Creditor – Loro Dinapoli http://lorodinapoli.org/ Fri, 16 Jul 2021 10:23:47 +0000 en-US hourly 1 https://wordpress.org/?v=5.7.2 http://lorodinapoli.org/wp-content/uploads/2021/07/icon-2021-07-06T154208.998-150x150.png Creditor – Loro Dinapoli http://lorodinapoli.org/ 32 32 UPDATE 1-Paris Club calls for establishment of Ethiopia creditors committee http://lorodinapoli.org/update-1-paris-club-calls-for-establishment-of-ethiopia-creditors-committee/ http://lorodinapoli.org/update-1-paris-club-calls-for-establishment-of-ethiopia-creditors-committee/#respond Fri, 16 Jul 2021 10:03:00 +0000 http://lorodinapoli.org/update-1-paris-club-calls-for-establishment-of-ethiopia-creditors-committee/ (Add details, quotes) PARIS, July 16 (Reuters) – The Paris Club of Sovereign Creditors on Friday called for the swift formation of a creditors’ committee to restructure Ethiopia’s debt, increasing pressure on China to engage in a new common framework of the G20 to provide debt relief to poor countries. Chad, Ethiopia and Zambia are […]]]>

(Add details, quotes)

PARIS, July 16 (Reuters) – The Paris Club of Sovereign Creditors on Friday called for the swift formation of a creditors’ committee to restructure Ethiopia’s debt, increasing pressure on China to engage in a new common framework of the G20 to provide debt relief to poor countries.

Chad, Ethiopia and Zambia are so far the only countries to have requested debt relief within the framework of the G20 which defines the way to accept debt restructuring under the same conditions for all creditors, whether public or private.

Before debt negotiations can take place, a country seeking debt relief must first agree on an economic program with the International Monetary Fund aimed at restoring sound public finances.

A committee involving the principal public creditors of the debtor country must then be formed and they must propose a debt relief plan in accordance with the guidelines of the International Monetary Fund.

Paris Club president Emmanuel Moulin told reporters that forming a creditors committee for Ethiopia was complex because a creditor needed formal internal approval to proceed.

Moulin did not name China, but it is Ethiopia’s largest creditor and a source familiar with the situation said Beijing is still on the sidelines.

“We have expressed urgent concerns, which are shared with the International Monetary Fund. We are doing our utmost to form a creditors committee as soon as possible to process Ethiopia’s claim, ”said Moulin.

He added that Ethiopia’s current program with the IMF expired in September, making it all the more important to secure a debt relief plan in the coming weeks.

While the process drags on for Ethiopia, the case of Chad is more advanced, with the formation of a creditors’ committee and the establishment of debt relief guidelines supported by the IMF.

Moulin said the Paris Club was ready to reschedule Chad’s debt over a long period, but expected a large private creditor who is currently keen to do the same.

He did not name the private creditor, but about 40% of Chad’s $ 2.8 billion external debt at the end of 2019 was owed to commercial creditors, mostly made up of an oil-backed loan from the trader. Swiss commodity Glencore.

Zambia, which has been in default since November last year after the coronavirus pandemic added to its long-standing debt problem, made little progress at the G20 ahead of the August elections. (Reporting by Leigh Thomas; Editing by Alison Williams and Catherine Evans)


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Oil rig deal hurts Brazilian conglomerate, creditors say http://lorodinapoli.org/oil-rig-deal-hurts-brazilian-conglomerate-creditors-say/ http://lorodinapoli.org/oil-rig-deal-hurts-brazilian-conglomerate-creditors-say/#respond Wed, 14 Jul 2021 22:59:00 +0000 http://lorodinapoli.org/oil-rig-deal-hurts-brazilian-conglomerate-creditors-say/ Law360 (July 14, 2021, 6:59 p.m. EDT) – Brazilian oil and gas conglomerate bankruptcy administrator has accused a group of creditors of conspiring to get paid quickly in an oil rig deal which simultaneously jeopardized the finances of the company and the interests of other creditors and wants to recover 465 million dollars for the […]]]>
Law360 (July 14, 2021, 6:59 p.m. EDT) – Brazilian oil and gas conglomerate bankruptcy administrator has accused a group of creditors of conspiring to get paid quickly in an oil rig deal which simultaneously jeopardized the finances of the company and the interests of other creditors and wants to recover 465 million dollars for the alleged unjust enrichment.

