain
information, rather than to acquire
incriminating material, that did not
necessarily breach the right to a fair trial
set out in article 6 of the Convention. The
House of Lords in Re Pantmaenog Timber
Co Ltd [2004] AC 158, further confirmed
the permissibility of using evidence
obtained by way of section 236
proceedings in disqualification
proceedings.
Fair TrialA recent example of the fair hearing
defence being relied upon (and failing) in
disqualification proceedings is in
Secretary of State for Business and Skills v
Doffman and Isaacs [2011] 1 BCLC 596. In
this case, the two defendants were both
solicitors and were directors of four
companies in liquidation. The principal
creditor was a bank. The Secretary of
State (“SoS”) brought disqualification
proceedings against the defendants. The
defendants then applied to have those
proceedings struck out on the ground
that the SoS had breached their right to a
fair trial or had breached his duty to act
fairly. The basis for the strike out
application, was that the SoS had a duty
to carry out a full, thorough and unbiased
investigation. That investigation had,
they argued, been controlled by the bank
which meant that relevant witnesses had
not been interviewed and disclosure had
been selective. They also pointed to a
number of general deficiencies in the
SoS’s case. It was held by Mr Justice
Newey that neither the right to a fair trial
nor the SoS’s duty to act fairly would
extend to a requirement that certain
evidence or investigations should be
undertaken. The relevant authorities on
the Convention showed that the SoS
simply had a duty to disclose all material
evidence in his possession. The
defendants could apply for judicial
review, apply for the proceedings to be
struck out as too weak or make their own
investigations and seek non-party
disclosure orders. Any deficiencies in the
SoS’s case could be addressed at trial.
Further to this, Mr Justice Newey took the
view that even if the investigation had
effectively been run by the bank, this
would not make a difference, as it is
often inevitable that there is a close
connection between the office holder
and the principal creditor. It was later
held at trial by Mr Justice Newey that
both directors should be disqualified: see
[2010] EWHC 3175 (Ch).
Deficient ProceedingsOne of the matters that was raised in
Doffman and Isaacs, was that the
evidence of the Secretary of State was
deficient and did not deal with various
explanations and pieces of evidence that
had been provided by the defendants.
The problem with deficient evidence
being provided by the SoS in support of
KHORDOKHOVSKY OF YUKOS
24
any claim for disqualification is that
because disqualification proceedings are
mandatorily brought by way of the Part 8
procedure (and because the Directors
Disqualification Proceedings Practice
Direction (“the Practice Direction”) does
not allow for conversion of part 8
proceedings into part 7 proceedings
where there are disputes of fact),
deficient evidence might in some
circumstances lead to an unfair trial. This
is because pursuant to the Practice
Direction, statements of case are not
ordered in disqualification matters, unless
in exceptional circumstances. It might be
argued that evidence which is wholly
deficient in several respects, for example
where a claim simply alleges a breach of
duty of a director, but fails to state which
duty is alleged to have been breached,
might lead to an unfair trial, due to the
fact that the defendant does not know
what is being alleged against him. Of
course there is the option of making a
request for further information, but that
is a very unsatisfactory way of effectively
pleading out a claim, although it might
put the pressure on for an application to
strike out or for a discontinuance of
proceedings. It is contended that the
Practice Direction may fail to provide a
right to a fair trial in some circumstances,
because it specifically prevents a part 8
claim from being converted into a Part 7
claim. The counter argument is of course
that most directors’ disqualification
proceedings include extensive factual
disputes, and the Court retains a
discretion to order statements of case in
exceptional circumstances. The question is
whether statements of case should be
exceptional or the norm, where there are
highly likely to be disputes of fact and
there is no guarantee that the evidence
supporting the claim will be properly
drafted.
Waiver of Right to a Fair TrialIn Eastaway v Secretary of State for Trade
and Industry [2007] BCC 550 it was held
by the Court of Appeal that it is possible
for a director to waive the right to a fair
trial if he settles proceedings by the
giving of undertakings not to act as a
director. The former director appealed
against the decision of Lightman J not to
set aside an undertaking that he had
given pursuant to s.1A of the CDDA not
to act as a director for four and a half
years. Proceedings had been brought
against “E” in 1992 by the SoS. The
proceedings had then been stayed in
2001 when he entered into the
undertaking. However, before he had
given that undertaking, E had sought to
bring the disqualification proceedings to
an end, by way of a judicial review
application and then proceedings under
section 7 of the Human Rights Act 1998
on the ground that the proceedings had
taken an excessive length of time. The
judicial review proceedings failed, the
human rights proceedings were dismissed
and E failed to gain permission to appeal.
After these domestic avenues had been
closed, E entered into the undertaking.
However, in July 2004, the ECHR then
held that the disqualification proceedings
had taken too long and had thus violated
E’s rights under article 6 of the
Convention. On the basis of the ECHR
judgment, E claimed that he now had a
right in domestic law for his undertaking
to be set aside.
The Court of Appeal held that: (i)
although the excessive delay had violated
article 6 of the Convention, the ECHR had
not found that there could not ultimately
be a fair trial due to the delay; (ii) No case
had been made to the court that a fair
trial was not possible; (iii) the question on
waiver was whether E had waived his
Convention right to contend that a fair
trial was not possible. E had been legally
represented. Further, the purpose of the
undertaking was to avoid the need for a
trial. It had not been obligatory for E to
give the undertaking but it had avoided
the cost and publicity of a trial; (iv) there
was no public interest which prevented E
from waiving his right to a fair trial by
giving the undertaking. This decision
shows that one must be very wary about
giving an undertaking in circumstances
where human rights or fair trial
arguments might be available to the
director in question.
ConclusionsThe debate about whether companies
should have human rights at all remains
heated. Perhaps organisations created
solely for the purpose of making a profit
should not be permitted to make claims
in respect of human rights: “A nonhuman
entity that cannot possess morals is
certainly not fit to be granted equal
standing with a person. Indeed, granting
Deficient evidence might in somecircumstances lead to an unfair trial...
THE HUMAN RIGHTS ACT SURVIVES FOR NOW
their own facts. However, it seems that
the domestic courts are generally less
open to human rights defences than the
ECHR is to claims by company “victims”.
Domestic human rights arguments do not
seem to succeed very often and it appears
that the English courts remain quite
sceptical about human rights, more than
10 years on.
Directors of companies will always use
human rights claims or defences if it suits
their purpose, or if they have nothing else
to say. However, there might be some
circumstances when the right to a fair
trial defence has merit, for example
where a director is simply unable to
decipher the basis of the claims made
against him from wholly deficient
proceedings. So although the courts need
to be sceptical of defences of last resort,
they must also be open-minded to
potential deficiencies in the current state
of the law.
Hannah Thornley specialises in company and
insolvency law with a particular interest and
expertise in the duties of directors and fraud.
25
AUGUST 2012
amoral entities so-called equal rights with
persons, which because of corporations'
great wealth and power become greater
rights, is so irrational it ought to be
considered a kind of insanity”3. However,
there are many companies and
institutions that are non-profit-making,
or are set up for charitable purposes. Not
only that, but the ECHR has been quite
specific in the past about granting
companies human rights, and it would be
difficult to now try and exclude
companies from victim status on the back
of the case law that has now grown up
surrounding the rights of companies.
Some of the examples of the sorts of
complaints made by companies set out
above, seem extremely reasonable and in
the light of those and other examples, it
might be unjust to take such access to
the ECHR away. Furthermore, it is argued
that the reason that companies need
protecting equally as well as individuals,
is in order to prevent abuse of state
power in general, in respect of both
companies and individuals. In reality,
many large and multi-national companies
are as financially and politically powerful
as states themselves, but the sympathy of
the ECHR with the “plight” of Yukos, one
of the world’s largest non-state owned
oil companies, shows that even these
types of companies may be in need of
human rights protection, especially where
there may be discriminatory or politically-
motivated reasons behind state action
that is taken against them.
The human rights claims and defences
that are currently utilised by companies
and their officers tend to be decided on
Should organisations created solely tomake profit be permitted to makeclaims in respect of human rights?
