John Tribe's Blog

26 March 13

Free Bankruptcy? The debate rumbles on...

I have been engaging in a debtate on twitter (see: @tribebankruptcy) regarding an advert that appears on google for 'Free Bankruptcy'. Here is the transcript of the debate:

This website states: 'Go Bankrupt For Free' () who pays the petition fee? @scratchingheadwhilstdraftingcostsarticle

AD: ...... maybe someone will ask the creditors ?

JT: good point but it seems to indicate that a debtor's petition is free

AD: I had to look. I totally agree @scratchingheadwhilstresearching'FREE' ! ?

JT: and I have been discussing this website (see above) do you have any views on this sort of marketing?

IS: Free bankruptcy advice 'Guide To Bankruptcy' on Insolvency Service website

An annonymous source has subsequently noted:

"You may wish to re-tweet that, buried in the small print and (literally in the long grass) at the bottom of their page are the following statements: “The third party debt advisors we refer you to may charge you a fee if you decide to proceed with a debt solution. You should discuss any further fees or charges directly with them.”"

This is a fair point. However, if the small print is so fine as to potentially give a misleading impression to impecunious debtors should the RPB not step in to correct any misleading impression that such advertising might give?  

Another source has now written in to the blog and noted:

"...The company appears to have has form for misleading advertising - the ASA censured them last year over a different matter:

Interestingly the company name and number listed on their 'About Us' page (also in the long grass) do not match up on the Register of Companies, and the address they give is in Switzerland!

...Hopefully something can be done about this, but I fear it's virtually impossible to police this type of advertising unless Google and the other internet advertising companies really vet ads properly before accepting them (which seems highly unlikely, given that their entire business model appears to be 'post it on the web anyway, and we might take it down eventually if someone objects vehemently enough')."


As noted above, it is a good job the Insolvency Service (IS) publish helpful booklets. See here:

21 March 13

New Book: Pensions and Corporate Insolvency: A Practitioner's Guide, by Rosalind Connor, Nick Moser and Gary Squires

Pensions and Corporate Insolvency: A Practitioner's Guide, by Rosalind Connor, Nick Moser and Gary Squires has been published by Jordans. I thought I would say a few words about the book here. Maximo Park once questioned how objective a reviewer can be in one of their excellent songs. I hope the hosting of this blog does not make the reader conclude that a review would be anything other than objective.

The Taylor Wessing LLP and Zolfo Cooper LLP practitioner team have done a good job with this text. The book is divided into ten chapters. There is also a comprehensive appendix and navigable index. In terms of substantive content the book attemtps to deal with both pensions AND insolvency, that is to say the two subjects are treated thoroughly and then brought together to see how they interact. This is the authors' stated intention and I beleive they have acheived this aim. It is interesting to see a brief history of insolvency in the introductory chapter. Chapter One contains a fine exposition of, inter alia, the wrongful trading provisions. This treatment will be of note to the general reader, not just to those interested in insolvency and pensions.    

Chapter Two starts the discussion of pensions. To me this was all new - and in that sense this is a primary aim of the book, i.e. to introduce the reader to a novel area of law. The chapter is clear, understandable and well written. In terms of other notable highlights, Chapter Nine contains a discussion of restructuring without an insolvency process and Chapter Eleven mulls on international issues.

This book is an essential addition to any insolvency library. One question remains outstanding however - what is the Monday Night Club?

15 March 13

Garwood v Bank of Scotland Plc [2012] EWHC 415 (Ch) (04 March 2013)

Mr Justice Norris has handed down his judgment in Garwood v Bank of Scotland Plc [2012] EWHC 415 (Ch) (04 March 2013). The case makes for fascinating reading. This comes across almost immediately in the first sentence. The judge notes: "This is a contest between the unsecured creditors of a bankrupt fraudster (or possibly the fraudster's trustee in bankruptcy in respect of his fees), and a lender whom the fraudster duped, as to who should suffer most. The lender says that despite the fraudster's machinations and its own carelessness it should have first call on what can be salvaged from the sale of a property: and the fraudster's trustee in bankruptcy (who stands in the fraudster's shoes) says that what is salvaged should fall into the general pot and (after payment of the costs of the bankruptcy) be shared by all unsecured creditors (including the lender)." Enjoy! 