In a lawsuit in a New York federal court, AJ Ruiz Consultoria Empresarial SA, which oversees the Schahin group’s bankruptcy proceedings in a Brazilian court, claims that Deutsche Bank and several other creditors were wrongly involved in a complex transaction involving two platforms. -forms of oil drilling to make sure they get their loans repaid. It hurt other creditors who were then …

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Leaders of influence: litigators and trial lawyers -Robbin Itkin http://lorodinapoli.org/leaders-of-influence-litigators-and-trial-lawyers-robbin-itkin/ http://lorodinapoli.org/leaders-of-influence-litigators-and-trial-lawyers-robbin-itkin/#respond Tue, 13 Jul 2021 18:50:35 +0000 http://lorodinapoli.org/leaders-of-influence-litigators-and-trial-lawyers-robbin-itkin/ Robbin itkinPartnerSklar Kirsh LLP Robbin Itkin is a partner in Sklar Kirsh’s Bankruptcy practice group. His experience restructuring billions of dollars in debt includes insolvency resolutions in Chapter 11 cases and numerous restructurings outside of the courtroom. As a mediator, Itkin uses her problem-solving strength to advise both healthy and struggling businesses, leading them to […]]]>

Robbin itkin
Partner
Sklar Kirsh LLP

Robbin Itkin is a partner in Sklar Kirsh’s Bankruptcy practice group. His experience restructuring billions of dollars in debt includes insolvency resolutions in Chapter 11 cases and numerous restructurings outside of the courtroom. As a mediator, Itkin uses her problem-solving strength to advise both healthy and struggling businesses, leading them to negotiate effectively with their own creditors and counterparties who are in a fragile economic situation. Experienced in representing a range of parties in the bankruptcy process, Itkin has protected the claims and interests of debtors, creditors, shareholders and bondholders, buyers and trustees in corporate restructurings. and bankruptcies. His industry experience spans real estate, entertainment, sports, retail, transportation, manufacturing and hospitality. Many of its clients are leading people in entertainment, sports and business. She discreetly guides them through out-of-court arbitration and financial transactions, often advising them at all stages of business growth and at the first signs of distress.

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GoldStone enters into agreements with creditors as it progresses Homase http://lorodinapoli.org/goldstone-enters-into-agreements-with-creditors-as-it-progresses-homase/ http://lorodinapoli.org/goldstone-enters-into-agreements-with-creditors-as-it-progresses-homase/#respond Mon, 12 Jul 2021 14:35:03 +0000 http://lorodinapoli.org/goldstone-enters-into-agreements-with-creditors-as-it-progresses-homase/ Gold explorer and developer focused on West Africa GoldStone Resources on Monday announced an operational update and agreements reached with creditors. The AIM-listed company said it has now received approval from the Ghana Minerals Commission to begin irrigation and leaching of ore placed on the heap leach platform at the Homase mine. He said he […]]]>

Gold explorer and developer focused on West Africa GoldStone Resources on Monday announced an operational update and agreements reached with creditors.

The AIM-listed company said it has now received approval from the Ghana Minerals Commission to begin irrigation and leaching of ore placed on the heap leach platform at the Homase mine.

He said he was on track to meet the target production of 25,000 ounces of gold for the first eight months of production, with a first gold pour expected in the third quarter.

Financially, GoldStone said it has reached an agreement with bondholders for the settlement of its 20 outstanding unsecured bonds of $ 50,000 each.

The board said the offer had been accepted by all bondholders, who had accepted full and final settlement of the bonds in exchange for the issuance of 12,000,000 new GoldStone shares in total.