� �
3/. Jennifer Van Bergen, US National Lawyers Guild, 2003
26
Insolvency regulationThe European Commission has recently
launched a consultation examining the
current European insolvency regime. The
consultation is wide ranging. It seeks to
elicit views on a number of fundamental
aspects of the present regime. In
particular, it asks what views there are
about the general effectiveness of the EC
Insolvency Regulation in facilitating cross-
border proceedings, whether the scope of
the Regulation should be expanded to
include pre-insolvency proceedings,
whether the concept of ‘Centre Of Main
Interests’ (COMI) is workable and has
withstood the rigours of recent
experiences, whether there are problems
with the interaction between the
Insolvency Regulation and the Brussels
Regulation and how the Regulation
works in a multi-national and/or group
situation.
The Commission’s Committee on legal
affairs issued a report on 17 October
2011. It formulated a request to the
Commission to submit to the European
Parliament on the basis of various key
articles in the mian Treaty, particularly
Articles 50, 81(2) and 114, one or more
legislative proposals relating to an EU
corporate insolvency framework
following detailed recommendations set
out in an Annex which the Committee
produced in order to ensure what it
called a level playing field. Appended to a
motion in the above terms for a
resolution by the European Parliament
were detailed recommendations as to the
content of the proposal requested. The
first part of the Annex dealt with
recommendations regarding the
harmonisation of specific aspects of
insolvency and company law. The second
part contained recommendations
regarding the revision of the EC
Regulation which is the subject matter of
this piece, while the third part dealt with
recommendations of the insolvency in
groups of companies and the fourth and
final part dealt with recommendations on
the creation of a EU wide insolvency
register.
It follows that change is very much in
the air, or at least a discussion for change.
With that in mind, INSOL Europe, which
had previously prepared and issued a
publication now available on its website
on certain aspects of possible
harmonisation of individual insolvency
systems within the European Member
States, has now provided a report which
in effect attempts to address the key
areas in some detail which in its working
party’s view might be susceptible to
reform. The drafting committee ( the
Committee) was led by Robert van Galen
of the Netherlands and five main
members who were drawn from some of
the principal regimes within the Member
States, i.e. France, Germany, the United
Kingdom and Belgium, and also had
among its membership another Dutch
lawyer deputed to assist the Chairman.
In any event, Article 46 of the
Regulation stipulates a five year review
period, at the end of which on a recurring
basis, the Commission is to present to the
European Parliament and the Council and
the Economic and Social Committee, a
report on the application of the
Regulation. In April 2011, Monsieur
Carriat, the Director General of the
Justice Department within the European
Commission formally stated that the
Commission would make legislative
proposals in 2013.
INSOL Committee’s working procedures
The Committee held a number of
meetings to consider and put together
various drafts prepared by all its members
and then held two main consultation
rounds to which the main experts in the
field across the European Union were
invited. The final version represents, in
effect, a fusion of the Committee’s own
deliberations and proposals, coupled with
the observation and commentaries
proposed by the experts.
There is no hiding the fact that the
proposals overall are really based on the
practitioner’s point of view, albeit based
EC insolvency regulationIs it reform time?
David Marks QC discusses the European Commission’s
recently launched consultation on the European
insolvency regime
27
AUGUST 2012
on a legal analysis of the Regulation and
the underlying case law. The aim, even if
not ultimately achieved, was to further
the proper functioning of the Regulation
by amending the substantive aspects
within it and by improving technical
aspects of the rules which find expression
within the Regulation.
The main upshot was the provision of
three new chapters. These chapters are
given the titles Chapters V, VI and VII. The
first of these contains provisions which
prescribe powers addressing the
coordination of insolvency proceedings
with regard to groups of companies (one
of the matters focused upon by the
European Commission). Chapter VI sets
out rules on what is called a European
Rescue Plan for groups of companies
located in different European
jurisdictions and the final additional
chapter, namely, Chapter VII, concerns
the recognition of and provision of
assistance with regard to insolvency
proceedings opened outside the
European Union.
Although not the subject of a separate
chapter, another major proposal concerns
the opening of main proceedings. The
Committee felt that the overall practical
experience with the Regulation over the
past 10 years or so has shown that there
have been important cases in which the
Centre of Main Interests, i.e., COMI, was
changed in order to create a new venue
for main proceedings. This led to much
criticism and comment and despite some
protestations from some extremely
eminent sources, the Committee finally
proposed, first the inclusion of a revised
definition of COMI in Article 2 and a new
and additional requirement in Article 3(1)
that in some cases the main proceedings
must be opened in the Member State in
which the former COMI was located.
Other large scale proposed changes
concern the rights of secured creditors
under Article 5, new provisions with
regard to the treatment of agreements
under Article 31a and changes with
regard to expenses within the estate in
accordance with Article 20(3). Those who
are familiar with the Regulation will
know that these last two topics are not
fully addressed, if they are addressed at
all, under the present Regulation.
Summary of proposalsThe Report sets out at page 3 and
following a summary of the principal
recommendations. They are numerous
and not all of them will be mentioned in
this survey.
In the case of Article 2 the definition of
COMI is included within the Article. In the
case of companies and legal persons
COMI means the place of the registered
office except where the operational head
office functions of the company or of
such a legal person are carried out in
another Member State and that other
Member State is ascertainable to
prospective creditors as the place where
such operational head office functions
are carried out and in such a case it shall
mean and refer to the Member State
where such head office functions are
carried out.
Article 3(1) it is suggested, should
provide that if a company has moved its
COMI less than one year prior to the
request for the opening of the insolvency
proceedings only the courts of the
Member State where the COMI was
located one year prior to the request will
have jurisdiction to open insolvency
proceedings, if the debtor has left unpaid
liabilities caused at the time when its
COMI was located in this Member State.
This will be the position unless all the
creditors who are the cause of the said
DAVID MARKS QC
28
liabilities have agreed in writing to the
transfer of COMI out of this Member
State. As indicated above this is a
contentious matter and a number of
practitioners felt that this did disservice to
the philosophy behind the Regulation.
This will be reverted to below. However,
the Committee felt there was no
compelling reason why secondary
proceedings could or should not be
reorganisation proceedings ,a view which
is perhaps more widely shared.
With regard to Article 5(1) the
Committee was very sensitive to the fact
that there had been a discrepancy with
regard to the treatment of security rights
depending on whether insolvency
proceedings had actually been opened in
the Member State where the assets are
located. It was felt that the distinction
might be understandable for historical
reasons but that in practical terms and in
modern conditions such a distinction was
no longer justified. The suggested
amendment to Article 5(1) was one which
involved the insertion of provisions
similar to the provisions of Articles 8 and
10 to the effect that the effect of
insolvency proceedings on the rights in
rem of creditors or third parties should
generally be governed only by the law of
the Member State within which the assets
are situated.
Article 13 was also carefully considered.
The Committee considered it to be
undesirable that a legal act should be
made ‘avoidance proof’ by selecting the
law applicable to the contract. However,
the Committee also felt that it had to be
borne in mind that a relocation of the
COMI might be detrimental to the other
party to an agreement if under the law of
the new COMI avoidance action could be
easier to institute. The amended text
therefore went along the following lines,
namely that Article 4(2)(m) should not
apply if the law of the Member State
where COMI was situated at the time of
the legal act did not allow any means of
challenging that legal act in the relevant
case.
The interplay between Article 14 and
Article 4(2)(f) has of course been the
subject of judicial consideration in
England in the Vivendi litigation. The
expression ‘proceedings brought by
individual creditors’ in the latter Article
concerns primarily what are called
individual enforcement actions. Clearly
the relationship between the collective
feature of insolvency proceedings and
individual actions by creditors is primarily
a matter for the lex concursus. An
exception is generally made for lawsuits
which are pending at the time of the
opening of proceedings in other Member
States. The Committee therefore
proposed that it be made clear that this
Article, ie Article 4(2)(f) applies to actions
or proceedings brought by way of
enforcement alone. In other words the
Committee proposed that it be made
explicit that the exception for lawsuits
pending should apply both to court
proceedings and to arbitrations.
The problems generated in the case law
in particular in the Vivendi decision in the
Court of Appeal in England reflected the
fact that the present wordings in the two
articles do not match. The earlier article,
ie Article 4(2)(f) provides that the law of
the State of the opening of proceedings
should determine in particular the effects
of insolvency proceedings on proceedings
brought by individual creditors with the
exception of lawsuits pending. On the
other hand the current text of Article 15
provides that the effect of insolvency
proceedings on a lawsuit pending
concerning an asset or a right of which
the debtor has been divested should be
governed solely by the law of the
Member State in which that lawsuit is
pending. The Committee observed and
felt that the provisions do not correspond
because the later Article is limited to
lawsuits concerning an asset or right of
which the debtor has been divested. The
suggestion therefore is that deleting this
limitation in Article 15 and providing that
the ‘lawsuits pending’ rule cover all civil
and commercial matters otherwise subject
to the Brussels Convention as well as
arbitration proceedings should be catered
for.
