The restructuring of Wind Hellas, a Greek telecoms company, has prompted the Sunday Times to repeat a claim by Bertrand des Pallières, of hedge fund SPQR Capital, that Britain is becoming a bankruptcy brothel.

In this high profile example of aggrieved creditors misconstruing that it is the procedure involved rather than the underlying business failure that causes loss in insolvencies, jurisdiction shopping and bankruptcy tourism have been joined by a more colourful phrase!

Not only was the Centre of Main Interests (COMI) of the relevant Wind Hellas company moved to England from Luxembourg (ie 1300 miles away from Greece rather than 1000), but it was then put through a pre-pack administration (with all the unfortunate connotations that unfortunate phrase has come to bear).

The administrators will have acted in the best interests of the creditors generally, otherwise their regulator and the courts would have been active, especially with aggrieved creditors on the scene, yet still the Sunday Times and the Mail on Sunday chose to suggest that the losses were somehow linked to the insolvency mechanism used.

This may be something of a storm in a teacup in the Wind Hellas administration, but it is regrettable that such shrieking hinders genuine business reconstruction by casting doubt on the flexible, highly-regulated UK insolvency regime, which operates subject to the scrutiny of a highly regarded and equitable court system.

Of course, a Luxembourg insolvency might have suited a particular aggrieved creditor, but the well-established COMI principle allows companies to move between jurisdictions. It’s the debtor’s choice.

In cross-border cases there will often be those who would have preferred a different insolvency regime, but while the UK continues to offer the most varied and flexible system and the experienced and regulated practitioners to make best use of it, debtors – and creditors generally – will benefit.

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Portsmouth Football Club’s insolvency has valuable lessons for other troubled businesses. Why did this premiership club that has been established for over 112 years go bust?

Putting aside the football legislation and emotional embroilment of Pompey’s fans, there were several business factors that led to Portsmouth FC becoming the first premiership club to go into administration.

• Overdue payments to HMRC

Portsmouth failed to pay its scheduled payments as they fell due. This allowed HMRC to provide the courts with evidence that the company was technically insolvent. Not every case will result in a creditor taking action against an overdue unpaid bill, but directors should remain aware of the potential consequences. 43% of successful winding-up petitions are presented by HMRC, but they will support what they believe to be a viable business, so it is vital directors act early.

• Cash flow

It is reported by the BBC that due to Portsmouth’s insufficient ground capacity, the club relied heavily on TV payments to meet its monthly outgoings. When the premier league withheld its TV payments in January 2010, the strain on the company’s cash flow was evident with players not been paid on time and management searching for new sources of finance. Accountancy Age reported that the club was looking to receive a cash injection before 17 February from an associate, but this never came. Cash flow is a key component in operating a successful business, and during a recession its importance cannot be understated. If you are regularly unable to pay suppliers or employees, then without restructuring your business and finances, the outcome will normally be insolvency. There are various cash management strategies that can be implemented (for example, re-negotiating supplier terms or selling non-core assets) to give a company some breathing space.

• Management and infrastructure

In the last 12 months, Portsmouth has had 4 different owners and sold several key players, such as Jermain Defoe and Peter Crouch. Management failed to recognise that stability and long term planning is vital for the future success of a company. Without key employees or coherent management strategies, it will be difficult to overcome any external pressures. Now, more than ever, owners/directors should be keeping a close eye on the company’s accounts and the monthly management reports. Spot potential problems and resolve them quickly and swiftly. If ever unsure, directors should seek advice promptly before it is too late.

Should these recent events be a stark warning to all that HMRC are starting to play hard ball? Will 2010 bring a influx of winding up petitions being presented against companies? Should the Portsmouth situation start to ring alarm bells for other companies in similar situations? The answers are most likely to be yes in all cases.

On 2 March, the Financial Times reported that following HMRC request the High Court has ordered a hearing to be held to consider whether the administrators appointment was valid. So with HMRC continuing to add pressure, there is still a danger that Portsmouth could be wound up.
 

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Statistics released in February 2010 have revealed that the number of compulsory liquidations, following the issue of a winding up petition, is increasing.

Previous recessions have shown that, as the economy moves into recovery, the number of businesses facing corporate insolvency increases. The incidences of winding up petitions being issued are, therefore, likely to increase. A new aspect for this post recession period is that many businesses are coming to the end of their 'time to pay' arrangements with HMRC having failed to meet their payments schedule. With HMRC taking a stricter line, failure is likely to result in termination of the arrangement and their instigating a winding up petition.

In the event of a winding up petition being served it is imperative that directors comply with their responsibilities and seek professional advice on the options available for the business as soon as possible.

