Brexit: to IP Completion Day and Beyond

Mark Phillips QC on whether British Virgin Islands: Litigation Funding the UK will be flying, or at A liquidator’s year in Insolvency Harneys BVI’s Andrew Stefanie Wilkins least falling, with style Thorp and Peter Ferrer and Burford Capital’s on an important year Robin Ganguly take for liquidators a global look at litigation funding

A regular review of news, cases and www.southsquare.com articles from South Square barristers ‘The set is highly regarded internationally, with barristers regularly Chambers UK Bar Awards, winner 2019 appearing in courts CHAMBERS BAR AWARDS around the world.’ Chambers/Insolvency set of the year 2019 CHAMBERS UK CHAMBERS & PARTNERS

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In this issue 06 14 18

Brexit: British Virgin Islands: Litigation Funding in Insolvency to IP Completion Day and Beyond A liquidator’s year Stefanie Wilkins and Burford Capital’s Mark Phillips QC on whether the UK Harneys BVI’s Andrew Thorp and Robin Ganguly on litigation funding will be flying, or a least falling, Peter Ferrer on an important year with style for liquidators

ARTICLES REGULARS The Honourable Frank J C 23 From the Editors 04 South Square/RISA 56 Newbould QC News in Brief 64 Cayman Conference Chambers is delighted to welcome Diary Dates 68 our newest Associate Member Euroland 58 South Square Challenge 70 Associate Member Professor Cryptoassets, cryptocurrencies 24 Christoph Paulus on CASE DIGESTS and insolvency developments on the continent William Willson takes a look at Editorial 27 the UK Jurisdiction Taskforce’s Legal Eye 62 Banking & Finance 28 legal statement Madeleine Jones considers Civil Procedure 29 the possibilities and pitfalls Commercial Litigation 31 Guernsey Modernises its 44 of online justice Company Law 33 Insolvency Law Corporate Insolvency 35 Alex Horsbrugh-Porter of Ogier, Personal Insolvency 40 Guernsey, and Daniel Judd set Sport 41 out the principal changes 53 Duties of Administrators 48 Matthew Abraham and Piers Elliot South Square Digest Disclaimer (Henderson & Jones) look at the duties of administrators in respect The content of the Digest is provided to you for of company claims information purposes only, and not for the purpose of providing legal advice. If you have a legal issue, Open All Hours? 53 you should consult a suitably-qualified lawyer. The content of the Digest represents the views of William Willson tries to unravel the authors, and may not represent the views of the current muddle on procedures other Members of Chambers. Members of Chambers practice as individuals and are not in partnership for out-of-hours filing with one another.

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From the editors

and Peter Ferrer of Harneys, British Virgin Islands, which reviews the important insolvency law related developments in the BVI over the last twelve months.

With an unerring eye on other important developments in the offshore world, we have a joint article from Alex Horsbrugh-Porter of Ogier, Guernsey and Daniel Judd of Chambers updating us on Guernsey’s MARCUS HAYWOOD AND WILLIAM WILLSON new insolvency law passed on 15 January 2020.

Given the increasing importance Welcome to first edition of the of litigation funding to lawyers and insolvency practitioners in complex South Square Digest for 2020 international cases, we also have an article by Robin Ganguly of Burford Capital and Chambers’ Stefanie The start of 2020 has already seen a has reached pandemic potential, the Wilkins which examines the state of number of significant events around IMF replied that it is the “most pressing the law regarding litigation funding the world. On 31 January 2020, the UK uncertainty” facing the world economy in insolvency in key litigation hubs left the EU and has now entered the right. In late February European stock around the world. 11-month “implementation” period. markets endured their worst session In another joint article, Piers Elliott Finally, we’ve reached the end of the in 5 years. Millions of companies in of Henderson & Jones and Matthew beginning. But time is short and much China are struggling to stay afloat. Abraham consider the equally is to be decided. The negotiators are Bloomberg has reported that only one important and not unrelated topic primed and the red lines have been third of Chinese SMEs had sufficient of an administrator’s duties when drawn. Will there be a “Canada-style cash to cover fixed expenses for a considering whether to pursue or deal” with the EU, some other form month, with another third running assign litigation and the practical of deal or no deal at all? After last out in two months. The global steps that can be taken to minimise editorial’s (mis-) prediction that “the economic shockwaves are potentially the risk of claims being brought surest [general election] bet looks like a catastrophic. against administrators. record number of non-Conservative and Ever topical, this edition of the Digest non-Labour MPs in Parliament”, we’re And in our regular “Legal Eye” piece, kicks off with an article by Mark keeping quiet this time. Madeleine Jones considers the future Phillips QC in which he continues his of “online justice” and how that might In other news, over 15 years after Brexit series with a detailed analysis look. Meanwhile, Professor Christoph the SARS outbreak, the world is of the applicable laws during the Paulus continues his regular Euroland facing another Coronavirus epidemic, “implementation” period and some of column and updates us of recent COVID-19. Whilst the world’s press the important issues that are likely to developments of interest on has understandably focused to date affect us in the months ahead. the continent. on the human impact, there are grave Moving from Europe to the Caribbean, economic consequences. When the The period since the last edition of we have an article from Andrew Thorp WHO has warned that the outbreak the Digest was published in November From the Editor 5

2019, has also seen the handing down Counsel following the 2019 It goes without saying that if you have of judgments in a number of important competition. The QC Ceremony will any feedback to give us in relation to cases including the decision of the take place on Monday 16 March 2020 the Digest – positive or negative – we Supreme Court in Singularis Holdings at Westminster Hall. would be delighted to hear from you. Ltd v Daiwa Capital Markets Europe Ltd We also welcome Frank Newbould QC Many thanks to all for their and the decision of the Privy Council as an Associate Member of Chambers contributions. As always, views in Pearson v Primeo Fund. A summary from January of this year. Frank is expressed by individual authors and of these cases, along with other cases well-known and highly respected in contributors are theirs alone. of note, many involving members of the world of restructuring. Prior to Chambers, appear as always in the We hope you enjoy this edition of his retirement from the bench, he was Case Digests. the Digest. And if you find yourself a Judge of the Ontario Superior Court reading someone else’s copy and wish And of course, we have the Digest of Justice and from 2013 to 2017 head to be added to the circulation list, Quiz, which in this edition adopts of the Commercial List in Toronto, please send an email to kirstendent@ a sporting theme. Canada’s leading commercial court. southsquare.com and we will do our A full article about his Associate In other news, South Square is best to make sure that you will get the Membership of Chambers appears delighted to announce that Richard next edition and all future editions.  later in this edition of the Digest. Fisher is to be appointed Queen’s Marcus Haywood & William Willson SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Brexit: to IP completion day and beyond!