In the present Article 20(3) the
Committee proposes that it should be
provided that if administrative expenses
have been incurred during the course of
insolvency proceedings and have been
caused by the liquidator or by a court
then such costs should be borne in
proportion to the proceeds which have
been realised in insolvency proceedings
and which have to contribute to the
payment of administrative expenses from
those proceedings.
With regard to Article 27 there has
been an extensive debate on the question
whether the possibility of secondary
THE COURT OF APPEAL DECISION IN VIVENDI REFLECTED THE FACT THAT THE PRESENT WORDINGS IN ARTICLES 14 AND4(2)F) DO NOT MATCH
29
AUGUST 2012
proceedings is desirable and whether this
concept should be maintained. Quite
apart from the submissions made to the
Committee and its own deliberations
there is an extensive periodical literature
on the subject. The Committee therefore
proposed that the court which has
jurisdiction under Article 3(2) should
have a discretionary power to appraise
and assess the need for secondary
proceedings in view of the interests of
one or more creditors and an adequate
administration of the estate. This could
be said in passing to lessen the problems
that might arise where main proceedings
are opened based on COMI in a
particular Member State and thereafter
secondary proceedings are opened, the
choice being made to do so being
decided upon by the liquidator in the
main proceedings but in circumstances
where it is not clear that the
jurisdictional provisions providing for the
creation or existence of an establishment
had been properly addressed or more
importantly dealt with in accordance
with the spirit and intent behind the
Regulation as a whole.
With regard to Article 37 the
Committee felt strongly that there was
no compelling reason why secondary
proceedings could not be reorganization
proceedings. This necessitated in the
Committee’s view a proposed change to
the last sentence of Article 3(3) so as to
delete the phrase ‘these latter
proceedings must be winding up
proceedings’ and further providing that
the liquidator of the main proceedings
have the same conversion rights with
respect to the secondary proceedings as
the liquidator of the secondary
proceedings himself. Thus if the
liquidator of the secondary proceedings
is entitled to request the court to convert
winding up proceedings into
reorganisation proceedings or vice versa
then the liquidator of the main
proceedings should enjoy the same right.
The three new chaptersThere is no doubt that one of the most
important practical issues thrown up in
the wake of the Regulation since its
inception is the occurrence of group
company insolvency. This has become an
increasingly frequent phenomenon
almost crying out for rules on co-
ordination of insolvency proceedings.
Essentially the Committee’s proposal is
that if a subsidiary and its ultimate
parent company both enter into
insolvency proceedings then the
liquidator of the latter should be given
powers similar to those that the
liquidator in main proceedings has with
regard to secondary proceedings. In
other words the starting point should be
the application in an analogous fashion
of the provisions of Articles 27 and
following of the Regulation taking into
account, however, the differences
between main and secondary
proceedings with respect to the same
debtor on the one hand and the
insolvency proceedings of multiple group
companies on the other.
The problem on any basis is one of
definition. The Committee took the view
that the group main proceedings should
be the main insolvency proceedings of
the ultimate parent with its COMI in the
European Union that is itself in an
insolvency proceeding. This entailed
definitions of the following phrases and
terms, namely ‘group of companies’,
‘parent company’, ‘subsidiary’, ‘ultimate
parent company’ and ‘group main
proceedings’. These definitions as drafted
by the Committee are now included in
Article 2.
Moreover, it was strongly felt that the
centrepiece of the group proceedings
should be the possibility of proposing a
plan covering one or more group
companies. This should be in effect a
restructuring mechanism which ensures
that each creditor will at least receive
value which on the one hand equals a
distribution in the case of the winding up
of its debtor and on the other procures
that conglomerates are saved and do not
fall victim to a lack of co-ordination in an
international context.
With regard to the new Chapter VI and
the European Rescue Plan it was stressed
by the Committee that there is no
replacement in this instance of any
legislation within the Member States with
regarding to compositions and rescue
plans. Instead what was proposed was an
introduction of an initial instrument for
the adoption of cross border rescue plans
involving groups. It was strongly felt by
the Committee as a whole that such an
instrument would considerably further
the proper functioning of the internal
market since it would provide a means for
restructuring conglomerates engaged
within the common markets on an
international level.
Basically, the following main principle
was put forward. First, the proceedings
with regard to the Plan should take place
in the court which opened the
proceedings with regard to the parent
company. Second, the Plan might be
proposed by either the parent company
or its liquidator. Third, the creditors
should be divided into classes: moreover
creditors of different companies should
be placed into different classes while
creditors with differing ranks in respect of
the assets of a particular company should
also be put in different classes. Finally, the
creditors should vote by class whereby
each class determines whether it accepts
the Plan with acceptance requiring a
qualified majority of two thirds of the
amount of the creditors voting within the
concerned class.
The provisions of the Plan are openly
inspired by the US Chapter XI regime as
well as by several modern and well
known reorganisation plan regimes in
Member States. However, there remain
important differences. First, classification
of claims will not be part of the Plan itself
but will be decided upon by the court
separately and in the event that
individual creditors oppose the Plan cram
down possibilities will be much more
It was strongly felt that the centrepieceof the group proceedings should be thepossibility of proposing a plan coveringone of more group companies...
30
restrictive than under Chapter XI.
Furthermore, the Chapter XI regime
principally concerns single companies
whereas the European Rescue Plan
applies only to groups.
With regard to Chapter VII in effect the
Committee proposed the incorporation
of much, if not all, of the UNCITRAL
Model Law provisions into the
Regulation. The paradigm situation was
the opening of insolvency proceedings
outside the European Union. In such a
case the UNCITRAL Model Law provides
assistance supported by the global
community which created it. Contrary to
the European Regulation the Model Law
is not based on similar principles to those
finding expression in what is called
community trust and therefore the effect
of foreign proceedings within the
receiving state will be much less
pronounced with more elaborate reviews
than under the Regulation. To take one
example, there is no automatic recognition
of the powers of the foreign liquidator but
instead there is a two tier review system.
First, the court of the receiving State
considers whether the foreign insolvency
proceedings meet the standards of
recognition and whether there is a COMI
or establishment as the case may be and
whether the same is indeed located in the
country where the proceedings have been
opened. However,even if the recognition
of the foreign proceeding is obtained this
will not entail the consequence that the
foreign liquidator can exercise all his
powers in the receiving State; if, therefore,
for example he desires to sell assets of the
debtor which are located in the receiving
State he has to obtain relief from the
courts of the receiving State and those
courts will investigate and consider
whether the interests of the creditors and
other interested parties such as the debtor
are adequately protected.
The Committee was, therefore, firmly
of the view that it was desirable that
these provisions be incorporated within
the Regulation. This would lead to a
unified approach to insolvency
proceedings opened outside the Union
and it was strongly felt that this would
enhance the proper functioning of the
internal market and support a unified
external trade policy.
The main recommendations: selectedArticlesArticle 1 in its present form says that the
Regulation should apply to collective
insolvency proceedings entailing the
partial or total divestment of a debtor
and the appointment of a liquidator. The
definition of ‘insolvency proceedings’ in
Article 2(a) refers to both the collective
proceedings referred to in Article 1(1) as
well as to the listing in Annex A. INSOL
Europe proposes to change that provision
so that reference is made to Annex A
alone. In other words, Article 1(1) will have
no direct effect on the meaning of
‘insolvency proceedings’ within the
Regulation, but will only serve as a
guideline to determine whether or not
proceedings should be listed within Annex
A. As for the ingredients of the overall
definitions, INSOL Europe proposes with
regard to the first criterion that the
‘collective’ nature of the proceedings be
expanded so as to include rescue and
reorganisation proceedings as provided for
in the Directives on credit institutions and
insurance companies. As to the
requirement that proceedings be based on
a debtor’s ‘insolvency’, INSOL Europe
looked back to its own earlier report on
the harmonisation of national laws and
took the view that there was a need to
define the criteria to be applied for the
opening of all insolvency proceedings. In
addition, the Committee was very
conscious of the need to remove, if at all
possible, any gap between the Brussels
Convention and the EC Regulation so that
court proceedings and judgments opened
in Member States and rendered by courts
in Member States excepted under Article
1(2) of the Brussels Convention fall under
the scope of the present Regulation unless
specifically excepted. Moreover, as
between the two classic tests of insolvency,
namely that based on liquidity and that
based on a balance sheet solvency , again,
in the light of its earlier report, the
Committee took the view that the liquidity
test appeared to be the more common of
the two within the European Union and
indeed was the preferred single test
promoted by the UNCITRAL Model Law.