A verbal agreement had been received from BCM Investments, which would be granted its 3,600,000 bond settlement shares immediately after signing a written bond settlement agreement.

Settlement of bonds on such terms was considered to be in the best interests of the company and all shareholders, the directors said, as it avoided the issuance of 20,000,000 new warrants to subscribe for shares in the stock market. price of 3p each, as well as the payment of interest at the rate of 14% on outstanding principal amounts.

GoldStone also announced that Asia Investments Management Services (AIMS) has agreed to a further extension of the interest payment schedule on the $ 3 million secured gold loan announced on June 22, 2020.

An extension until June 30, 2021 was agreed on March 1, due to delays in issuing operating permits.

The company said AIMS has now agreed that all unpaid and accrued interest associated with the June 30 loan will be repaid by August 31.

Interest would continue to accrue on the overdue payment at the default rate of 17%, until payment is made.

“I am delighted that bondholders and AIMS have supported the company to avoid impacting the operational progress of the company, allowing us to continue to focus on our goal of producing gold in the near term.” , said Emma Priestley, managing director.

At 1,432 BST, GoldStone Resources shares rose 8.91% to 12.25%.


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7 Credit Report Items That Scare Lenders http://lorodinapoli.org/7-credit-report-items-that-scare-lenders/ http://lorodinapoli.org/7-credit-report-items-that-scare-lenders/#respond Sat, 10 Jul 2021 21:33:00 +0000 http://lorodinapoli.org/7-credit-report-items-that-scare-lenders/ Like foreclosures, short sales also stay in your credit history for seven years. And that’s seen by creditors as “a little better than foreclosure,” he says. That said, the longer a foreclosure, bankruptcy, or short sale has taken place and the more financially the consumer has recovered, the less impact it will have on their […]]]>

Like foreclosures, short sales also stay in your credit history for seven years. And that’s seen by creditors as “a little better than foreclosure,” he says.

That said, the longer a foreclosure, bankruptcy, or short sale has taken place and the more financially the consumer has recovered, the less impact it will have on their credit, Griffin says.

3. High balances and maximum cards

“A high balance, relative to the credit limit on your cards, is the second most important factor in your credit score,” says Griffin.

The portion of your credit that you use is roughly 30% of your score.

And high balances or maxed out cards are “an indication of financial hardship,” he says. “Ideally, you would pay your card in full every month and keep your usage as low as possible. What we are seeing is that the people with the highest score have a higher utilization rate. [the balance divided by the credit limit], by 10% or less. “

And that goes for both individual cards and the collective total of the consumer’s credit lines and card balances, he adds.

A basic rule of credit score was to keep the utilization rate below 30%. “But 30% is the maximum, not a goal,” Griffin warns. “It’s the cliff. If you go beyond that, the scores will drop sharply. Conversely, the more you are below 30%, the less likely you are to default, he adds.


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Explained: Why did NCLAT dismiss the insolvency proceedings against the OYO subsidiary? http://lorodinapoli.org/explained-why-did-nclat-dismiss-the-insolvency-proceedings-against-the-oyo-subsidiary/ http://lorodinapoli.org/explained-why-did-nclat-dismiss-the-insolvency-proceedings-against-the-oyo-subsidiary/#respond Sat, 10 Jul 2021 02:31:29 +0000 http://lorodinapoli.org/explained-why-did-nclat-dismiss-the-insolvency-proceedings-against-the-oyo-subsidiary/ The insolvency proceedings against OYO Hotels and Homes Pvt Ltd (OHHPL) were dismissed by the National Company Law Appeals Tribunal (NCLAT) despite several hoteliers claiming unpaid debts by the company. Bulletin | Click for the best explanations of the day to your inbox Why was OYO subject to insolvency proceedings? OYO was the subject of […]]]>

The insolvency proceedings against OYO Hotels and Homes Pvt Ltd (OHHPL) were dismissed by the National Company Law Appeals Tribunal (NCLAT) despite several hoteliers claiming unpaid debts by the company.