MARK PHILLIPS QC Brexit: to IP Completion Day and beyond! 7

Throughout the Brexit saga I have the EU in the future. The European 1. As a result of the Withdrawal Agreement new mechanism in the Act 2020). compared the process to a stressful car Communities Act 1972 (the “ECA 72”), saving of parts of the journey with noisy children fighting which will not be repealed in full European Communities 7. Section 1 of the Act 1972 during the Withdrawal Act. in the back. I cannot describe 11pm on until after the IP completion day, the implementation period. Friday 31st January 2020 as the arrival European Union (Withdrawal) Act 2018 2. As explained below, of our surviving travellers at their final (the “Withdrawal Act”), that has in section 3 of the destination. They might be said to turn been amended and supplemented Withdrawal Act provides that the operative have driven to the airport, boarded the by the European (Withdrawal provisions of EU law aircraft and left airport EU, but where Agreement) Act 2020 (the “Withdrawal on completion of the Implementation Period they might land is something we will Agreement Act”), which in turn gives become UK domestic 4 law. That will be discover over the rest of 2020. The UK effect to the withdrawal agreement. affected by two things, has passed through the door marked There is also the Political Declaration what the operative provisions are on that ‘exit’ and is no longer a Member but that does not give rise to present date and whether they State of the EU. However, until after legal rights or obligations during the have been superseded by agreements between completion of the “implementation implementation period. The Political the EU and the UK. period”1, and probably beyond2, the Declaration5 is important in assessing 3. Section 1A of the UK will continue to apply EU laws. what the UK’s relationship will be after Withdrawal Act, The “implementation period” is the the end of the implementation period, introduced by section 1 of the Withdrawal “transition or implementation period… the “IP Completion Day”.6 Agreement Act. beginning with exit day and ending The European Union (Withdrawal) 4. The “Agreement on IP completion day, 31st December on the withdrawal of the United Kingdom 3 Act 2018 2020.” During that period the UK and of Great Britain and the EU will work towards entering For the next 11 months, whilst we keep Northern Ireland from the European Union and into the more permanent arrangements one eye on the negotiations for the the European Atomic to which the UK and the EU aspired future relationship between the EU and Energy Community, as endorsed by leaders at a in the Political Declaration. For the the UK, the UK will continue to apply special meeting of the period following completion of the parts of the ECA 72. After completion of European Council on 25 November 2018”. Implementation Period the provisions the implementation period, subject to 5. The “Political that would have applied following exit any agreements made in the meantime, Declaration setting day under the original Withdrawal Act the UK will apply domestic law that out the framework for the future relationship will, in broad terms, and subject to incorporates provisions of EU law that between the European agreements in the meantime, apply. are operative on IP Completion Day. Union and the United K i ngdom”. Those provisions are likely to be Part 1: the laws applicable during 6. “IP completion superseded by agreements made during the Implementation Period day” means 31 the implementation period. In the December 2020 at 11.00 p.m (section 39(1) context of insolvency and restructuring The continued application of the Withdrawal Agreement it would be surprising if no agreement European Communities Act 1972 Act 2020). References in the Withdrawal could be made in the next 11 months during the implementation period Agreement Act 2020 to replicate, as between the UK and the to “before, after or on The ECA 72 is repealed on exit day7 IP completion day, or EU, the provisions of the EU Insolvency but there is now an important saving to beginning with IP Regulation, particularly given that completion day, are to for the implementation period. be read as references to absent agreement, the EU Insolvency before, after or at 11.00 The Withdrawal Agreement Act Regulation will become UK domestic law. p.m. on 31 December introduced sections 1A and 1B into 2020 or (as the case may be) to beginning There are now four sources of the rules the Withdrawal Act: with 11.00 p.m. on that govern our legal relationship with that day (section 39(2) SOUTH SQUARE DIGEST March 2020 www.southsquare.com

“1A(2) The European Communities Act 1972, as it has A review is triggered by the European Scrutiny 8. Subsections (3) to (5) deals with references effect in domestic law .. immediately before exit day, Select Committee of the House of Commons (“the to treaties, objects of continues to have effect in domestic law or the law of ESSC”). If the ESSC publishes a report in respect the EU and ancillary matters that are the relevant territory on and after exit day so far as of any EU legislation made, or which may be made necessary because provided by subsections (3) to (5) .”8 during the implementation period that (a) states the UK is no longer a Member State. that in the opinion of the ESSC the EU legislation Section 1A(3) provides that the ECA 72 has raises a matter of vital national interest to the 9. Section 1A(3)(a) of the effect on and after exit day as if references to Withdrawal Act. UK, (b) confirms that the ESSC has taken such “the Treaties” and “the EU Treaties” included 10. Section 1A(3)(e) of evidence as it considers appropriate as to the part 4 of the withdrawal agreement, but are the Withdrawal Act. effect of the EU legislation and has consulted any otherwise limited to anything falling within 11. Section 1B(2) of the Departmental Select Committee of the House of Withdrawal Act. the definitions before exit day and “so far as it Commons which the ESSC considers also has an is not excluded by regulations made on or after 12. EU derived domestic interest in the EU legislation and (c) sets out the legislation is defined exit day by a Minister of the Crown”9. The UK in section 1B(7) of the wording of a motion to be moved in the House of Withdrawal Act. In is treated “as if it were a member of the EU Commons,21 a Minister must22 make arrangements essence it is legislation during the implementation period.”10 For the made under or for a for the proposed motion to be debated and voted purpose mentioned in implementation period this replaces section 3 on by the House of Commons.23 This provision the ECA 72. of the Withdrawal Act, which originally applied is necessary because of the different mechanism 13. Section 1B(3) of the from exit day. Rather than incorporate EU laws Withdrawal Act. introduced by the Withdrawal Agreement into UK domestic laws, which is the mechanism Act. Leaving the ECA 72 in force leaves the UK 14. Sections 8A(1) adopted by section 3 of the Withdrawal Act, (a) and 1(B)(3)(f)(i) of subject to new EU laws introduced during the the Withdrawal Act. section 1A continues the effect of the European implementation period. The previous mechanism This is not limited to Communities Act 1972, by reference to EU law modifications necessary crystallised EU law on exit day and incorporated for part 4 of the on exit day until IP Completion day. It is a Withdrawal Agreement that into UK laws. Given that EU laws will change relatively simple transition provision. which is provided for during the implementation period, this provision expressly in 1(B)(3) (f)(ii). In addition, section 1B of the Withdrawal Act is necessary. The review procedure gives the UK provides for further savings for EU derived the opportunity not to adopt new EU provisions 15. EU-derived domestic legislation both before domestic legislation during the Implementation if those provisions raise an issue of vital national and after exit day, up to Period. EU derived domestic legislation, as it has interest. In the insolvency context 2019 saw the IP completion day. effect in domestic law immediately before exit introduction of the EU Restructuring Directive 16. Section 8A(1)(b) of the Withdrawal Act. day, continues to have effect in domestic law on (EU/2019/1023). Whilst it does not appear likely 11 12 17. Section 8A(1)(c) of and after exit day. The EU derived legislation that further insolvency related directives will be the Withdrawal Act. is to be read “so far as the context permits” introduced during 2020, it is unlikely that they 18. Section 8A(1)(e) of as if references to EU law and related matters would raise issues of vital national interest, so the Withdrawal Act.