14 March 13

Guest Post: Jeremy Bamford reports back on the ILA Academic Forum

This year's ILA Academic Forum took place in the historic surroundings of Trinity Hall College in Cambridge and was a resounding success. Record numbers attended comprising academics (about half of the total), barristers, solicitors, overseas academics and members of the judiciary. The day achieved its aim of generating a melting pot of people and ideas from all areas of the restructuring and insolvency legal profession and was chaired by Sarah Worthington Downing Professor of the Laws of England, University of Cambridge who kept us all in order with rigorous discipline and glamour.

The first session was on the EC Insolvency Regulation, where a panel of distinguished academics from four Member States debated the case for the recently proposed reforms.  Dr Kristin van Zwieten John Collier Fellow in Law, University of Cambridge as chair was joined by Wolf-Georg Ringe Professor of International Commercial Law, Copenhagen Business School, Francisco Garcimartin Professor of Private International Law, Linklaters SLP and Professor Irene Lynch Fannon Head, College of Business and Law, University College Cork. The session highlighted both a common approach among Member States on most of the issues under reform, as well a few stark differences - notably on the subject of whether English schemes of arrangement should be included in Annex A and the extent to which schemes may be recognised in other Member States going forward if the UK does not list them. Prof Irene Lynch Fannon also commented on the difficulties of applying CoMI to individuals, particularly in the context of bankruptcy tourism.

Next Dr Sandra Frisby Associate Professor and Reader in Company and Commercial Law, University of Nottingham gave a characteristically dazzling session on her current research on creditor profiles in UK CVLs and insolvencies.  As HMRC appears to be the single biggest creditor, should we be looking at the taxpayers' case for reform?  The answer will have to wait for the project to mature.

Natalie Mrockova, the winner of the first ever ILA Academic Forum Competition, and D.Phil student at Oxford University, presented a paper on her doctorate project: "Designing insolvency laws for transition economies: the case of China".  Despite being a topic outside most peoples' every day job, she captivated the room with her witty explanation of the system in China and gave food for thought as to how the system in China (or lack of use of it) is going to impact our world as we become ever more entwined economically with economies in the far east.

A particular highlight of the day was the session delivered jointly by Prof. Jay Westbrook Chair of Business Law, University of Texas School of Law and Jennifer Marshall, Partner at Allen & Overy entitled "Divided by a Common Law: the divergence between the US and UK approach to anti-deprivation and claw-back".  After highlighting the opposite outcomes in our two highest courts on the same facts and issues, Jay and Jennifer offered a call to arms following the Rubin decision: functioning international insolvencies require recognition of judgments - an issue all too important to ignore.

Dr Jo Braithwaite Lecturer in International Commercial Finance Law, Department of Law, London School of Economics and Political Science provided us with a lively overview of her recent work on OTC Derivatives: the Courts and Regulatory Reform giving us welcome clarity on a subject which is renowned for its obscurity.

For the final session of the day, 4 heavyweights debated which is the most influential Supreme Court (or House of Lords) decision in restructuring and insolvency in the last decade. Prof. Sir Roy Goode QC Emeritus Professor of Law, University of Oxford, and Founder of the Centre for Commercial Law Studies, Queen Mary, University of London argued the case for Belmont, Gabriel Moss QC of South Square for the Kaupthing Cherry v Boultbee decision, David Chivers QC, Erskine Chambers for Spectrum, and Prof Dan Prentice Erskine Chambers, and Emeritus Allen & Overy Professor of Company Law, University of Oxford for the recent Rubin decision.  The result was a highly entertaining display of wit and knowledge - a real joy to behold. The winner was Spectrum David Chivers QC, who managed to outgun the academics with some (creative and well illustrated!) empirical arguments and a lot of charm.

The event was very well supported by both the academic and practitioner communities confirming that the partnership between the two is going from strength to strength. Given the demands placed upon both limbs of the profession by the current unprecedented rate of development of law in restructuring and insolvency, there can only be a benefit from collaboration. We therefore look forward eagerly to the ILA Academic Forum 2014.

13 March 13

Pre-packs Independent Review and Hansard Comment

The Insolvency Service have announced an independent review of pre-packs following some discussion of the issue in the House of Lords. See the Insolvency Service statement here. It will be interesting to see who is commissioned to undertake the review. My money is on Dr Frisby following her recent cite in the BIS House of Commons report and her long history of empirical work in the area.