If your business has or is likely to be served with a winding up petition then you can contact us for an initial free consultation on 0845 603 6253 to speak with one of our Licensed Insolvency Practitioners or alternatively you can email us.

Mercer & Hole's Restructuring & Insolvency team have considerable experience of dealing with a wide variety of insolvency issues. The team specialise in rescuing businesses through operational turnaround and financial restructuring, and through the constructive use of formal insolvency procedures.

Steve Smith is a Restructuring & Insolvency partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Steve you can call him on 01727 869141.

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The European Court of Justice (Case Number C-444/07) has held that the German court was not entitled to make an attachment order against the German assets of MG Probud Gdynia sp. z o.o. ('MG Probud'), which was subject to Polish winding up proceedings.

Polish law provides for a stay of enforcement proceedings against the assets of a company that goes into liquidation. Shortly after the Polish proceedings were opened, the local court in Saarbrücken, Germany had ordered an attachment of various bank accounts and claims in Germany on the application of the German Customs Office

The Polish liquidator’s appeal was dismissed by the regional court in Saarbrücken on grounds that ‘there was reason to fear that those responsible within MG Probud would shortly collect the sums payable and transfer the corresponding amount to Poland in order to prevent the German authorities from having access to them’. It was also said that the copy of the judgement enclosed with the appeal was inadequate to enable determination of whether relevant Polish proceedings had been opened.

The ECJ emphasised that it is inherent in the principle of mutual trust it identified in Eurofood IFSC (Case C-341/04) that the court opening main insolvency proceedings examines whether the debtor’s centre of main interest (COMI) is situated in the Member State of that court. In return, the courts of the other Member States recognise the judgement opening main insolvency proceedings, without being able to review the assessment made by the first court as to its jurisdiction.

In this particular case the ECJ held that the documents available to the court contained nothing to affect the presumption in Article 3(1) of the European Insolvency Regulation No 1346/2000 ('the Regulation') that the place of the company’s registered office was the COMI and that this was therefore situated in Poland.

The ECJ also made clear that only the opening of secondary insolvency proceedings is capable of restricting the universal effect of the main insolvency proceedings.

This case illustrates the importance of COMI and it reminds us of the rebuttable presumption that the COMI is at the place of the company’s registered office. Once insolvency proceedings have been opened it is the insolvency law of the Member State in which they were opened that, subject to the exceptions in Articles 5 to 15 of the Regulation, governs the opening, conduct and closure of the insolvency proceedings.

This is of course why battles about the situation of a company’s COMI have been so intense.

In this case, the ECJ has awarded a clear win to the Polish liquidator (and arguably a yellow card to the German authorities!).

Chris Laughton is a Restructuring & Insolvency partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Chris you can call him on 020 7353 1597. 

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The headlines from the statistics released last week by the Insolvency Service focus on the record increase in personal insolvencies. There has been an increase of 24.9% on the same quarter last year and 2009 as a whole is 25.9% up on the previous year.

As far as corporate insolvencies are concerned there are marked differences across the different types of insolvency procedure. For liquidations there has been a 23% increase in cases on 2008 whilst the numbers for administrations, after eliminating anomolies, shows just a 1.7% increase for the year. By comparison to the changes on the same quarter last year liquidations have a 1% fall but administrations a drop of some 34%. A closer examination of the numbers show that across all forms of corporate insolvencies the numbers increased throughout 2009 with liquidations and administrations peaking in the second quarter of 2009. The notable exception was company voluntary arrangements, which are continuing to rise. The reduction in liquidations and administrations is likely to be as a result of the reticence of the banks and HMRC to initiate formal insolvency proceedings during this period with the latter promoting their Business Payment Support Service (so called 'time to pay' arrangements) . There is also a greater willingness to support CVAs to maximise the chance of recovery from creditors.

The key question is what is going to happen in the coming months? History dictates that now that we are technically out of recession we can expect the number of insolvencies to climb in the months ahead. Following the recession of the late eighties and early nineties, the level of liquidations did not peak until 1992. This time around the recession has hit harder and whilst I think there can be little doubt that corporate insolvencies will begin to climb again in the near future and will take a long time to fall back to pre-recession levels, the timescale and the level to which they will rise is more difficult to determine.

Peter Godfrey-Evans is a Restructuring & Insolvency partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Peter you can call him on 01908 605552. 

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The Government’s Insolvency Service says:

“We maintain the view that in the right circumstances pre-packs can be a useful tool”.

This echoes our previous commentary on pre-packs noting that insolvency procedures operate in interests of creditors, and that creditors lose not because of the insolvency mechanism used, but because the company failed in the first place.