“were a reference so far as it is applicable to they will become part of the retained EU law 19. This power and in the UK by virtue of Part 4 of the that is adopted by the UK under section 3 of the continues for 2 years after the IP Completion 13 withdrawal agreement.” Withdrawal Agreement on IP Completion day. day, section 8A(2) of the Withdrawal Act. Saving provision during the The rights, liabilities, obligations 20. Section 13A of Implementation Period and restrictions arising under the the Withdrawal Act Withdrawal Agreement introduced by section Section 8(1) of the Withdrawal Act provided 29 of the Withdrawal Agreement Act. This that a Minister of the Crown may by regulations The Withdrawal Agreement Act was passed with includes amendments make such provision as the Minister considers little debate. Amongst the new provisions is one to the EU Treaty, and any new EU Regulations appropriate to prevent, remedy or mitigate any that has not yet received much attention but and EU Directives. failure of retained EU law to operate effectively, which appears to be of potential far reaching 21. Section 13A(1) of the or any other deficiency in retained EU law, effect. Rather than the mechanism previously Withdrawal Act.

arising from the withdrawal of the UK from the in the Withdrawal Act, namely, the adoption 22. Within 14 Commons EU. The Withdrawal Agreement Act has added into UK laws of EU law as it stood on exit day, sitting days beginning with the day on which section 8A of the Withdrawal Act. That gives a the Withdrawal Agreement Act adopts a different the report is published.

Minister the power by regulations to provide for mechanism; the ECA 72 continues in force 23. Section 13A(2) of the modifications14, or to disapply subsections 1B(3) during the transitional period but is subjected Withdrawal Act. There 15 16 are similar provisions or (4) to particular cases or descriptions of cases to the terms of the Withdrawal Agreement. The requiring motions and make different provision in such cases17 and to Withdrawal Act (as amended by the Withdrawal to be debated by the House of Lords (section “make such provision not falling within paragraph Agreement Act) gives legal effect to the “rights, 13A(3) and (4) of the (a), (b), (c) or (d) as the Minister considers liabilities, obligations and restrictions” from Withdrawal Act). appropriate for any purpose of, or otherwise time to time created or arising by or under the 24. Section 7A of 24 the Withdrawal Act, in connection with Part 4 of the withdrawal withdrawal agreement. Section 7A(2) provides: introduced by section ag reement.”18 Schedule 7 of the Withdrawal 5 of the Withdrawal “(2) The rights, powers, liabilities, obligations, Agreement Act provides for Parliamentary Agreement Act. restrictions, remedies and procedures concerned scrutiny of the power under section 8.19 are to be – Review of new EU laws during the (a) recognised and available in domestic law, and Implementation Period (b) enforced, allowed and followed accordingly.” During the implementation period provision has been made for the review of EU legislation.20 Brexit: to IP Completion Day and beyond! 9

The provisions of this Agreement and the provisions of the Union law made applicable by this Agreement shall produce in respect of and in the [UK] the same legal effects as those which they produce within the Union and its Member States

On its face this could give rise to numerous claims possible to spell out of the Withdrawal Agreement 25. Provisions meeting the conditions of by individuals or legal entities asserting that rights and obligations that can then be enforced. direct effect is referred things have been done that infringe their rights to in article 4 of the that arise as a result of the withdrawal agreement. Withdrawal Agreement. In an insolvency context, during the The Explanatory notes say that “where provisions 26. Paragraph 121 of the implementation period the EU Insolvency Explanatory Notes. of the Withdrawal Agreement (or EU law made Regulation continues in force as if the UK was 27. I have analysed the applicable by it) are capable of having direct a Member State. After IP completion day the EU effect of this change in effect, the Bill enables legal or natural persons previous articles in the Insolvency Regulation will become UK domestic Digest. to rely directly on those provisions in UK courts.” law (unless it is superseded) and in the UK it will Enforcement is “available in domestic law”, and continue to operate, although the UK will be a the power to enforce is generally available. It third country rather than a Member State27. There is intended to apply to all “powers, liabilities, is no need in that context to rely upon rights obligations, restrictions, remedies and procedures” given by the Withdrawal Agreement because the that are capable of having direct effect.25 Article relevant rights are found in the EU Insolvency 4 of the Withdrawal Agreement informs the scope Regulation as applied in the UK. However, there of section 7A: could be other rights, and section 7A could give “1. The provisions of this Agreement and the provisions rise to claims by individuals asserting that things of the Union law made applicable by this Agreement have been done that infringe their rights that shall produce in respect of and in the [UK] the same arise as a result of the withdrawal agreement. legal effects as those which they produce within the If it can be shown that an individual’s rights or Union and its Member States. powers found in the withdrawal agreement have been infringed, or that they should have a remedy, Accordingly, legal or natural persons shall in on the face of it that is enforceable. The Prime particular be able to rely on the provisions contained Minister has said that absent a new agreement or referred to in this Agreement which meet the the UK will rely on the rights contained in conditions for direct effect under Union law.” the withdrawal agreement. It is possible that every UK citizen will be able to rely on rights The Explanatory Notes say that section 7A “makes in the withdrawal agreement. It follows that the rights and obligations etc. in the Withdrawal the withdrawal agreement should be analysed Agreement available in domestic law.”26 through the prism, that of identifying individuals’ The test of enforceability is first determined rights and possibly liabilities, to assess whether by reference to whether or not the right has or not they are enforceable under section 7A. direct effect. However, section 7A does not In addition section 7(3) provides that “every only apply only to the EU laws given effect by enactment (including an enactment contained the Withdrawal Agreement, it applies to the in this Act) is to be read and has effect subject Withdrawal Agreement itself. Article 4 provides to subsection (2).” Again, this is a general that the right to rely on provisions which meet provision. This gives effect to article 4(2) of the the conditions of direct effect under EU law is Withdrawal Agreement: “in particular”. It could go wider. It should be SOUTH SQUARE DIGEST March 2020 www.southsquare.com

“The [UK] shall ensure compliance with paragraph 1, including as regards the required powers of its judicial and administrative authorities to disapply inconsistent or incompatible domestic provisions, through domestic primary legislation.”

On its face it requires the UK courts to read every enactment, whatever its content, subject to the withdrawal agreement.