Bulletin | Click for the best explanations of the day to your inbox

Why was OYO subject to insolvency proceedings?

OYO was the subject of insolvency proceedings following a claim of Rs 16 lakh filed by a hotelier based in Gurgaon against the company.

The Ahmedabad Magistracy of the National Company Law Court granted the request to open insolvency proceedings in April and appointed an Interim Resolution Professional (IRP) and authorized the IRP to start assembling claims from creditors. OYO, however, said the issue with the operational creditor was a contractual dispute and had nothing to do with the company’s creditworthiness.

OYO founder and group CEO Ritesh Agarwal even said the company made a full payment to the claimant under protest. “We are surprised to learn that the Honorable NCLT has admitted a petition against OHHPL, a subsidiary of OYO for Rs 16 lakh in a contract dispute,” OYO said in a statement, noting that the dispute was not even with the subsidiary that has been admitted to insolvency proceedings.

What were the claims of the other hotels that were operational creditors?

Other hotels, including 46 hotels represented by the Federation of Hotel and Restaurant Associations of India (FHRAI), had claimed that, since the insolvency proceedings had been admitted, they could not be withdrawn without settlement. claims of all creditors under the IBC Insolvency and Bankruptcy Code).

Why did NCLAT allow withdrawal from insolvency proceedings despite unresolved claims from other operational creditors?

The NCLAT has estimated that although usually the withdrawal of an insolvency proceeding against a debtor company requires the approval of 90 percent of the creditors, this only applies to cases where the creditors committee has been constituted. NCLAT noted that the Supreme Court had previously ruled that when a Creditors’ Committee (CoC) has not been formed, “the court may … allow or deny a request for withdrawal or settlement.”

NCLAT had, in an earlier order, suspended the formation of the CoC after OYO’s lawyers claimed that the company was working with the petitioner to reach a settlement and that the insolvency petition was filed against an OYO affiliate. who was not even a party to the contractual dispute. The petitioner who had filed an application to open insolvency proceedings and OYO both stated that they had reached a settlement and sought to withdraw the insolvency proceedings.

Regarding complaints filed by other hotels for non-payment of dues, NCLAT noted: “… before the establishment of the Creditors Committee, the mere filing of a ‘Complaint’ does not constitute default in itself” , adding that a number of hotels that had the claims filed had also sought arbitration with OYO through petitions to other courts.


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Are funders pure or professional or something in between? http://lorodinapoli.org/are-funders-pure-or-professional-or-something-in-between/ http://lorodinapoli.org/are-funders-pure-or-professional-or-something-in-between/#respond Thu, 08 Jul 2021 14:22:11 +0000 http://lorodinapoli.org/are-funders-pure-or-professional-or-something-in-between/ A recent decision has caught the eye of the donor community and would have, had times been different, led to cooler times. The decision is only 19 paragraphs long and, as will become evident, may also be important for what it did do not say what he said. Marcus Smith J ruled on a claim […]]]>

A recent decision has caught the eye of the donor community and would have, had times been different, led to cooler times. The decision is only 19 paragraphs long and, as will become evident, may also be important for what it did do not say what he said.

Marcus Smith J ruled on a claim for third party costs brought by Laser Trust (Laser) against Colosseum Consulting (Coliseum). Colosseum had been revealed as the funder of the litigation between Laser and CFL Finance (LCF) and Laser had costs orders pending against CFL in the amount of approximately £ 330,000. Colosseum had been joined for costs.

The judge concluded that the Colosseum had control “of an extraordinarily high order“And he declared that”it is quite clear that under the financing agreement the control of the Colosseum was enormous”. Although not the absolute control that Laser claimed, Marcus Smith J found “it was very close to that”. What was not very clear was whether control had in fact been exercised during the litigation but, given that CFL and Colosseum had not provided full and frank answers on this matter, the judge proceeded on the question. basis of the level of control as set out in the funding agreement.