Consequently, the amended draft contains
two criteria: first, the inability to pay debts
as they mature, and secondly, the concept
of insolvency based on the fact that the
debtor could in the foreseeable future be
unable to pay its debts as they mature.
Article 2 contains a number of critical
definitions. In particular, INSOL Europe
suggests that the definition of COMI be
included within Article 2. The definition
now expanded in the proposals is directed
to and addresses the case of both
companies and legal persons: ther COMI is
to be the place of the registered office
except that where the operational head
office functions of a company or the legal
person be carried out in another Member
State and that other Member State is
ascertainable to actual or prospective
creditors, then it shall mean and refer to
the Member State where such operational
head functions are carried out. Moreover,
the proposals are that where the company
or legal person is a mere holding company
within a group with head office functions
in another Member State, then the COMI
as defined should be located in that other
Member State. The definition goes on to
say that the mere fact that the economic
choices and decisions of a company are or
can be controlled by a parent company in
another Member State other than the
Member State of the registered office will
not cause the COMI to be located in the
latter Member State. In the case of
individuals, COMI shall mean the place of
habitual residence except that in the case
of professionals, it shall be the
professional’s principal office or principal
location from which his profession is
conducted.
It is well known that the courts across
Europe have used a variety of connecting
factors in order to identify COMI. They
need not be listed here. What is clear is
that there is no necessary correlation or
indeed consistency between the factors
which have been employed in the major
cases even those in the ECJ, e.g. in the
Interedil litigation, culminating in the ECJ
decision of that name (see Case C-396/09).
However, the Committee employed the
expression ‘operational office functions’,
not as a means of introducing a
completely new concept, but simply to
follow the existing case law. Moreover, as
can be seen from what has been said
above, there is no reason why a COMI
cannot be established in a jurisdiction
31
AUGUST 2012
other than the place of an operational
head office if certain key functions are
performed elsewhere. Such would be the
case for example where internal
management or the financial strategic
decisions were located or taken in a
particular Member State as well as that
State being the location relevant to the
contractual relationship with employees
and/or its suppliers and so on. However,
the Committee was firm in its belief that
the requirement of ascertainability by
third parties would not just be another
factor by which to determine the place of
the operational head office. It would
constitute a second and individual test to
apply besides the test for the operational
head office.
There are other substantial
recommendations made with regard to
Article 1 and the definitions it contains.
They cannot be mentioned here for
reasons of space. There is however a new
proposed definition of the term
‘liquidator’ to take into account the
possibility that no separate person is
inevitably appointed as liquidator and that
the debtor can in effect be appointed as
liquidator and that the debtor or
management itself might administer the
insolvency. Moreover, as already indicated,
the new definition includes a reference to
reorganisations.
Article 3 is another key Article. It sets
out the basis of international jurisdiction
within the Regulation. Article 3 has been
the subject perhaps to the most extensive
literature and case law as well as extended
academic debate. Much argument has
occurred over what happens when an
enterprise is ‘moved’ at the time of an
approaching financial crisis, sometimes
with the explicit intention of opening
proceedings under Article 3 in a second
and subsequent Member State and
thereby invoking the insolvency law of the
new COMI. A variety of terms have been
used for this phenomenon, e.g. forum
shopping, COMI-shift and sometimes
insolvency tourism.
There is no doubt that overall there is a
shared desire to curtail the abuse of forum
shopping. Indeed Recital 4 of the
Regulation says as much in terms. One of
the key aspects of the debate is where the
starting point exists. INSOL Europe takes
the view that those who enter into a
contract with a debtor or become creditors
in another way rely, and should be able to
rely, on the insolvency regime that will
apply when and if the debtor enters into
insolvency proceedings. As a working rule,
such reliance should be honoured.
However, there may be cases where such
reliance cannot be honoured, at least not
in perpetuity, typically where a debtor
moves its COMI to another Member State
and an ‘old’ creditor or set of ‘old’
creditors remain in place. The amendment
to Article 3(1) which is proposed
introduces further rules to protect the
reasonable expectation of creditors. There
may be a somewhat arbitrary aspect to
this, but the Committee took the view that
if a company has moved its COMI less than
a year prior to the request for opening of
insolvency proceedings, and there remain
debts which are incurred prior to the shift,
then the Member State relating to the
‘old’ COMI will have jurisdiction unless the
‘old’ creditors agree to the COMI-shift.
During the formulation of the
recommendations, there was much
contentious debate about this suggestion.
First, it is claimed that there is no
principled basis for an arbitrary look-back
period of, in this case, one year. It is also
claimed that the proposed amendment
fails to reflect the paramount
consideration which, in effect, is the
interests of creditors as a whole. Moreover,
it is said that the policy reflected in Recital
4 referred to above which is against forum
shopping applies only to fraudulent steps
taken to damage creditors. It is also said
that the proposed amendment would
seriously restrict the ability of a debtor to
move its COMI in order to achieve or
obtain a rescue or some other
reorganisation proceeding in a jurisdiction
which is in some material way ‘better’ for
creditors as a whole.
All this lies at the heart of the
Regulation itself it could be said. Against
these very powerful contentions it can be
said first that in practice, it is extremely
difficult to ascertain whether a transfer is
fraudulent or not. This is why INSOL
There is no doubt that overall there is ashared desire to curtail the abuse offorum shopping...
EUROPEAN COMMISSION
32
Europe took the view that the distinction
between fraudulent and good faith
COMI-shifts was not only inappropriate
but also not workable. Moreover, it failed
to take into account the fact that the so-
called ‘old’ creditors might even agree to
the new regime. Second, any fraud- based
test would involve to some degree the
application of subjective criteria and the
application of such criteria would be even
more problematic than those which apply
at present. In a case where a COMI-shift
could be said to be beneficial to some
creditors and prejudicial to others, it
might be difficult to define what would
constitute a fraudulent COMI-shift. In
addition, a court of the Member state of
the old COMI might look upon such
matters quite differently from the
attitude taken by the court of the
Member State of the new COMI. Hence,
INSOL Europe took the view that, on
balance, objective criteria should apply
provided sufficient leeway was given in
the sense that if all old creditors had been
paid, there would be no issue, and if they
were not paid, they could be asked to
consent or, indeed,they might formally
consent to the shift. These are but a
selection of the very powerful arguments
for and against the suggested
amendment.
Another major Article which
underwent suggested proposals for
change is Article 5. Article 5 provides in
general terms that the opening of
insolvency proceedings shall not affect
the rights in rem of creditors or third
parties in respect of tangible or
intangible, moveable or immoveable
assets. As is well known, Article 5 is really
an exception to the general rule set out
in Article 4, that the law applicable to
insolvency proceedings, i.e. the lex
concursus will determine the effects of
the insolvency proceedings, i.e. the so-
called universalist effect. Overall, INSOL
Europe agrees with the objection that
secured creditors are, if anything, over
protected as a result of the existing and
somewhat inflexible wording of the
current text. If nothing else, Article 5 had
generated a deep split as to its proper
interpretation among serious
commentators. Relevant questions
included whether, and if so to what
extent, the right in rem was limited, e.g.
only to the extent that the limitations of
the lex rei sitae matched with those of
the lex concursus. By and large, although
the position is not by any means settled,
commentators have taken the view that
the right in rem was neither affected by
the lex concursus nor by the lex rei sitae.
In practical terms, this means that the
holder of the right in rem can exercise its
or his rights without any exception or
limitation. It is this so-called hard and fast
rule which led to the degree of over-
protection which INSOL Europe was
sensitive to. Drawing a line between the
competing arguments, INSOL Europe
suggests that there be an amendment to
Article 5(1) to the effect that there be a
provision that the right in rem be limited
only to the extent that the limitations of
the lex rei sitae match with those of the
lex concursus.