The Withdrawal Agreement and insolvency

The objective of the withdrawal agreement “is to ensure an orderly withdrawal of the [UK] from the [EU]”28. The withdrawal agreement is 584 pages long. In addition to assessing what it says, we need to identify the “rights, powers, liabilities, obligations, restrictions, remedies and procedures”. The preamble recognises that EU citizens and UK nationals “have rights under [the withdrawal agreement] that are “enforceable and based on the principle of non- discrimination.” That recognition indicates that the rights enforceable under section 7A include at least those directly from insolvency proceedings 28. Preamble. 35. Regulation (EU) No. 41 1215/2012. types of right. There are numerous and closely linked to them , provided 29. For example, rights contained within the Withdrawal that the main proceedings are opened the rights of EU 36. Article 67(1)(a) of the professionals, lawyers Withdrawal Agreement. 42 Agreement that could be important before end of the transition period . or accountants being in an insolvency context, and as 31st Depending upon the arrangements the most obvious, 37. Regulation (EU) no to practice in the 1215/2012. December 2020 approaches a great deal following IP Completion day, there UK is protected, 38. Article 67(2)(a) 29 st and those rights are of detailed analysis will be required. may be a number of filings before 31 of the Withdrawal enforceable by those Agreement. It is December 2020 to secure recognition in professionals. In the arguable that there Ongoing Judicial cooperation in Civil context of a trading the EU Member States. is a lacuna in that insolvency Articles 40 and Commercial Matters is dealt with jurisdiction over to 42 provide for the proceedings will be in Part 3, Title VI of the Withdrawal Part 4 of the Withdrawal Agreement continuing circulation taken under the Recast 30 31 of goods placed on Agreement. Rome I applies to Brussels Regulation Section 1A(3) provides that the ECA the market before the provided that the contracts concluded before the IP IP completion date. 72 has effect on and after exit day as proceedings are 32 33 Article 41 provides that Completion date and Rome II applies commenced before 31st “any good lawfully if references to “the Treaties” and December 2020, but the to events occurring before the end placed on the in the recognition of court 34 “the EU Treaties” included Part 4 of [EU] or the [UK] before of the transition period . The Recast settlements depends the end of the transition 35 the Withdrawal Agreement. Part 4 on the court settlement Brussels Regulation continues to apply period” may be made being “approved or of the Withdrawal Agreement is the available in the EU or to questions of jurisdiction in respect concluded” before 31st the UK until they reach Transition provisions. Article 127 December 2020. The of legal proceedings instituted before its end user or may be recognition of court provides that during the transition put into service either the end of the transition period and in settlements would have in the EU or the UK. If period EU law “shall be applicable been better linked to respect of proceedings36 or actions that an insolvent company the proceedings. It to and in the UK during the has goods circulating is possible that there are related to such legal proceedings. in the EU before 31st transition period.” will be proceedings 37 December 2020, they The Recast Brussels Regulation will commenced before continue to be available 31st December 2020 a also apply to the recognition and The main operative provision of to the company. enforcement of judgments given in Part 4 is article 127(1) which provides judgment made in such 30. Articles 66 to 69. proceedings would legal proceedings instituted before that “unless otherwise provided in fall within article 31. Regulation (EC) No 67(2)(a) and would the end of the transition period this Agreement, Union law shall 593/2008. be recognised, but a and to court settlements approved be applicable to and in the United court settlement would 32. Article 66(1)(a) not be recognised or concluded before the end of the Kingdom during the transition period.” of the Withdrawal because it will have transition period.38 The applicable EU law produces the Agreement. been “approved or concluded” after 31st 33. Regulation (EC) No same legal effects in the UK as those December 2020. The EU Insolvency Regulation39 shall 864/2007. which it produces within the EU 39. Regulation (EU) apply to insolvency proceedings 34. Article 66(1)(b) and Member States and it is to be 2015.848. in “situations involving the United of the Withdrawal 43 Agreement. 40 interpreted accordingly. 40. Article 3 of the Kingdom” , and to actions deriving Withdrawal Agreement. Brexit: to IP Completion Day and beyond! 11

withdrawal agreement.”45 It is only the English language version of direct EU legislation that will be brought into domestic law.46 In the insolvency context, absent any agreements made between now and 31st December 2020, the EU Insolvency Regulation will become part of the UK’s domestic laws (in whatever form it is in on 31st December 2020). In that sense there will not be a ‘hard brexit’47 in relation to insolvency.48 The law then operative will become part of the UK’s domestic laws. The UK will no longer be a member state, so the application of the EU Insolvency Regulation will be lop sided; the UK will apply it to EU Member States, but EU Member States will apply it as if the UK is a third country and not a Member State.

Savings

Section 3(5) of the Withdrawal Act provides that the incorporation into English law of EU law is subject to the provisions of section 5 of the Withdrawal Act. Whilst the concept of EU supremacy does not apply to any enactment or rule of law passed or made on or after IP Completion day 41. Referred to in 47. By a ‘hard brexit’ I Part 2: the applicable laws after it continues to apply so far as relates Article 6(1) of the EU mean a brexit in which the Implementation Period Insolvency Regulation there are no applicable to the interpretation, disapplication or (EU) 2015/648. rules between the UK and the EU. Adoption into UK domestic law of EU quashing of any enactment or rule of 42. Article 67(3)(c) of the Withdrawal 48. The same will be laws applying on IP Completion day law passed or made before Agreement. true for many other IP Completion day.49 areas. Section 3(1) of the Withdrawal Act 43. Article 127(3) of the Withdrawal Agreement. 49. Section 5(1) and (2) now applies after IP Completion day: EU Regulations forming part of UK law of the Withdrawal Act. 44. IP Completion Day “Direct EU legislation, so far as operative Direct EU legislation is operative was substituted for 50. Section 3(3)(a) of the exit day by section Withdrawal Act. immediately before IP Completion day, immediately before IP Completion day 25(2) of the Withdrawal forms part of domestic law on and after if it is in force and applies immediately Agreement Act. 51. Section 15 and schedule 5 of the IP Completion day.” before IP Completion Day.50 Section 45. The reference to the Withdrawal Act. 15 and schedule 5 of the Withdrawal withdrawal agreement Section 3(1) of the Withdrawal was inserted by second 52. Schedule 5 of the Act make provision for the publication 25(2)(b)(ii) of the Withdrawal Act. Agreement Act has been amended Withdrawal Act. There of copies of “direct EU legislation and 53. There will be no so that section 3(1) applies from IP are exceptions to this 51 need to publish copies related information”. This includes definition. It does not Completion day, the period after the of the EU Directives that include “exempt EU 44 EU regulations, EU decisions and EU have been implemented transition period . As explained instruments” which 52 by UK legislation. The tertiary legislation. In the insolvency are defined in section above, this mechanism is different to extent to which UK 20(1) and schedule 6 context, this means that copies should laws diverge from those the mechanism in place during the to the Withdrawal Act, EU Directives after the be produced of the domestic law which in broad terms Implementation Period. During the IP Completion Date is is EU instruments that version of the Recast EU Insolvency one of the questions transition period sections 1A and 1B are not applicable to 53. that arises during the Regulation (2015/848). the UK or it does not continue to apply the ECA 72 (subject Implementation Period. include decisions that to the withdrawal agreement). Section EU Decisions forming part of UK law are not applicable to 54. Section 3(3)(b) of the the UK. There are also 3 will incorporate into English law Withdrawal Act. Decisions are operative immediately exclusions relevant to Direct EU legislation on or after IP the EEA Agreement that 55. Schedule 5 para 1(3) before exit day if it has been notified to fall outside the scope of of the Withdrawal Act. Completion day. this article. the person before IP Completion Day.54

46. Section 3(4) of the The starting point to how this will The Withdrawal Act provides that there Withdrawal Act. This operate is to identify what is “direct may be publication of copies of “any does not affect the use of other language EU legislation” and section 3(2) decision of, or expression of opinion versions of legislation provides that it is “any EU regulation, by the CJEU” or “any other document for the purposes of 55 interpreting the English EU decision or EU tertiary legislation as it published by an EU entity” Given that language version as a has effect in EU law immediately before there is general access to decisions of matter of English law. IP Completion day so far as it is applicable the CJEU, it is unlikely to be necessary to and in the UK by virtue of Part 4 of the to exercise this power. SOUTH SQUARE DIGEST March 2020 www.southsquare.com

After IP completion day the UK Supreme Court will not be bound by any retained EU case law, nor will the High Court in certain criminal matters