Here is there salient bit from Hansard:

"Lord Mitchell (Labour)

My Lords, I speak to Amendment 84AHNZA, which calls for the Government to commission an independent review into pre-pack administrations. Noble Lords will see that this amendment represents the recommendations of the BIS Select Committee report to the Insolvency Service, released on 29 January this year.

It might be helpful if I attempt to define a pre-pack administration. I find many people do not know what it is, and I am not surprised. It is where the directors of a failing company seek to preserve its continuing existence after administration by lining up replacement owners and finance before the administration takes place-in effect, relaunching the company with many of its creditors and minority shareholders stripped out, while effectively continuing the existing business in another name. It gives the business a second chance, but often at the expense of these creditors and shareholders. My contention is that it is often unprincipled and unfair. Usually, there is no creditors meeting and no consultation with the court before this takes place. The sale may be to individuals who were directors of the firm before the pre-pack administration, and the new firm may have a similar name. As I say, the only difference is that the new company is shorn of its debt and maybe its smaller shareholders. Effectively, it is cooking the books. Such firms have sometimes been known as phoenix companies, having risen from the ashes of the old insolvent company.

My interest in pre-packs arose when a company in which I had a minority shareholding interest wanted to restructure its financing to my detriment. To do this, it needed me to sign off on a revised deal. I refused. It threatened me with a pre-pack, a term that I had not heard of before, but about which I learned pretty quickly. I still refused and, fortunately, it backed down. However, I saw how that could be used as a negotiating tactic. More to the point, I saw how the small people can get hurt. Despite that, I am prepared to concede that pre-packs can have a very important function. They can allow a company to continue and the administrator to move quickly to preserve the business and, most importantly, jobs. That is what all of us want.

A few weeks ago, I went to see the BIS Minister responsible for this issue, Jo Swinson MP. I cannot say that it was a particularly helpful meeting. Her approach was that pre-packs are good because they preserve jobs and the company. My view is that they can be bad when creditors such as SMEs are cast adrift and where employees are similarly left in the lurch in a very much weaker position. We beg to differ.

I believe that the time has come to have a comprehensive and independent review into that practice to see where improvements can be made and safeguards can be added. My purpose in introducing the amendment is to oblige the Secretary of State to look seriously at how those abuses can be addressed. They tell me that this is a hugely complex area and that it will be hard to draw up appropriate legislation. Indeed, the Government have tried and failed in this Parliament. My response is, "Since when did we turn our backs on something just because it is too hard?". That should make us more determined.

I recognise the complexities, and I do not introduce the amendment today claiming to know all the answers. Let me outline some of the areas that need to be addressed. The first is consistent with what I have been arguing with regard to levels of remuneration in a company: the need for transparency. To cite the Association of British Insurers in its evidence to the BIS Select Committee in December 2011:

"We think that the heart of the problem lies in the serious conflict of interest inherent in an insolvency practitioner devising a pre-pack sale in secret in conjunction with the directors and secured lenders of a failing company, and then immediately implementing that transaction as administrator with a duty to act in the best interests of all creditors".

The question that many small businesses find themselves asking after a pre-pack insolvency is: to whose benefit is this insolvency? They find that the answer is: those who drew up the insolvency plan and called in the administrator. It is there that the problem lies. When parties connected to the old company are involved in the new company, that compounds the frustration felt by unsecured creditors. The percentage of pre-packs which are sold to connected parties is higher than for business sale administrations.

There have also been some egregious abuses. My honourable friend Luciana Berger MP tabled a Private Member's Bill in the other place to amend the Health and Safety Acts to prevent companies avoiding fines by being in administration. A construction worker, Mr Mark Thornton, had been killed by a steel column on a building site in my honourable friend's constituency. A judge said that he was unable to award a £300,000 fine because the company was in administration. The company responsible was later bought out by its directors in a pre-pack deal and continues to trade. That shows at the extreme level the potential for abuse of pre-packs by connected parties. I am proud that the Labour Party has committed to fixing the health and safety loophole that allowed that and other such cases to happen.

I acknowledge that there are strong arguments for pre-packs. To my mind, the strongest of those is the rate of job preservation. Figures from one study suggest that pre-packs preserve the entire workforce 92% of the time, as opposed to 65% of the time in other administrations. So clearly, they are not a bad thing. However, a few factors need to be considered alongside that. Pre-packs have a higher rate of failure than companies restructured in other ways. Another is that those jobs could continue in other companies. Also, the effect on jobs in small companies needs to be considered, as they could be vulnerable to losing out on large payments owed when a company goes into administration. By way of example, the Federation of Small Businesses has told me about a publishing company in London which had to lose a member of staff after it was not paid £100,000 owed to them by a company that went into pre-pack administration.

