Top 5 Notable Insolvency Cases in the United Kingdom

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Top 5 Notable Insolvency Cases in the United
Kingdom
There are some insolvency cases that, due to the
nature of the insolvent company, or the
complexity of the case, become notable in
history. The benefit of notable insolvency cases
is that future insolvency practitioners (IPs)
have the opportunity to learn from them. So,
lets take a look at the top 5 notable insolvency
cases every insolvency professional should know
about.
1. Eurosail
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Eurosail bought a portfolio of sub-prime
mortgages which were funded by loan notes of
various currencies and classes. Eurosail entered
into a variety of currency swaps with the Lehman
Brothers Group, which protected Eurosail from
exchange rate fluctuations. Should there be a
default on the notes, including Eurosails
ability to pay its debts, they become due for
payment. When the Lehman Brothers Group
collapsed, Eurosails currency protection also
collapsed and left them with a claim in the
following Lehmans insolvency procedure. Together
with the subsequent negativity of interest and
currency rates, it meant that Eurosails audited
accounts showed that their liabilities were far
higher than their assets. But Eurosail was able
to pay interest on the notes as well as repay the
principal on the basis that funds were
available. Subsequently, a group of subordinated
noteholders started proceedings on whether they
were able to declare an event of default the
argument being that if Eurosail were allowed to
pay interest on the notes and principal on the
funds that ranked higher, there would be a
shortfall in funds. However, should an event
default be declared, their position would be
better as they are then ranked pari passu with
the noteholders. Ultimately, the Supreme Court,
which upheld the Court of Appeals decision, held
that The statutory test for a company unable to
pay its debts is materially different from the
position under the Companies Act 2006. The
balance sheet test requires a court to be
satisfied that, on the balance of probabilities,
the company has insufficient assets to meet all
its liabilities, including prospective and
contingent liabilities. The more distant
liabilities, the harder this will be to
establish. There is no need to have recourse to
the concept of the point of no return as
alluded to in the Court of Appeal judgement, and
the expression should not pass into common usage
as a paraphrase of Section 123(2).
2. Nortel

• Nortel and the Lehman Brothers Group case deals
  with the underfunding of each groups pension
  scheme, with the real possibility that each
  company could become the subject of a financial
  support
• direction and, therefore, a contribution notice
  under the Pensions Act 2004. According to the
  law, the Pensions Regulator can impose liability
  for a pension scheme debt on a company with a
  defined benefit scheme.
• A creditor can prove in the administration or
  liquidation of a company they are owed a debt.
  The debt in this context includes
• A liability to which the company is subject when
  it goes into administration or liquidation (rule
  13.12(1)(a) Insolvency Rules 1986).
• A liability that arises from an obligation to
  which the company was subject when it entered
  administration or liquidation (rule 13.12(1)(b)).
• The Supreme Court held that the financial support
  direction liabilities were provable debts in the
  administration of the companies under rule
  13.12(1)(b) of the Insolvency Rules 1986. It held
  that the companies were under an obligation to
  make a payment to the Pensions Regulator pursuant
  to the statutory scheme even though they were not
  subject to an FSD when they entered
  administration.
• 3. McDonagh and Pengelly
• Employees claimed against the National Insurance
  fund for arrears of pay as well as unpaid holiday
  pay. However, their claim was refused on the
  basis that there was no entitlement. This was due
  to the fact that the company was already
  insolvent as it had entered into a CVA, which
  wasnt known by the employees. Insolvency law and
  Section 182 of the Employment Rights Act 1996
  says that the Secretary of State should make
  payment from the National Insurance fund if
• The employees employer has become insolvent.
• The employees employment has been terminated.
• On the appropriate date, the employee was
  entitled to be paid, the whole or part of any
  debt to which this part applies.
• Although the employees claims were upheld by two
  employment tribunals, the Secretary of State
  appealed the decisions. Ultimately, the
  Employment Appeals Tribunal (EAT) held that the
  employees of companies that had entered into a
  CVA were not entitled to payments from the
  National Insurance fund when the company then
  went into liquidation. The reason being that
  legislation, such as
• employee claims, can only be applied to one
  insolvency event and the single date is the date
  the company entered the court-approved CVA, not
  the subsequent liquidation.
• Ethel Austin and Woolworths

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and obviously needed to enter an insolvency
procedure, the court wasnt able to make an
administration order.
So these were the top 5 Notable Insolvency Cases
in the United Kingdom. If you are struggling with
corporate or personal debt and unsure what the
right route is to deal with your creditors, the
first step is to seek professional advice. Our
highly experienced professionals at Leading are
on hand to help with advice on managing personal
and professional insolvency matters. Contact us
today and discover how we can help you.
By Viv1 July 18th, 2022 Industry News
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