Interpretation and Status of retained bound by any retained EU case law 31st December 2020, but will have to EU law in certain criminal matters and in maintain that knowledge for so long relation to “retained domestic case as the concepts, such as the COMI, The English Court is not bound by law”60 In deciding whether to depart remain current. any principles laid down or decisions from any retained EU case law, the made by the CJEU56 after IP completion There are also enabling provisions Supreme Court or the High Court must day, and will no longer refer any about judicial notice and admissibility. apply the same test as it would apply matter to the CJEU. Section 6(2) of the A Minister may by regulations make in deciding whether to depart from its Withdrawal Act provides that a court or provision enabling or requiring own case law.61 The application of the tribunal may have regard to anything judicial notice to be taken of a case law and general principles make done on or after IP Completion day ‘re le v a nt m at ter’, 66 or provide for the it very unlikely that an English court by the CJEU, another EU entity or admissibility of specified evidence of would make a decision contrary to a the EU, so far as it is relevant to any a ‘relevant matter’, instruments or decision of an EU court. If the English matter before the court or tribunal. documents67. ‘Relevant matter includes court is aware that its decision would In so far as the law is unmodified, EU law and retained EU law.68 conflict with a decision of an EU court questions as to the validity, meaning the English court is bound to need a Part 3: future negotiations or effect of any retained EU law is to great deal of persuasion, if it can be be decided in accordance with any Article 184 of the Withdrawal persuaded at all. retained case law and any retained Agreement provides: general principles of EU law, and Section 7 of the Withdrawal Act “The Union and the United Kingdom shall having regard (among other things) provides that primary or subordinate use their best endeavours, in good faith to the limits, immediately before IP legislation or other enactments and in full respect of their respective legal Completion day, of EU competences.57 continue to be domestic law on orders, to take the necessary steps to This could prove significant in the and after IP Completion day as an negotiate expeditiously the agreements context of the interpretation of the EU enactment of the same kind and governing their future relationship referred Insolvency Regulation. The definition sets out how such legislation can to in the political declaration of 25/11/2018 of the COMI is a fundamental concept be amended. and to conduct the relevant procedures from which much of the application There is provision for rules of evidence, for the ratification or conclusion of those of the EU Insolvency Regulation judicial notice and admissibility. The agreements, with a view to ensuring flows. That definition is unlikely to detailed rules in part 2 of schedule that those agreements apply, to the extent change.58 The effect of section 6(3) of 5 to the Withdrawal Act provide that possible, as from the end of the the Withdrawal Act is that the case law where it is necessary, for the purpose transition period.” and general principles applicable in of interpreting retained EU law in legal the EU in relation to the COMI will be The obligation is to use best proceedings, to decide a question as to applied by the English courts. If there endeavours, in good faith to negotiate. the meaning or effect in EU law of the is uniformity across the EU27 and the It is not the firmest of commitments. validity meaning or effect in EU law of UK in the application of the COMI, it is However, the question must already any EU enactment, which will include less likely that there could be a conflict have arisen whether conducting the the EU Insolvency Regulation, the between the English and EU courts negotiations by press conference, question is to be treated as a question in the insolvency and restructuring stating publicly in advance what of law and not a question of fact.65 context. Whilst COMI is the most the red lines are, and why there is The practical consequence of this significant example, there will be insufficient time to do a deal, complies provision will be that questions, for many others. with this obligation. example of the meaning of the COMI Whilst the UK’s courts will continue as a matter of EU law, will be addressed The Political Declaration to make decisions in accordance with by submission based upon EU law up The Political Declaration is said some EU cases and principles, and to IP Completion date and not upon to establish “the parameters of an will have regard to those cases and expert evidence from lawyers in the ambitious, broad, deep and flexible principles, the Supreme Court will EU27 countries. English practitioners partnership across trade and economic not be bound by any retained EU case will not only need to remain current cooperation, law enforcement and law59 and the High Court will not be on questions of EU retained law up to criminal justice, foreign policy, security Brexit: to IP Completion Day and beyond! 13

and defence and wider areas of of equivalence is likely to be 56. Section 6(1) and 68. Section 4(5) of the cooperation.”69 It is 26 pages long and applied in the context of the future (2) of the Withdrawal Withdrawal Act. Act 2018. Article 86(2) sets out a high level objectives. Those relationship between the UK and the of the Withdrawal 69. Political Declaration Agreement provides paragraph 3. objectives recognise the “particularly EU in insolvency matters. Modified that the CJEU shall 70. Political Declaration continue to have important trading and investment universalism, a form of equivalence in paragraph 16. relationship” between the UK and that it results in a system that applies jurisdiction to give preliminary rulings on 71. Political Declaration 70 the EU. Whilst there is no reference different, but sufficiently equivalent, requests from UK courts paragraph 20. and tribunals made to insolvency matters there are three aspects of insolvency regimes to a cross before the end of the 72. Political Declaration aspects of the Political Declaration border insolvency, rather than apply transition period. paragraph 22. This should be compared to that should inform the likely future a single universal system of rules to 57. Section 6(3) of public statements made shape of the relationship between the every aspect. Taken together with the the Withdrawal Act. during January 2020. Subsection (3) does not UK and the EU in relation to insolvency provisions in the Political Declaration prevent the validity, 73. Political Declaration meaning or effect of any paragraph 23. matters, trade, services and investment on trade and services and investment, retained EU law which and financial services. The trading there is a strong argument that, in the has been modified on 74. Political Declaration or after IP Completion paragraph 29. relationship is intended to be “as close context of cross border insolvency, the day from being decided as possible, with a view to facilitating effect of the EU Insolvency Regulation if doing so is consistent 75. Political Declaration with the intention of paragraphs 37 to 39. the ease of legitimate trade.”71 The EU is consistent with the intention behind the modifications. 76. Political Declaration and the UK envisage comprehensive the Political Declaration and should be 58. An indication paragraph 37. arrangements that will create a free adopted in a new bi-lateral cross border that this will not be 77. Political Declaration trade area, combining deep regulatory insolvency treaty, after IP completion changed is found paragraph 38. in the Insolvency and customs cooperation, underpinned date, that applies across the EU27 and (Amendment) (EU 78. Political Declaration by provisions ensuring a level playing the UK to continue to give continuing Exit) Regulations 2018 paragraph 39. which did not alter the Paragraph 37 refers field for open and fair competition.”72 effect to the present arrangements. definition of the COMI to close cooperation The economic partnership between in the context of a ‘no on regulatory and Conclusion: flying or falling deal’ Brexit. supervisory matters in the EU and the UK “should ensure no international bodies, with style? 59. Section 6(4)(1) of the which will include the tariffs, fees, charges or quantitative Withdrawal Act. Basel Committee on restrictions across all sectors, with The car journey in Toy Story ends with 60. Defined in Banking Supervision. ambitious customs arrangements Buzz Lightyear about to re-unite with section 6(4)(b) of the 79. There will be Withdrawal Act. The that… build and improve on the Andy, his kid, with the response to difficult questions. For Withdrawal Agreement example, the present single customs territory provided for Woody’s “Buzz, you’re flying”, “This Act has also introduced system depends upon the possibility that in the Withdrawal Agreement which isn’t flying, it’s falling with style”. As a single decision on courts or tribunals the COMI of a company obviates the need for checks on rules the UK and EU go beyond IP Completion may not be bound by from which many retained EU case law of or ig in.” 73 date will we be flying or falling with of the subsequent This appears to envisage following regulations rules governing the a high degree of alignment between style? In the insolvency context there passed under section 5A insolvency follow. of the Withdrawal Act Under the present the UK and EU. As regards services and is a system applicable in the context (section 26(1)(b) of the system a conflict investment the UK and the EU “should of cross border insolvencies that now Withdrawal Agreement between the Courts of Act). A Minister may the Member States on conclude ambitious, comprehensive and avoids the costs and pitfalls of separate by regulations provide that question can be balanced arrangements on trade in territorial insolvency regimes. As Sir “the extent to which, or resolved, ultimately circumstances in which, at CJEU level. The services and investment in services … Nicholas Browne-Wilkinson VC said in a relevant court or question how a conflict respecting each [of the EU and the July 1991 when faced with liquidations relevant tribunal is not between a UK court and to be bound by retained the court of a Member UK]’s right to regulate...” and the UK of BCCI in several jurisdictions “there EU case law, or the test State over the COMI which a relevant court and the EU “aim to deliver a level of must be a better way”. Between now should be resolved is or relevant tribunal not straight forward. liberalisation in trade and services and and December 2020 it should be must apply in deciding Current political whether to depart from well beyond the Parties’ World Trade possible for the UK and EU to enter into statements make it any retained EU case highly unlikely that the 74 Organisation commitments.” similar arrangements. The same is true law.” (section 26(1) UK would agree to final (d) of the Withdrawal of the arrangements on recognition determination by CJEU. There are three paragraphs under the Agreement Act). A An alternative approach and enforcements of Judgments. If that Minister is obliged would be to look to heading “Financial Services”.75 The to consult the senior is achieved we will be flying, or at the the position under the concept at its heart is equivalence. judiciary before making UNCITRAL Model Law very least, falling with style.  regulations. in the context of which There is a commitment “to preserving 61. Section 6(5) of the there have been such financial stability, market integrity, Withdrawal Act. conflicts but no final binding arbiter and the investor and consumer protection and 62. Section 15(2) of the courts in the different fair competition, while respecting Withdrawal Act. jurisdictions have worked to avoid them. the Parties’ regulatory and decision- 63. Section 4 of the making autonomy, and their ability to Withdrawal Act. adopt or maintain any measure where 64. Interpreting EU law means deciding 76 necessary for prudential reasons.” any question as to the It is intended that equivalence validity, meaning and effect of any retained assessments should start with a view to EU law. concluding those assessments by June 65. It also applies to 202077 and it is agreed that “close and the meaning and effect of EU Treaties or any structured cooperation on regulatory other treaty relating to and supervisory matters is in the UK the EU. and EU’s mutual interest.”78 66. Section 4(1)(a) of the Withdrawal Act. Whilst these provisions are specific 67. Section 4(1)(b) of the to Financial Services, the concept Withdrawal Act. SOUTH SQUARE DIGEST March 2020 www.southsquare.com