As a result, Marcus Smith J ordered Colosseum to pay the costs already assessed. The nature of the Colosseum’s interest was such that the judge threw in the Arkin cap (previously seen as a kind of stop loss to a funder’s actual spending). He may have been influenced in this regard by the fact that the Sole Administrator of Colosseum, on the day of service of the claim for costs, decided to put Colosseum into voluntary liquidation. The Colosseum was, as one can see, not a paid member of the ALF.

The recent exhortation to professional funders is that we must all be wary of the levels of control we seek to exert in our funding arrangements, otherwise we are for the high jump.

In truth, the decision is not as drastic as it seems at first glance. To begin with, Colosseum was seen as a “pure” funder. The distinction between a “pure” funder and a “professional” funder dates back to the judgment of the Court of Appeal of Hamilton vs. Al Fayed [2002]. “Pure” funders were said to be “without personal interest in the dispute, who do not derive any profit from it, do not finance it in the course of their activities and do not in any way seek to control its course”. In these circumstances, costs would rarely be ordered against them. However, in the Al Fayed In that case, the Court also stated that it would be very exceptional for a situation to arise where it would not be fair or reasonable to make a costs order against a “professional” funder. The Court also referred to an earlier case where a costs order was made, where the judge had described the underwriters as “the defendants in everything except their name“, Having previously observed that”it should be rare that litigation is financed, controlled and directed by a third party motivated entirely by its own interests”. In these circumstances, he had considered it “a paradigmatic caseFor a cost order.

As to the facts of the case, CFL provided a short-term facility (in 2008) to a company called Lanza Holdings which had been guaranteed by a certain Mr. Gertner. Faced with non-payment, the CFL initiated proceedings against Mr. Gertner under the guarantee. They were then settled on terms whereby Mr. Gertner made a series of payments. He did not honor all the payments and therefore CFL ultimately filed for bankruptcy (in 2015). With interest, the debt had now grown to £ 11million. Faced with the bankruptcy application, Mr. Gartner took advice and offered an IVA, Mr. Gartner having a number of other creditors. Indeed, the estimate in his inventory was that he owed nearly £ 583million. His proposal was that a third party would pay their creditors £ 487,500 (who would receive 0.07 pence a pound) and that would be it. His proposal was approved by the creditors and it turned out that a creditor (Kaupthing Bank) made up 90% of the creditors in value. Kaupthing’s debt was also backed by a guarantee. CFL (and another creditor) voted against the IVA. If Kaupthing’s request had not existed, the IVA would have been rejected. What was not known at the creditors’ meeting was that Kaupthing had already reached a settlement agreement with a number of parties, including Mr Gertner and Laser. It was a clause in this deal that Laser would pay Kaupthing $ 6 million. In return for payment, Kaupthing would agree to assign its claims against Mr. Gertner to Laser. CFL challenged the IVA and argued that Kaupthing did not have the right to vote. At first instance, the bankruptcy judge found that Kaupthing was indeed not a creditor. The Court of Appeal disagreed but ruled that there was a substantial irregularity and quashed the IVA. It was only at this point in the saga that Kaupthing ceded its rights to Laser. Then, in 2019, the CFL reinstated the bankruptcy request. Now CFL’s debt had swelled to £ 30million. There was of course no Kaupthing in the new balance sheet but Laser had now appeared, with proof of debt of almost £ 800million (good old interest). Another IVA has been offered. Another scuffle ensued when CFL attempted to pursue the petition and Laser requested a stay of the petition to allow the creditors’ meeting under the IVA. Mr. Gertner also challenged the debt on consumer credit grounds. The CFL won this battle and bankruptcy was declared. The case was then appealed by Mr. Gertner and Laser and was referred to Marcus Smith J (in 2020). Marcus Smith J knew at this point that the CFL was funded (but not by whom). The judge ruled against Mr. Gertner’s consumer credit challenges, but found for Laser with the effect that the IVA could then proceed. CFL appealed again, but was ordered to provide security for Laser’s costs. Not having done so, his appeal was struck out. Mr. Gertner also appealed his consumer credit arguments and the Court of Appeal accepted his additional arguments. In the end, Laser and Mr. Gertner had simply passed their opponent.