At a recent R3 Breakfast Briefing to insolvency practitioners, Mike Chapman, the Head of Insolvency Practitioner Regulation at The Insolvency Service, confirmed that the Service has been tackling ignorance about the position of unsecured creditors in insolvency legislation generally, but he added that it was difficult to engage effectively with creditors and that he would welcome suggestions about how best this might be achieved.

The focus of the briefing was Statement of Insolvency Practice 16 (“SIP16”), which requires administrators to report fully to creditors immediately on the execution of a pre-pack sale.

The Insolvency Service position is very clear on the SIP16 requirements being principles based:

“It is important that [creditors] are provided with a detailed explanation and justification of why a pre-packaged sale was undertaken, so that they can be satisfied that the administrator has acted with due regard for their interests.”

A checklist approach to covering all the points mentioned in SIP16 may be found to be non-compliant if it is not clear to creditors why the pre-packaged sale was undertaken.

That is, of course, the point. Transparency means enabling creditors to understand why a particular course was followed and it is transparency that will enable creditors to have confidence in insolvency practitioners’ activities on their behalf.

Chris Laughton is a Restructuring & Insolvency partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Chris you can call him on 020 7353 1597.

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Not only is rent an administration expense, but it is payable on the terms of the lease. Having the company occupy only part of the premises on a quarter day will in most cases trigger an administration expense liability for the whole of the next quarter's rent, payable immediately.

This results from the decision in Goldacre (Offices) Ltd v Nortel Networks UK Ltd [2009] EWHC 3389 (Ch) (07 December 2009), where HHJ Purle QC applied the Lundy Granite or liquidation expense principle to administrations in light of the similarlity of wording between Insolvency Rules 4.218 and 2.67.

In February 2009 we postulated, following Innovate Logistics Ltd v Sunberry Properties Ltd [2008] EWCA Civ 1321 (18 November 2008), that the administrator and the landlord would have to consider the balancing exercise that the court would undertake between the financial loss to the landlord and the financial loss to the creditors generally. The pendulum has now swung firmly in favour of landlords.

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Prior to the Pre Budget Report (PBR) in December, there was speculation that the Business Payments Support Service (BPSS), which provides assistance by agreeing to deferred payments for those businesses facing difficulties, was to be closed. The Pre Budget Report however confirmed the BPSS is to remain in place and more recently, there has been an announcement that the scheme is to be fully extended to partnerships.

The availability of the BPSS for partnerships will be particularly helpful for larger professional partnerships where individual partners have to date been dealt with individually and by different tax offices, leading to the potential for inconsistent treatment. The ability to deal with a single office will be a considerable benefit.

HMRC have reiterated the basic principles underlying the circumstances in which support will be given, the key one being that in their opinion they must be satisfied that the business remains viable. In addition, to obtain support the business must be in genuine difficulty, unable to pay their tax on time and likely to be able to pay their tax given more time.

In the PBR it was announced that in the future, probably from April 2010, HMRC will require an Independent Business Review to be carried out where the debt exceeds £1 million; details of exactly what is to be required have yet to be determined.

Notwithstanding these developments there is a general feeling which is echoed by comments in the press that HMRC are taking a much stricter line when dealing with time to pay applications and more are being refused. Contrary to the guidance given in their manuals, HMRC appear to be demanding more information to support any agreements. In addition, any breaches of agreements previously made are likely to lead to enforcement action being taken by HMRC.

Whilst the above may appear to provide mixed messages, the bottom line appears to be that HMRC will support what they believe to be viable businesses. Applications must be well prepared and realistic, and failure to meet previously agreed schedules is likely to result in termination and institution of recovery proceedings. Should you require assistance in making such applications, or require help approaching HMRC, then please do not hesitate to contact me.

Peter Godfrey-Evans is a Restructuring & Insolvency partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Peter you can call him on 01908 605552. 

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Stitching up creditors; insolvency practitioners earning huge fees; rescuing businesses; clearing up a mess: these are examples of what insolvency means to people.

You may have thoughts of your own (please comment below), but some of my observations are:

• Directors or debtors don’t usually cause loss to creditors on purpose, although creditors often lose and directors/debtors can certainly be at fault.
• Insolvency practitioners are highly trained, qualified, skilled and regulated specialists, who are paid the same as other specialist accountants and lawyers. Their fees are approved by creditors.
• Most troubled businesses can be rescued if good advice and remedial action are taken soon enough. If left too late, that remedy may involve insolvency proceedings where creditors are not paid in full.
• There are always losers in a formal insolvency, which is why action should be taken early enough to avoid it. When that doesn’t happen, problems turn into a mess and people lose – sometimes a lot.

The theme is that whether you’re a creditor or a debtor it pays to seek advice early – from someone who really knows what they’re talking about.

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