British Virgin Islands a liquidator’s year

ANDREW THORP PETER FERRER HARNEYS, BVI HARNEYS, BVI British Virgin Islands a liquidator’s year 15

The British Virgin Islands (BVI) The judgment moved away from the the authority to give the liquidator a has always produced a rich seam of troublesome dynamics caused in general pass to provide authorization case law, necessarily diverging from OAS and Oi, two large Latin American for future share transfers without its English common law roots as restructurings that had fallen foul court oversight. This raises some it interpreted its own statutes and of agitating stakeholders. With questions of consistency and, in some developed themes of its own to fit creditor approval and no opposition cases, transparency. There is a large, the unique jurisdiction. The BVI the appointments went through. ongoing liquidation that has provided is home to some 400,000 active This, despite the unhelpful wording the liquidator with the ability to require companies deployed all across the of the BVI Insolvency Act differing conditions on any future transfers world and utilized for a myriad of considerably to its Cayman counterpart, of shares. Whilst the Court will be purposes. This, paired with a robust which provides specific provisional keen to protect the estate’s position commercial court, has fuelled the relief in furtherance of restructuring with respect to claw-back claims and available jurisprudence. proposals. The debtor in possession set-offs, potential transferors have, in dynamic also sits rather uncomfortably some cases, struggled to understand The last 12 months have not been with directors’ residual powers the actual order and reasoning, due any different. An increased appetite post appointment. to the sealing of the court file. Whilst to explore restructuring options as this has implications for secondary well as a more dogged determination Notwithstanding the “square peg market activity, it can also provide to trace assets has resulted in litigants round hole” deployment of provisional an uncomfortable dynamic for pushing the envelope and creating liquidators in such circumstances, stakeholders. some interesting new law. This the restructuring could complete article takes a look at some of the shortly. This in itself is a lesson that Playing away key changes and developments for it is time for the BVI to embrace solid Returning to Madoff, the Privy Council liquidators and looks forward to what restructuring legislation rather than to was recently engaged again in the comes next for the world’s leading rely on provisions designed to protect Fairfield Sentry matter (see UBS AG New asset holding jurisdiction. creditors pending a winding-up. Both York v Fairfield Sentry [2019] UKPC 20). industry and various committees are A new line in restructuring This time, a collective of investors committed to pursuing a cutting-edge sought to block the liquidators of The landmark change this year code required to fit BVI companies’ Fairfield from bringing claims in was in Constellation Overseas Limited. position in the global market place. the United States under the voidable Constellation is a troubled Brazilian Liquidator Flex transaction provisions of the BVI oil and gas drilling group that had Insolvency Act. The BVI Court gave entered a reorganizational judicial It would just be strange if a case leave to the liquidators to initiate process, recuperação judicial, in Brazil, round-up did not include a reference the proceedings both under the Act where it was headquartered. The to the fallout from the Madoff scandal. and at common law. The claw-back debt structure was very familiar to Images of Madoff in his trademark claims were aimed at investors who restructuring professionals with large Yankees cap outside of his Upper East had redeemed their positions at falsely swathes of debt held by bondholders side pile are now over a decade old. inflated valuations. UBS, leading the and principally governed by New Many junior bankruptcy associates charge for the investors, had sought York law. Akin to the other large were yet to graduate from High an anti-suit injunction restraining Latin American restructurings, School when news of the vast Ponzi Sentry’s liquidators from pursuing the process sought Chapter 15 scheme hit the press, yet law is still proceedings in the United States. Their recognition in the USA. This time being made and clarified by estates’ principal argument was that it was however, to close any gaps in the administration. Battles have waged the BVI Court alone that should deploy moratorium, the appointment of over the recalibration of NAVs, seen BVI insolvency law. The Privy Council, provisional liquidators was sought in in the recent Cayman decision in however, held this to be a misconceived the BVI over several vehicles to guard Weavering following on from Fairfield position. The BVI Court had given its against “predatory creditor claims”, Sentry. The ability to amend the share blessing to the claims and it was now the positions held by aggressive debt register of entities in liquidation to a matter for the US courts to gauge holders seeking to leverage their seek to impose a “fair result” has also whether they should apply foreign law. position in the restructuring. been under the microscope. In further good news for liquidators, The BVI court looked to established In a more understated review of it would seem that time travel is precedent in Cayman and Bermuda liquidator powers, the BVI Court not beyond them either, as the BVI and found that the BVI Court “had recently affirmed liquidators’ powers Court of Appeal confirmed the ability a very wide common law jurisdiction” to authorize the transfer of paid-up of liquidators to seek retrospective to appoint provisional liquidators shares. In the Matter of Futures One sanction to enter into transactions for restructuring purposes. It also Innovative Fund, the BVI Commercial disposing of estate assets. In K&P sought to distinguish the Hong Court found that there is no good Managerial Limited v Mr Paul Pretlove, Kong authorities that suggested a reason “not to leave the transfer of shares Liquidator of Hadar And Invest Limited more traditional approach in support to the good sense of the liquidator.” What (In Liquidation), the company held a of liquidations. Jack J could not find, however, was Moscow property via a wholly owned SOUTH SQUARE DIGEST March 2020 www.southsquare.com