As can be deduced from the length of the previous paragraph, the complexity of the case – and its twists and turns – made it totally unsuitable for a professional financier. It could therefore never be advanced except by alternative means. While it is difficult from the judgment to understand precisely what level of control existed, a fair reading suggests that Colosseum likely had a significant interest on the original £ 30million debt (otherwise why get involved?) And so seems to have I tried to plead the same way as Laser, that is, a battle of assignees. Under these circumstances, Colosseum was hardly a “pure” donor in the strict sense of the term, and its motivation was certainly not charitable.

On this analysis, there was nothing extraordinary about making Colosseum responsible for the fees. It might seem hard to have the ceiling removed from Arkin, but the backers in the Colosseum position – neither pure nor professional, but somewhere in no man’s land – must assume that they will be treated according to the rules that apply to professionals. It is certainly not necessary for professional funders to start re-evaluating their funding arrangements. If anything, as has been shown by previous cases like Excalibur, this case probably called for the exercise of a certain degree of objective control on the part of a professional funder. The advantage of involving a professional funder is that litigation like this, being steeped in a personal downfall, would likely not have taken so long in court. The challenge for the courts is that these kinds of cases push professionals to run for the hills.


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IBC and creditors’ committee exclusions http://lorodinapoli.org/ibc-and-creditors-committee-exclusions/ http://lorodinapoli.org/ibc-and-creditors-committee-exclusions/#respond Wed, 07 Jul 2021 08:43:41 +0000 http://lorodinapoli.org/ibc-and-creditors-committee-exclusions/ ren during the Corporate Insolvency Resolution (CIRP) process, the Creditors Committee (COC) is the de facto counsel of the defaulting company. The COC is formed after collecting all the claims on the debtor, and plays an important role when it comes to the CIRP of any defaulting business. Considering that the COC is made up […]]]>

ren during the Corporate Insolvency Resolution (CIRP) process, the Creditors Committee (COC) is the de facto counsel of the defaulting company. The COC is formed after collecting all the claims on the debtor, and plays an important role when it comes to the CIRP of any defaulting business. Considering that the COC is made up exclusively of financial creditors, the Supreme Court, in the event of Phoenix ARC Private Limited v Spade Financial Services Limited and Ors, proposed new case law on February 1, 2021. This gave a new perspective to the constitution of the COC in terms of its role, power and the exclusion of related parties from it.

Rohit Pradhan

The role of the COC

The professional of the provisional resolution constitutes the COC after having gathered all the complaints formulated against the debtor company. The board of directors of the debtor company is suspended during the CIRP, and the COC becomes the de facto board of the defaulting entity. The COC then appoints the resolution professional, who assumes the role of chair of the committee.

Articles 5 (24) and 5 (24A) of the code define the meaning of related parties in relation to a debtor company and a natural person, respectively, in great detail. Related parties could include a director, key executives, a limited liability company (LLP), a public company, a legal person and the principal advisor of the debtor company. It also includes persons holding more than 20% of the voting rights and those who control the composition of the board of directors.

Article 21 of the code provides that a related party to whom a debtor company has a financial debt has no right of representation, participation or vote at a meeting of the creditors’ committee.

Reasons for excluding a related party

If related parties are involved in the COC, this could disengage the purpose and purpose of its existence. Related parties have certain interests in the debtor company, which could negatively influence the outcome of the CIRP.

In the case of Sushant Aneja and anr v JD Aneja Edibles Pvt Ltd, the NCLT (Bank of Jaipur) considered that the nature of the transactions between the debtor company and related parties could not be assimilated to that of a transaction between a debtor company and a third party. The inclusion of a related party could result in a difference in treatment and nullify the objective of the CIRP. To ensure that there is no “abuse of process under the Insolvency and Bankruptcy Code (IBC)” and to ensure that no negative effects remain on the real stakeholders, the related party has been excluded from the COC.