What possible solutions could the review consider? I know, for a start, that the Government are currently looking to strengthen and clarify the guidelines under SIP 16, which is the Insolvency Service guideline. I welcome that. However, what other safeguards could a review consider in detail? One that has been considered is that when an administrator has been advising a company about a pre-pack administration, before that pre-pack could be sold, an independent administrator would have to inspect the deal. It is true that that would add to the cost of the administration, but it would reassure creditors and remove what some argue is one of the clearest potential conflict of interest when pre-packs are put together: that of the administrator brought in by the management to organise a pre-pack insolvency.

That potential conflict of interest was recognised in 2010 by the judge in the case of Johnson Machine Tool Company Limited, when the court did not allow the administrator to charge his fees for pre-administration work on the pre-pack as an administration expense. That was because the people gaining from the work were not the management or the creditors-exactly what the critics of pre-packs argue.

Clearly, this is a difficult question, not least because there is no set definition of pre-pack in law. That very fact is a sign that some of its abuses were not envisaged by policymakers in the past and that we need a review to see whether improvements can be made and safeguards added. I beg to move."

Viscount Younger Replied:

"Viscount Younger of Leckie (Conservative)

Noble Lords will be aware that the administration procedure is the primary mechanism for effecting business rescues. It is important to recognise that the objective of administration, if the rescue of the company is not feasible, is to provide the best return for creditors. A pre-pack sale is merely a means of achieving that outcome and should therefore always be in the interests of creditors. I am most grateful to the noble Lord, Lord Mitchell, for his helpful description of pre-packs for the benefit of the House.

As the noble Lord said, pre-packs can be an effective way to the best outcome for creditors, enabling businesses to be rescued and preserving jobs, but we recognise that there can be scope for abuse. That scope is greatest where pre-pack sales are to connected parties, such as the directors or their families. Again, I am grateful for the anecdotal evidence given tonight by the noble Lord, Lord Mitchell. That is when most concerns are expressed, and it is vital that everyone involved has confidence that such sales are at fair value. We have been listening carefully to concerns expressed about the use of pre-packs, and Ministers have met with stakeholders to discuss the issue. I am aware that, as the noble Lord, Lord Mitchell, mentioned this evening, he recently met with the Minister for Employment Relations and Business Affairs, Jo Swinson, to discuss the issue. We have also invited those who have complained about the procedure to provide evidence of abuse, so that that can also be pursued.

I reassure noble Lords that work is already under way to improve the transparency about pre-pack sales. There is a statement of insolvency practice, SIP 16, setting out the information that has to be provided to creditors by insolvency practitioners. That is being strengthened to ensure that more information will be disclosed and that creditors will receive that information at an earlier stage. Insolvency practitioners will also have to confirm that a pre-pack sale is in the best interests of creditors. That should provide greater confidence that the pre-pack sale is justified. The Insolvency Service is proactively monitoring information disclosed under SIP 16 reports to establish whether there has been any abuse. Where there is evidence to suggest abuse, it is reported to be relevant regulatory body for action to be taken. Such action can include fines, sanctions and, ultimately, loss of the insolvency practitioner's licence. The Insolvency Service will report on its findings in this regard.

We therefore already have measures in place to protect against abuse, and continue to monitor the pre-pack process to ensure that it is being used appropriately. However, I share many of the concerns raised by the noble Lord, Lord Mitchell, which I know have been expressed on other occasions in both this House and the other place.

I agree that an independent review into the issue would be beneficial. For that reason, I confirm that we will commission an independent review into pre-pack sales in late spring, once the strengthened SIP 16 is in place and after the Insolvency Service has reported on the findings from its monitoring.

On the review issue surrounding continuation of supply to insolvent businesses, this is now the subject of a Government amendment being debated shortly. We propose to consult on the issue prior to implementing reforms and I am satisfied that this will address the concerns in this area. In view of this assurance to commission an independent review into pre-pack sales, I hope that the noble Lord will agree that it would be unnecessary to introduce a statutory requirement to do so, and will therefore withdraw his amendment. I conclude by thanking the noble Lord, Lord Mitchell, for raising this important issue."