subsidiary. With no prospect of funding and against a back drop of defaulting loans, the liquidator entered into an agreement with a shareholder with pre-emption rights. The applicants challenged the sale on the basis that it was not at a suitable commercial rate and that there was no jurisdiction for the BVI Court to grant sanction retrospectively. The Court of Appeal agreed with Green J and found that the relevant factors had been taken into account when the transaction was blessed and that was something that the Act clearly provided for retrospectively. Liquidators can take some comfort from this and that it is thematically different from the view the BVI Courts took in the Farnum Place decisions. In that instance the liquidators had to seek the shelter of the US courts to disapprove a transaction, struck at a time prior to the huge injection of Picower estate cash into the Madoff SIPA Claim. So, all in all, a good year for liquidators… unless appointed pursuant to a just and equitable winding-up order (as discussed below). Just and Equitable?

The just and equitable ground which is usually pleaded as standard in England but rarely used had developed a voice of its own in the BVI in recent years. There was a trend to expand the traditional categories pursuant to which an order could be made under the just and equitable grounds under English law. The early statutory introduction of minority oppression remedies (in 2004) provided the BVI Courts with a host of alternative remedies at their disposal. Further protection is supplied by the BVI Insolvency Act that provides that a British Virgin Islands a liquidator’s year 17

In Re Ocean Sino Ltd, the Court of Appeal reiterated that a winding up petition was not to be resorted to merely because of dissension within a company.

liquidation order will only normally and held that there was a loss of following an application by a director be made where there is no alternative substratum sufficient to merit a for the termination of the recognition remedy available. Traditionally, in winding on just and equitable grounds order made under CBIR, the English cases such Aris Multi-Strategy Lending in circumstances where the purpose of High Court reviewed the definition Fund Ltd v Quantek Opportunity Fund Ltd, the company (to hold shares for an IPO) of a “foreign proceeding” contained the BVI Courts have been reluctant to had been exhausted. in the Model Law. To coin a much wind-up companies on the basis of used phrase on conference calls these However in the recent case of Re Ocean their operational function. days, Chief ICC Judge Briggs carefully Sino Ltd (January 2020), the Court of “unpacked” the definition. He found However, as part of the Pacific Andes Appeal appears to have reverted to that given the background to the CBIR, litigation, in Parkmond Group Limited tradition and overruled Justice Kaye’s the commentary and recent guidance, (in liquidation) v Richtown Development decision to place the company into the words “for the purpose” should Limited (in liquidation) (decided in 2017), liquidation on just and equitable be read as meaning for the purpose Justice Kaye acceded to an application grounds albeit 3 years after the of insolvency (liquidation) or severe on just and equitable grounds on the original order was made. The Court financial distress (reorganisation). basis that the directors ought to have of Appeal reiterated that a winding been able to provide books and records up petition was not to be resorted to It would be contrary to the stated pursuant to section 98 of the Business merely because of dissension within a purpose and object of the Model Companies Act 2004 particularly in company. Further since the company’s Law to interpret the term “foreign light of allegations of fraud that had constitution, articles and memorandum proceeding” to include solvent been circulating for several years provided for an exit for a shareholder debtors and more particularly to concerning the company. Richtown was in the event of deadlock, there could include actions that are subject to described by its directors as performing not reasonably have been a finding a law relating to insolvency but that the treasury facility for the group as of deadlock sufficient to satisfy the have the purpose of producing a a whole. The winding-up petition was making of a winding up order on the return to members not creditors. based on three grounds, cash-flow and just and equitable grounds. It remains This isn’t the best news for BVI balance sheet insolvency as well as just to be seen what the Privy Council’s liquidators and certainly represents and equitable grounds. view will be on this case. something of a clash between old The applicants were able to show that Recognition of Just and Equitable case law and the new world of the company was insolvent on both Winding Ups in England cross-border recognition. insolvency tests. The Court then went In further news relevant to the On the whole, however, liquidators further to consider the inability of recognition of just and equitable are in good shape in the BVI. Whilst the company’s directors to provide winding up order made in the BVI, the heavyweight legislative reforms are accounts and underlying documents to English High Court was content in May debated, the Commercial Court has show the true financial position of the of last year to recognise the provisional formed a pragmatic and flexible company (in accordance with section liquidators of Sturgeon Central Asia approach for their deployment and 98 of the BVI Business Companies Balance Fund Ltd as a foreign main practice. This bodes well for any Act). It was this failure combined proceeding pursuant to the Cross- forthcoming recession which, as with previous issues of conduct that Border Insolvency Regulations (2006) Economics Laureate Paul Sameulson was enough to provide the basis for (CBIR). The recognition was one of once quipped, has been correctly a winding-up on just and equitable the first for a solvent liquidation predicted nine times out of the grounds. in England, the JPLs having been last five.  Similarly, in Re Green Elite Ltd (decided appointed following a Bermuda Court of in 2018), the BVI Court of Appeal Appeal decision to wind the fund up on overruled the first instance judge just and equitable grounds. However, SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Litigation funding in insolvency

STEFANIE WILKINS ROBIN GANGULY, BURFORD CAPITAL Litigation funding in insolvency 19