Although the code explicitly prohibited the inclusion of a related party in the COC, it says nothing about the status of a financial creditor who ceases to exist as a related party and whether such creditors would be allowed to do so. part of the committee. This question remained unanswered until the Supreme Court ruling in the Phoenix ARC case.

In this case, it was realized that the financial creditors concerned were in such a position within the company that they could influence the affairs of the debtor company. The Supreme Court ruled that if such an entity ceases to exist as a “related party” with the debtor company, with the sole intention of entering the COC to sabotage its purpose, then it will be barred from entering. the committee. This judgment had a double impact. First, he broadened the scope of Article 21 (2) of the code and, second, he stressed the importance of protecting the rights of financial creditors.

Conclusion

The court noted that, if it had not interpreted the provision accordingly, there could be a possibility that financial creditors would exclude themselves from the definition of related party before the opening of the CIRP. The very purpose of such an exclusion would have been to influence the functioning of the COC, and therefore to sabotage the CIRP. To avoid this, the Supreme Court widened the scope of Article 21 (2) of the code to ensure that the rights of financial creditors are preserved during the CIRP.

Rohit Pradhan
Symbiosis Law Faculty
Hyderabad


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Contestable insolvency transactions – Lexology http://lorodinapoli.org/contestable-insolvency-transactions-lexology/ http://lorodinapoli.org/contestable-insolvency-transactions-lexology/#respond Tue, 06 Jul 2021 06:54:14 +0000 http://lorodinapoli.org/contestable-insolvency-transactions-lexology/ One of the main differences in insolvency law between Scotland and England and Wales concerns the regime for contestable transactions under the Insolvency Act 1986. In both jurisdictions, transactions concluded before the start of formal insolvency proceedings may be challenged if they are prejudicial to the creditors of the insolvent company. However, although the two […]]]>

One of the main differences in insolvency law between Scotland and England and Wales concerns the regime for contestable transactions under the Insolvency Act 1986.

In both jurisdictions, transactions concluded before the start of formal insolvency proceedings may be challenged if they are prejudicial to the creditors of the insolvent company. However, although the two systems use similar language and address similar concerns, the law in the two jurisdictions is different, especially with different time frames and defenses against challenge.

Free disposal and undervalued transactions

Scotland

England and Wales

Section (s) of the Insolvency Act 1986

242 – gratuitous alienation

238, 240, 241 – undervalued transaction

Questionable period (unrelated parties)

2 years

2 years

Questionable period (related parties)

5 years

2 years

Defenses

Credit balance sheet immediately after the transaction or at any time thereafter; or

Adequate consideration; or

Conventional donation or charitable donation that it was reasonable to make.

The consideration paid is not significantly lower than the consideration received; or

Acted in good faith and with reasonable grounds to believe that the transaction would benefit the business; or

Company capable of paying debts (within the meaning of Article 123 of the Insolvency Law 1986).

Unfair preference

Scotland

England and Wales

Section (s) of the Insolvency Act 1986

243 – unfair preference

239, 240, 241 – unfair preference

Questionable period (unrelated parties)

6 months

2 years

Questionable period (related parties)

6 months

6 months

Defenses

Transaction in the ordinary course of business or affairs; or

Payment in cash of a debt that has become due (except collusion with the aim of harming the body of creditors); or

Operation by which the parties contract reciprocal obligations (except collusion with the aim of harming all creditors); or

Granting of a mandate for the payment of seized funds.

Not influenced by the desire to prefer; or

Company capable of paying debts (within the meaning of Article 123 of the Insolvency Law 1986).

Other points to note are: –

  • Section 244 of the Insolvency Act 1986 (Exorbitant credit transactions) and section 245 of the Insolvency Act 1986 (Avoidance of certain floating loads) apply in both jurisdictions.
  • s.423 (Transactions defrauding creditors) applies to England and Wales but not to Scotland.
  • Scottish law also provides for common law remedies of alienation and preferably free of charge. These are rarely used due to additional evidentiary requirements, but it should be noted that common law remedies are not subject to the time limits that apply to statutory remedies.


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