INSOL Europe also suggests
amendments to Article 13. The current
version is that Article 4(2)(m) dealing with
the general applicability of the lex
concursus shall not apply where the
person who benefited from an act
detrimental to all the creditors proves
that the act in question is subject to the
law of the Member State other than that
of the law of the State of the opening of
proceedings and that latter law does not
allow any means of challenging that act
in the relevant case. The suggested
variation is that Article 4(2)(m) shall not
apply if the law of the Member State
where the COMI of the debtor was
situated at the time of a legal act does
not allow any means of challenging that
legal act in the relevant case. In other
words, the suggested amendment
simplifies matters by saying that it is the
law of the State of the opening of the
proceedings which is the arbiter as to the
substantive rules determining the
voidness, voidability or unenforceability
of legal acts detrimental to all creditors.
The present version has regard to the
applicability of the law of the contract as
a means of protecting the counterparty
that relied on the transaction in question.
It therefore gives that other party the
possibility of asserting that the avoidance
action also has to be judged by the law
that was applicable to the legal
transaction itself.
However, INSOL Europe was very
conscious of the objections that had been
made to the current version. The risk is
it is extremely difficult to ascertainwhether a transfer is fraudulent or not...
INSOL EUROPE AGREES WITH THE OBJECTION THAT SECURED CREDITORS ARE, IF ANYTHING, OVER PROTECTED AS A RE-
SULT OF THE EXISTING AND SOMEWHAT INFLEXIBLE WORDING OF THE CURRENT TEXT
33
AUGUST 2012
that the present Article leads to the
undesirable result that the parties to a
contract detrimental to the mutuality of
creditors might succeed in protecting it
from being challenged by introducing
into it a choice of law clause in favour of
a legal system not permitting challenge.
To the Committee, there seemed no
compelling reason why a party should be
allowed to presume that an act can only
be invalidated if the law that applies to
the act allows such invalidation. Indeed,
there is US Supreme Court authority to
that effect. See e.g. Canada Southern
Railroad v Gebhard 109 US 527 (1883).
This is why in simple terms INSOL Europe
proposes that Article 4(2)(m) should not
apply if the law of the Member State
where the COMI is situated at the time of
a legal act simply does not allow for any
means of challenge. There are interesting
side issues as to the effect, if any, of a
secondary proceeding with some authors
having suggested that the secondary
liquidator could avoid such acts only
when such acts are at the expense of the
State of the secondary proceedings.
Indeed, the Virgos-Schmit Report itself, at
para 224, refers to the power of the
secondary liquidator to avoid an act
outside the State in question and to claim
back goods that have been transferred
after the opening of secondary
proceedings to another Member State to
the detriment of the creditors in the
secondary proceedings. Overall, INSOL
Europe felt that the liquidator should
initially have the power to avoid the legal
act and that the power to act under
secondary proceedings be limited to
situations in which the estate of the
secondary proceedings, and no other
estate, suffers. This area is one which was
the subject of suggested harmonisation
by the earlier INSOL Europe report on
harmonisation across the union.
Article 15 has generated important case
law, particularly in England. Its current
version specifies that the effects of
insolvency proceedings on a lawsuit
pending concerning an asset or a right of
which the debtor has been divested shall
be governed solely by the law of the
Member State in which that lawsuit is
pending. The amended version as
suggested by INSOL Europe is that the
procedural effects of insolvency
proceedings on lawsuits pending should
be governed solely by the law of the
Member State in which that lawsuit is
pending. Such lawsuits include all civil
matters subject to the Brussels
Convention as well as arbitration
proceedings. Moreover, Article 15 should
not have the effect of altering the law
applicable to any question of the validity
of a current contract or to any other
substantive issue in the lawsuit pending.
This is a complex area and, again, one
not free from seriously arguable rival
contentions by commentators. Article
4(2)(f) states that the law of the
insolvency proceedings determines the
effect of insolvency proceedings on
proceedings brought by creditors with
the exception of lawsuits pending. On
any basis, the present versions of Article
4(2)(f) and 15 do not match, or properly
square-up with each other. This alone was
the reason for revisiting this issue. Article
15 is a major exception to the general
rule set out in Article 4 that insolvency
proceedings be governed by the lex
concursus. The current version of Article
15 attaches a good deal of importance to
the domestic law of the forum, i.e., the
lex fori processus. Again, the current
version of Article 15 suggests that the
position is different from the general
position under the Regulation in the case
of lawsuits already pending or in progress
where the insolvency proceedings are
opened and concerning an asset or right
of which the debtor has been divested.
The intention is perhaps clear. Article 15
was designed and at the moment remains
designed to avoid what would otherwise
be the application of the rule of vis
attractiva concursus which often applies
in Member States and means that
pending proceedings can be removed
from the civil or commercial courts in
which the proceedings had been opened
and placed under the exclusive control of
the relevant insolvency tribunal. The real
difficulty in the present drafting is to
equate the meaning of lawsuit pending
in both Articles 4 and 15. One particular
difficulty stems from the argument that
individual enforcement actions such as
attachment which might otherwise be
regarded as being a lawsuit pending, is
outside Article 15 . For one thing there
would have been no divesting of any asset
or right otherwise held or claimable by
the debtor. On this view, any pending
action which seeks a determination on the
merits could have continued past the date
of commencement of the insolvency after
judgment so as to be the basis for a claim
to a distribution in the insolvency.
However, such a judgment could not be
employed to justify a seizure or some
other form of enforcement of the
judgment upon the debtor’s assets. The
position is further complicated by
linguistic differences in the various texts.
Two language versions of the Regulation
contain references to ‘lawsuits’ being
limited to court proceedings, whilst the
other nineteen versions refer to terms
which do not expressly limit the scope of
either Article 4(2)(f) and Article 15 to
court proceedings. As is perhaps well
known in the Court of Appeal decision in
this country in Elektrim v Vivendi [2009]
EWCA Civ 677, the English court took the
view that the phrase ‘proceedings
brought by individual creditors’ in Article
4(2)(f) referred to what had been called,
even in this survey, individual enforcement
actions, i.e. proceedings brought by way of
execution, as well as actions brought solely
to establish a claim. The latter at least
meant that there was no reason for
restricting the term ‘lawsuit pending’ such
as to exclude arbitrations.
Article 27 deals with the opening of
proceedings in the context of secondary
proceedings. The present version specifies
the procedural effects of insolvency proceedings on lawsuits pending shouldbe governed by the law of the MemberState in which that lawsuit is pending.
34
that the opening of proceedings referred
to in Article 3(1), i.e. main proceedings, is
not a bar to the opening in another
Member State which has jurisdiction under
Article 3(2) which latter court will have
jurisdiction to open secondary insolvency
proceedings. The principal change
suggested by INSOL Europe is that there be
some provision that in the case where main
proceedings have been commenced with
regard to a debtor, secondary proceedings
can be commenced without having to
establish the insolvency of the debtor in
another Member State. In other words,
there is no binding and immutable principle
that secondary proceedings be governed by
the relevant national law in accordance
with Article 4. In practical terms, this would
mean that the court of the secondary
proceedings does not always have to
investigate whether the local test of the
opening of proceedings has been passed.
This is clearly a deep change in principle.
Underlying all this is again another
extensive debate between expert
commentators on the question of whether
the possibility of secondary proceedings is
desirable at all or whether indeed the
whole concept should be maintained. The
special regimes with regard to credit
institutions and insurance companies
simply do not provide for secondary
proceedings. The overriding and
somewhat generalised desirability behind
secondary proceedings is that they serve to
protect local interests. However, secondary
proceedings might indeed unnecessarily
complicate the administration if only
because they will cause coordination and
boundary disputes and invariably cause
costs to increase. This is why INSOL Europe
suggests that the court which has
jurisdiction under Article 3(2) should enjoy
a discretionary power to appraise and
assess the need for secondary proceedings
in view of the interests of one or more
creditors and the need for an adequate
administration of the overall estate.
In the light of these changes, changes
were also suggested to Article 33. The
current version entitles the court opening
secondary proceedings to stay the process
of liquidation, in whole or in part, on
receipt of a request from the liquidator in
the main proceedings provided that the
latter can take any suitable measure to
guarantee the interests of the creditors in
the secondary proceedings. The suggested
new version takes issue with the apparent
lack of clarity with regard to the term and
expression ‘process of liquidation’: does
this refer to secondary proceedings, or only
to the process regarding the liquidation of
assets within those proceedings? There is at
least one individual Member State decision
which suggests that Article 33 only stays
the process of liquidating assets, and not
the secondary proceedings as a whole. This
is now the subject of a suggested
amendment by the Committee. Moreover,
pursuant to the suggested amendments to
Article 3(3), secondary proceedings no
longer need be winding up proceedings,
but can also be reorganisation
proceedings. INSOL Europe takes the view
that it should be explicitly provided that
Article 33 does not only concern the
liquidation of assets, but also other
activities of the liquidator at the secondary
proceedings which may undermine the
integrity of the enterprise such as
determination of vital contracts.
Groups of companiesPerhaps the most problematic area within
the present Regulation deals with groups
of companies. There are simply no
provisions dealing with this question in
any way whatsoever. This is not the place
or occasion to review the various options
available, but simply to summarise in as
brief a way as possible the view that was
ultimately taken by the Committee. On
balance, the Committee took the view that
the group main proceedings should be the
main insolvency proceedings of the
ultimate parent with its centre of main
interests in the European Union that might
be an insolvency proceeding. As to the
definition of parent company, the
suggestion is that this be the company
which has the majority of the
shareholders’ or members’ voting rights in
the other company, and if no such
company meets that definition, then it will
be the company that has the right to
appoint or remove the majority of the
members of the administrative
management supervisory body of the
other company, or the company that has
the right to exercise what could be called a
dominant influence over another company
of which it is a shareholder or member.
Helpful parallels are sought to be drawn
with definitions of parent companies and
other regimes, in particular, the 7th
Council Directive 83/349 EC of 13 June
1993 dealing with the consolidated
accounts in the context of Article 54(3)(g)
of the Treaty which led the Committee to
set out suggested definitions of the well-
known notions of ‘group of companies’,
‘parent company’, ‘subsidiary’, ‘ultimate
parent company’ and ‘group main
proceedings’, etc.
The US doctrine of substantive
consolidation is also suggested as being a
proper means of consolidating two or
more insolvent companies where it is not
possible to determine which assets or
liabilities or contracts belong to which
company, with the ultimate decision being
taken by the court supervising the parent’s
main proceedings as being the court most
appropriate to supervise the consolidated
proceedings.
The centrepiece of the group provisions
as promoted by the Committee is the
possibility of proposing a plan covering
two or more group companies. This, in
effect, would be a restructuring mechanism
which on the one hand ascertains and
determines that each creditor will at least
receive value which equals a distribution in
case of the winding up of his or its debtor,
and on the other, procures that
Underlying all this is again another extensive debate … on the question ofwhether the possibility of secondary pro-ceedings is desirable at all or whether thewhole concept should be maintained.
35
AUGUST 2012
conglomerates are saved and do not fall
victim to a lack of coordination in an
international setting.
There are therefore a number of new
suggested Articles, beginning with a
suggested Article 43 and following, dealing
with the various aspects of this new regime,
namely, the opening of group main
proceedings, the powers of a liquidator
within group main proceedings,a rescue
plan, substantive consolidation and so on.
The European Rescue PlanThe European Rescue Plan is the brainchild
of the Committee. The provisions which are
suggested do not replace legislation within
Member States with regard to composition
and rescue plans, but simply introduce an
additional instrument for the adoption of
cross-border rescue plans involving groups.
As indicated at the outset of this particular
survey, INSOL Europe takes the view that
such an instrument will considerably assist
in the proper function of the internal
market since it will enable and facilitate
the restructuring of conglomerates which
have several locations within the European
Union.
The Plan aims to take into account the
fact that the creditors of various
subsidiaries in question, as well as the
parent company’s creditors, may well
occupy different standpoints. On the other
hand, it should not be possible for the
creditors of simply one subsidiary to sink
the whole Plan by voting against it if the
benefits they are to receive under the Plan
are greater than those they would have
received is the subsidiary were completely
wound up, etc.
INSOL Europe therefore sets out a
number of guiding principles which apply
to the contemplation of and
implementation of the European Rescue
Plan. The following list is not exhaustive,
but the factors which are set out by the
Committee include the desirability of
having proceedings with regard to the Plan
taking place in the court which opened the
proceedings with respect to an ultimate
parent company, secondly, the need to
divide creditors into appropriate classes,
thirdly, the use of cram-down provisions if
one or more classes reject the Plan and in
the event of acceptance, confirmation of
the Plan unless a creditor or shareholder
objects to it and the Plan can be seen to
unfairly favour one or more creditors or
shareholders, or a creditor or shareholder
junior to the creditor who does not receive
any value etc.
Overall, the provisions regarding the
European Rescue Plan are inspired by the
US Chapter XI provisions, but there are
important differences. First, classifications
of claims will not be part of the Plan itself
but will be decided upon by courts
separately and in the event that individual
creditors oppose the Plan, cram-down
possibilities will be more restrictive than
under Chapter 11. In addition, Chapter 11
does not principally concern single
companies whereas, as is clear, the
European Rescue Plan applies to groups
alone.
Insolvency proceedings opened out-side the European UnionThe new Chapter VII of the Working
Party’s recommendations within the
amended Regulation deals with in effect
the imposition of the UNCITRAL Model
Law on an insolvency or set of insolvency
proceedings where insolvency proceedings
are opened outside the European Union
and where recognition occurs within the
Union. Overall, it was thought that there
should be a unified approach to insolvency
proceedings, especially with regard to
those opened outside the European Union
so as to enhance the proper functioning of
the internal market.
There was extensive discussion within
the Committee as to whether the bases in
the Treaty on the Functioning of EU were
solid enough to build a regime for the
recognition of non-EU insolvency
proceedings as incorporated now in the
suggested Chapter VII. Overall it was felt
that there was a sufficient juristic basis, if
only because the Union had created a
system for the recognition of the EU
insolvency proceedings which in the
Committee’s view meant that it could also
assume such powers in respect of non-EU
insolvency proceedings. See e.g. and cf
Case 22/70 Commission of the EC v Council
of the European Community [1971] ECR
263. In effect, the criterion relied on is that
EU institutions can exercise any power
‘reasonably necessary’ to the achievement
of an objective set forth in the EU family
of Treaties, even in the absence of an
express power of action provided for in
relation to that objective.
This in effect enabled the Working Party
to engraft the Model Law as a new
Chapter VII to the proposed amendments
of the EC Regulation with a large number
of Articles in effect reflecting the principal
provisions of the Model Law already
embodied in the UK Cross-Border
Regulations.
MiscellaneousThere are substantive amendments to the
Annexes, some of which have been
pointed out above in this suvey. In
addition, the Committee’s report contains
a lengthy appendix dealing with the
suggested harmonised rules on
detrimental acts in turn revisiting, in
effect, the harmonisation principles
considered in the INSOL Europe report in
2010 on the national harmonisation of
insolvency laws within the EU. Finally,
there is a substantial bibliography
amounting to about 40 pages of materials,
reflecting the immense body of work that
has been produced already by
commentators of all sorts and sometimes
of the most eminent level in its area since
the inception of the Regulation.
FootnoteINSOL Europe is now a major institution
reflecting the considered views of
practitioners across the length and
breadth of Europe. On any basis, this
report is a substantial piece of research
and body of work. As at the date of this
present article, the EC Commission has
formally taken delivery of the
Committee’s report and it is hoped and
tentatively expected will take it into
account in considering the next steps that
have to be taken in the life cycle of the
Regulation as a whole.
It is hoped that the contents of the
report at least will stimulate even more
debate and argument about the workings
of cross-border insolvency reflective of the
increasing importance of this subject in
today’s legal and financial environment.
This article was first published in InternationalCorporate Rescue journal and is reprinted withpermission by Chase Cambria Publishing Ltd –www.chasecambria.com
36
NEWS in brief
The brother of footballing legend and
BBC Sport presenter Gary Lineker has
been declared bankrupt.
Wayne Lineker, 50, is best known for
his association with the infamous
Linekers chain of bars and clubs across
Europe despite official documentation
declaring his occupation as ‘unknown’
when he was declared bankrupt earlier
this month.
In a bad period for high-profile people,
Coronation Street actress Beverley Callard
– best known for pulling pints as barmaid
Liz McDonald in the long running soap –
has also been made bankrupt.
The actress, 55, found herself overcome
with debt after facing huge medical bills
incurred when she was treated for
depression in 2009.
Also in the bankruptcy courts was
Shane Filan, the lead singer of Irish boy-
band Westife, whose Irish property
company recently collapsed with debts
that are said to amount to £18 million.
Bad period for celebrity bankrupts
BEVERLEY CALLARD
Gabriel Moss QC will be chairing the
Sweet & Maxwell Insolvency Law
Conference in October 2012.
Charlotte Cooke and Henry Phillips
will also be speaking at the
conference on various insolvency
updates.
A discount in the delegate fee is
available to Digest readers.
Registration on the Sweet &
Maxwell website
(www.sweetandmaxwell.co.uk) is
now open. In order to obtain the
discounted rate of £295 you need to
enter the code 0791510A when you
register.
WAYNE LINEKER
Insolvency conference in October
GABRIEL MOSS QC
On 2 July 2012 David Alexander QC and
Henry Phillips gave a joint talk at Berwin
Leighton Paisner in relation to guarantees
and the type of defences that debtors
seek to run in order to avoid liability
under them.
DAVID ALEXANDER QC HENRYPHILLIPS
Guarantees at BLP
SHANE FILAN
37
AUGUST 2012
DIARY DATES2012
13 September 2012LondonTMA Europe Distressed InvestingConference
13 September 2012LondonIFT National Conference
11-14 October 2012.Brussels, Belgium.INSOL Europe Annual Conference.
14 November 2012London (Natural History Museum)ILA Annual Dinner
15 November 2012LondonTMA(UK) Annual Conference
28 November 2012LondonIFT Annual Awards
201324-26 April 2013.Hotel Martinez, Cannes, France.R3 23rd Annual Conference.
19-22 May 2013.The Hague, Netherlands.INSOL 2013 Ninth World InternationalQuadrennial Congress.
New era ofproportionality
Briefing the BarA thought leadership article by Georgina
Peters was featured in The Lawyer
magazine, ‘Briefing – The Bar’ on 25 June
2012, on the subject of Bank Insolvency.
Georgina’s article summarised the way in
which the English and Scottish courts have
navigated the uncharted waters of UK
bank insolvency legislation in the post-
credit crunch era. The article remains
available online.
The courts can anticipate some satellitelitigation next year as the Jacksonreforms on costs and proportionality bedin, according to Lord Neuberger, theMaster of the Rolls. Lord Neuberger, in a lecture on the
implementation of the Jackson reforms,at the Law Society in May, said it wouldbe “positively dangerous” for him to givedetailed guidance on proportionate costsas the law would need to be developedon a case by case basis.
Changing theguardLord Phillips of Worth Matravers,President of the Supreme Court, isexpected to take up two senior judicialroles in Qatar and Hong Kong on hisretirement this autumn. In September, hewill succeed Lord Woolf of Barnes asPresident of the Qatar International Court& Dispute Resolution Centre. Lord Woolfpreceded Lord Phillips as both Master ofthe Rolls and Lord Chief Justice. LordPhillips is being replaced as President ofthe Supreme Court by Lord Neuberger ofAbbotsbury. Curiously both Lords taketheir titles from places in Dorset. LORD PHILLIPS
LORD NEUBERGER
GEORGINA PETERS
38
Sovereign debt crisis conferenceOn 25 June 2012, Glen Davis QC
participated in a conference entitled The
EU Sovereign Debt Crisis: Where from -
Where to? The conference was organised
by the Centre for Commercial Law Studies
at Queen Mary, University of London in
association with Freshfields Bruckhaus
Deringer with the collaboration of
ARC&C, and was held at Freshfields.
Glen appeared with Dr Rodrigo Olivares
of Queen Mary and Professor Anna
Gelpern of Washington College of Law,
American University in a panel discussion
on Pari Passu from New York to EU?.
The keynote address was given by Mr
George Papaconstantinou, who was until
recently Finance Minister of Greece.
n Glen Davis QC will also be participating
in a panel session titled “Issues arising
from the global financial crisis and
sovereign debt” at the Global Financial
Institutions Litigation 2012 conference, to
be held at the Bloomsbury Hotel, London
on Thursday 25th October 2012. The
panel will look at claims that might arise
as a result of a Greek exit from the Euro,
and more general sovereign debt
disputes and issues of enforcement.
On 10 October 2012, Glen Davis QC will be taking part in the Insolvency TodayAnnual Conference at the Lancaster London Hotel. He will be participating in apanel discussion: What’s special about the SAR? considering the new SpecialAdministration regime for investment banks, and delivering a talk on Cross-borderInsolvency.
Insolvency Today conferenceGLEN DAVIS QC
On 30 May 2012, Glen Davis QC gave
a talk at the Brown Rudnick training
day on the subject of English Law
Schemes for Foreign Companies, in
which he considered recent first-
instance cases discussing the
jurisdiction to sanction such schemes,
and possible challenges and contrary
arguments. On 22 June 2012, Glen
and William Willson led a seminar on
the Insolvency Practice Direction at
CMS Cameron McKenna.
WILLIAM WILLSON
Glen Davis has also recently written
two articles. The first was entitled
Service of Insolvency Process out of
the Jurisdiction, revisited and
appeared in Insolvency Intelligence
at Insolv Int 2012, 25(5), 71-73.
The second was entitled Firth
Rixson in the Court of Appeal and
was published in the Butterworths
Journal of International Banking and
Financial Law at BJIBFL 27(6), 337-
343
Insolvency talksand seminars
NEWS in brief
39
AUGUST 2012
Following the discontinuation of
disqualification proceedings brought
against the directors of the Farepak group
of companies on 21 June 2012 the trial
judge, Peter Smith J, made a lengthy
statement in open court to explain the
reason why the case collapsed.
The transcript runs to 128 paragraphs,
and can be downloaded from the
judiciary website:
http://www.judiciary.gov.uk/media/judgme
nts/2012/farepak-judges-statement. The
media coverage of the statement has
concentrated on the Judge’s comments
about the actions of Bank of Scotland
which in his view led to the insolvency of
the group. In addition to those comments,
Peter Smith J made a number of
observations about the conduct of the
Secretary of State’s case which may be
relevant to practitioners in this area. In
particular, the Secretary of State’s
evidence was presented in the usual way,
in the form of a lengthy witness
statement made by a senior individual
within the investigation team. Peter Smith
J made a number criticisms of this
approach. The deponent is never a
witness to events and has to give hearsay
evidence (para [42]): “In significant cases
like this the use of hearsay evidence like
that which cannot be tested unless those
deponents are made available for cross-
examination must be considered, in my
view, in the future very carefully because
it is essential that if defendants are on the
receiving end of proceedings which if
successful ruin them, that they are
entitled to be able properly to test the
evidence.”
The Judge went on to comment that in
future contested cases, the Secretary of
State should make sure that all people
who provide statements which are found
in the main witness statement should be
available for cross-examination.
Farepak: lengthy statement made
MR JUSTICE PETER SMITH
PwC finds buyer for CorytonPricewaterhouseCoopers has found a
buyer for the Coryton Refinery in Essex –
previously owned by Petroplus Refining
and Marketing – which entered
administration earlier this year.
Coryton will be sold to a joint venture of
Shell UK Ltd, Vopak and Greenergy as a
terminal according to Steven Pearson,
joint administrator of Petroplus.
The administrators are presently
overseeing the removal of all crude oil
and refined products from the site and
are managing the safe closure of the
refinery. The sale follows a five-month
exercise to explore all the options for the
refinery.
Brandy pleaseA judge in Germany ordered drinks foran alcoholic whose withdrawalsymptoms began to affect hismemory, it has been reported. Judge Frank Rosenow ordered a
court official to go to an off license tobuy two bottles of German brandy forMiroslav Waldchek, before the Polishwitness returned to the witness boxto complete his evidence about aknifing incident two years ago. Counsel for the defence is reported
to have complained to the judgeabout the improper use of statefunds.
BPTC over-recruitment bad Chairman of the Bar Council, MichaelTodd QC, has complained that the over-recruitment of students to the BPTC isbad for the profession and social mobility.Todd said that it was of “great concern”that students were paying over £16,000for a 25% prospect of pupillage, and thatlaw schools were producing anoversupply of graduates with “no realisticprospect of pupillage”. The College ofLaw is reported to have described hiscomments as “scaremongering”. CORYTON: FROM REFINERY TO TERMINAL
40
NEWS in brief
On 25 June 2012 Gabriel Moss QCattended a meeting of expertsadvising the EuropeanCommission on proposals for thereform of the EC Regulation oninsolvency proceedings. On 6 July2012 Gabriel, David Marks QCand Felicity Toube QC attended adebate on the proposed reformsat the Supreme Court.
FELICITY TOUBE QC DAVID MARKS QC
The Special Administration of MF Global(the first special administration under theInvestment Bank (Special Administration)Regulations ) reached a significantlandmark on 18 July when David RichardsJ approved a Client Asset Distribution Planwhich will permit client assets (other thanclient money) to be returned to therelevant clients whose claims have beenaccepted. Martin Pascoe QC and DanielBayfield appeared for the SpecialAdministrators and Glen Davis QCappeared for the FSA.KPMG’s Richard Heis, joint special
administrator of MF Global UK said thatthis court hearing represented animportant milestone in returning some £54million of agreed assets largely comprisingshareholdings plus some physically heldsecurities and LME commodities andwarrants. The MF Global UK assetdistribution plan sets a precedent as it isthe first use of such a plan under thespecial administration rules. “We will besending letters to clients with agreed assetclaims over the coming days to explain andagree the final steps in returning theirassets.”
MF Global distributionscheme approved
MARTIN PASCOE QC
DANIEL BAYFIELD
Reform of the EC Regulation
On 13 June 2012 Hilary Stonefrostand William Willson gave a talk tothe Slaughter & Mayinsolvency/restructuringdepartment on out-of-courtappointments of administrators.The talk discussed the potentialpitfalls for out-of-courtappointments highlighted by therecent case law, and looked at thevarious solutions available foroffice-holders faced withotherwise invalid appointments.
HILARY STONEFROST
Out of courtappointment talk
The Bar Standards Board was recently
accused of being in a “shambolic state”
on Radio 4’s Today programme, with
barristers accusing it of a “lack of
transparency” and “lazy incompetence”.
Problems are said to include conflicts of
interest in disciplinary proceedings against
barristers. The BSB’s chair, Baroness Deech,
has hit back at the comments, describing
it as a “competent, transparent and public
interest regulator” which upholds the
“highest regulatory standards”.
Bar Standards Board shambles
The long-standing ban on televising,or photographing, court proceedings,is due to be overturned. Clause 22 ofthe Crime and Courts Bill allows theLord Chancellor by order, made with
the concurrence of the Lord ChiefJustice, to provide that the relevant“banning” sections in the CriminalJustice Act 1925 and the Contempt ofCourt Act 1981 do not apply.
Lights, Camera, Action!
41
AUGUST 2012
INSOL Europe ConferenceOn 28-29 June 2012 Richard SheldonQC spoke at the INSOL Europeconference at Nottingham Law Schoolheld on 28-29 June 2012. Richardspoke in the third session dealing withEnterprise and Group Insolvencies. Histalk was entitled “Hell as explained –A case study of Hellas CommunicationsSARL”
RICHARD SHELDON QC
The Minmar MuddleCharlotte Cooke hasrecorded a podcastentitled “TheMinmar Muddle:Administrations andPrecedent in theCompanies Court”which is available atwww.cpdcast.com. CHARLOTTE COOKE
Criminal barristers could resort to
“stopping the courts” in protest at low
fees and delays in payment, Criminal Bar
Association (CBA) chair Max Hill QC has
warned.
A CBA survey of its members found 89
per cent of those who responded
favoured “lawful” protest action, such as
not attending court, while a similar
number would consider refusing to take
on new cases. About half of the CBA’s
membership responded to the survey.
‘Heartache’ at the criminal Bar…
Response to ECRegulation ConsultationOn behalf of the Chancery BarAssociation, Mark Arnold and DanielBayfield joined forces with PeterArden QC on behalf of the GeneralCouncil of the Bar to produce a jointresponse to the EuropeanCommission’s recent consultation onthe EC Regulation on InsolvencyProceedings (1346/2000). A copy of thejoint response can be seen on theChBA’s website athttp://www.chba.org.uk/library/responses_to_consultation_papers/news20.
MARK ARNOLD
NEW RECEPTION TEAM: RHYANNE HALL, NATALIE HALL AND EMILY BELL
We are pleased to welcome Niti Sidpra,
who joins us as our Marketing and
Communications Manager. This is a new
role aimed at increasing the profile of
South Square and its Members. Niti is
looking forward to raising the profile of
South Square and improving its
communication. Since her arrival, she has
been heavily involved in a market research
exercise with solicitor firms who were
asked for their views on South Square.
She comments, “this exercise was
invaluable as it provides a base from which
we can direct marketing initiatives, to
respond to our client’s needs. I am very
grateful to all the firms who took part.
Their views will help us develop a rolling
programme of activities to improve the
South Square brand and its visibility.”If you
wish to contact Niti for further
information on South Square’s marketing
activities, please email her at
nitisidpra@southsquare.com
South Square is also pleased to welcome
its new Reception team, led by Natalie
Hall. Natalie is joined by 2 further new
receptionists - Rhyanne Hall and Emily Bell.
Natalie is very excited to be with
Chambers during this time of change and
has already introduced new procedures
and improvements to the current level of
Reception Service. Referring to the
renovations taking place to Chambers’
reception and conference rooms, Natalie
said “it will be challenging while they are
taking place on the ground floor, but I am
confident that once the works are
complete, the transformation will not just
be of the surroundings, but of the way
that we provide Front of House Services to
Members of Chambers and their clients.
The disruption will be well worth it!”
Welcome to South Square
4242
South Square ChallengeWelcome to the August 2012 South Square Challenge. This time, whilst it looks like the familiar format, there is a twist. Instead of the names of caseseach pair of picture clues should give you two words, or in one case three words, from a well-known legal principle – all you have to do is identify theeight principles from the clues. And for the ninth question you have to identify from which area of the law the principles come (which is easy once youhave even two or three of the answers to the eight questions). As usual for the winner (drawn from the wig tin if we get more than one correct entry)there will be a magnum of champagne. Please send your answers by email to kirstendent@southsquare.com or by post to Kirsten at the address on theback page. Entries by 1st October 2012 please! Good luck. David Alexander QC.
1
2
3
4
43
AUGUST 2012
May 2012 South Square ChallengeThe correct answers to the May 2012 South Square Challenge set by Martin Pascoe QC were (1) Chartbrook v Persimmon (2) Clegg v Hands (3)Beckham v Drake (4) Stickney v Keeble (5) Cherry v Boultbee (6) Cutter v Powell (7) Greig v Insole and (8) Dunlop v Selfrdiges (9) They are all con-tract cases. Congratulations to all those who sent in correct entries (and there were a lot of them). With so many correct entries the wig tin wasrather full. But the winner drawn from the wigtin is Roger Laville, of Matthew Arnold & Baldwin LLP to whom go many congratulations and amagnum of champagne
5
6
7
8
9 And the connection is?
Michael Crystal QC
Christopher Brougham QC
Gabriel Moss QC
Simon Mortimore QC
Richard Adkins QC
Richard Sheldon QC
Richard Hacker QC
Robin Knowles CBE QC
Mark Phillips QC
Robin Dicker QC
William Trower QC
Martin Pascoe QC
Fidelis Oditah QC
David Alexander QC
Antony Zacaroli QC
David Marks QC
Glen Davis QC
Barry Isaacs QC
Felicity Toube QC
John Briggs
Mark Arnold
Adam Goodison
Hilary Stonefrost
Lloyd Tamlyn
Ben Valentin
Jeremy Goldring
Lucy Frazer
David Allison
Daniel Bayfield
Tom Smith
Richard Fisher
Stephen Robins
Joanna Perkins
Marcus Haywood
Hannah Thornley
William Willson
Georgina Peters
Adam Al-Attar
Henry Phillips
Charlotte Cooke
“FINE ADVOCATES, WHO QUIETLY BUTPROFICIENTLY GO ABOUT THEIR BUSINESS ANDPROVE DEADLY EFFECTIVE IN COURT”.
South Square Gray’s Inn London WC1R 5HP. UK.
Tel. +44 (0)20 7696 9900. Fax +44 (0)20 7696 9911. LDE 338 Chancery Lane. Email practicemanagers@southsquare.com
CHAMBERS & PARTNERS 2012
SOUTH SQUAREBarristers
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