Litigation funding (also referred to as litigation the practice in the UK to keep the roles of finance) is a crucial tool in the restructuring and financiers, claimants and their lawyers strictly insolvency context to assist insolvent, distressed discrete from each other. or cash-poor claimants to maximise returns from In insolvency matters, the Small Business, litigation assets. It allows stakeholders to pursue Enterprise and Employment Act 2015 provides an valuable claims that otherwise may have to be exception to the usual prohibition on the sale of abandoned or settled, thus increasing recoveries claims and permits insolvency practitioners to for creditors. sell officeholder claims (TUV, preference, wrongful The options for litigation funding are increasingly trading, etc). Litigation funders can either buy relevant to lawyers and insolvency practitioners the claims from the Insolvency Practitioner IPs in complex international cases. For example, outright, or often for some upfront payment plus it is possible for IPs to enter portfolio agreements a share of the proceeds. The purchase of claims under which multiple claims can be funded across can offer benefits both to the funder, since it jurisdictions. Because the cases in the portfolio allows the funder to control them, and to IPs, are “cross-collateralised” (i.e. the funder can since the cash obtained can be used to investigate take its full entitlement from any case that wins), other potential claims. this arrangement enables funding for both claims Cayman and defences, and for cases where the economics would not support funding on a stand-alone basis. Maintenance and champerty have not been abolished as offences under Cayman law, and In this article, we examine the state of the law so litigation funding agreements outside the regarding litigation funding in insolvency in key insolvency context have been uncommon – litigation hubs around the world. although there are indications that the position is England changing (for example, the important judgment in A Funder v A Company). Cayman courts have As a general matter, litigation funding has been endorsed the modern English approach to permissible in England since the 1960s following the doctrines, which holds that insofar as the advice from the Law Commission that champerty doctrines persist, they are “primarily concerned and maintenance were effectively obsolete as with the protection of the integrity of the crimes and torts; the rules were then subsequently litigation process” (as explained in In the Matter abolished as crimes and torts by ss.13 and 14 of of ICP Strategic Credit Income Fund Limited [2014] (1) the Criminal Law Act 1967. However, the doctrines CILR 314). of maintenance and champerty continue to exist as rules of public policy, and funding agreements The use of litigation funding by insolvency which are contrary to these rules (in their modern practitioners is well-established in Cayman. form) will be unenforceable. This is because the liquidator’s power to sell the property of the company extends to assigning a Modern authorities give some guidance as to share in any proceeds of the company’s causes the factors that the court will take into account of action. when assessing the validity of any funding agreement. This includes the extent to which However, liquidators require the sanction of the the financier controls the litigation. Examples court to commence any legal proceedings in the of excessive control might include influencing name of the company. In practice, this requires strategy, seeking to interfere with the client- some consideration of how litigation will be lawyer relationship; or controlling or meddling financed. In deciding whether to sanction the in settlement negotiations. A funding agreement liquidator in the exercise of their powers, the has a greater chance of being struck down by the court will consider whether the transaction is in courts as offending rules against maintenance the commercial best interests of the company, and champerty if the legal finance provider according deference to the liquidator’s judgment attempts to exercise control over the litigation or unless the evidence indicates substantial reason stands to recover disproportionate sums. not to do so.

The Association of Litigation Funders (the ALF) A liquidator may not grant the funder the power was formed in the wake of Lord Justice Jackson’s to control the litigation in question – in ICP positive endorsement of litigation finance in Strategic it was said that: his Review of Civil Litigation Costs. In the 2009 “… where this court is asked to sanction a litigation report he espoused legal finance as beneficial in funding agreement, its terms will be carefully that it promoted access to justice. Members of scrutinized to ensure that it does not directly confer the ALF agree to comply with a Code of Conduct. upon the funder any right to interfere in the conduct of Under this Code, funders are prevented from the litigation or indirectly put the funder in a position taking control of the litigation or settlement in which it will be able, as a practical matter, to exert negotiations and from causing lawyers to act in undue influence or control over the litigation.” breach of their professional duties. It is generally SOUTH SQUARE DIGEST March 2020 www.southsquare.com

The statutory power to assign the “The Court is concerned to uphold the very to the operation of the doctrines is the proceeds of a cause of action does not long-standing public policy behind the use of litigation funding in the context extend, however, to claims which vest disapproval of champerty, namely that of insolvency proceedings. personally in the liquidator. third parties (typically solicitors who might Liquidators in Hong Kong have a be seeking to create work for themselves) BVI statutory power to sell ‘the real and should not be permitted to encourage personal property and things in Litigation funding is used in the BVI, lawsuits. There is a difference between that action of the company’. This has been although there has been remarkably mischief, and the entirely laudable practice construed by the courts as conferring little case law on the circumstances of encouraging access to justice for those on a liquidator the power to assign a in which it will be permissible. There with good claims who would otherwise be company’s causes of action to a funder are no reported judgments in which shut-out from the court system. Naturally, – but only those causes of action which the legality of litigation funding has a third-party funder cannot be expected to are vested in the company rather than been directly addressed, although it provide funding upon a gratuitous basis. the liquidator personally. The power is possible to find judgments in which The issue for the court is whether a funding is exercised subject to the control of the use of funding was referred to by agreement has a tendency to corrupt the court, and so liquidators may apply the court (without it being necessary public justice.” to the court for directions as to the for the court to rule on issues of Mr Justice Wallbank identified that the lawfulness of a proposed sale (although legality). In the insolvency context, indicia of champerty would include this is not obligatory). there are anecdotal suggestions that excessive control by the funder, or an the court is willing to countenance Separately to this, litigation funding excessive return to the funder. It should funding (although the court files are is now permitted in Hong Kong in also be noted that the existence of an often sealed in such cases, so that the the context of arbitration and related external funder will be relevant to the judgments are not publicly available). proceedings. In this context, the decision whether to make an order for Secretary for Justice has issued a Code Against this background, the recent security for costs against a claimant. of Practice for Third-Party Funding judgment of Ieremeieva v Estera The BVI CPR, 24.3(a), identify that one of Arbitration, which specifies the Corporate Services (BVI) Ltd has provided of the circumstances in which security standards expected of funders in Hong some welcome guidance on the court’s may be granted is where “some person Kong. It includes requirements that attitude to the question of champerty. other than the claimant has contributed funders maintain access to certain Wallbank J recognised the possibility or agreed to contribute to the claimant’s levels of capital, provisions concerning that commercial litigation funding costs in return for a share of any money or the management of conflicts of might provide access to justice, property which the claimant may recover”. interest, and identifies matters which whilst also noting that the doctrine Hong Kong must be addressed in the funding of champerty would serve to curtail agreement (including the extent of agreements that might affect the Maintenance and champerty are still liability for adverse costs, and the integrity of the curial process, stating: torts and crimes under Hong Kong law. grounds upon which the agreement Nevertheless, an important exception may be terminated). Litigation funding in insolvency 21

action that belonged to a company. clear otherwise. The Guernsey Royal In obiter remarks, Chua Lee Ming JC Court approved a litigation funding gave considerable support to the use agreement in the case of In re Providence of funding, expressing the view that Investment Funds PCC Ltd (2017), and it was “undeniable that litigation gave as its basis the statutory right funding has an especially useful role of a liquidator to sell the assets of to play in insolvency situations”. the company in liquidation, rights Subsequently, in Re Fan Kow Hin [2018] in respect of litigation being such SGHC 257, the High Court held that an asset. As a result of the case, a trustee in bankruptcy was able to liquidators and administrators can have assign the benefits of claims in respect confidence to proceed to assign claims of transactions at an undervalue and or enter into funding agreements in unfair preferences. For this purpose, Guernsey. Commentators suggest that the fruits of the litigation were the Guernsey courts would likely property of the estate – such that follow Re Valetta Trust in non- they could properly be assigned by a insolvency matters. trustee in bankruptcy – and the High In order to sanction a funding Court held that such an assignment agreement, courts in the Channel would not be contrary to public policy, Islands will want to know that there because it facilitated access to justice. is not excessive control and that The IRDA has now given statutory the funder has sufficient financial support to the use of litigation funding wherewithal. Being a member of by liquidators or judicial managers in the English ALF and meeting the respect of statutory claims. Specifically, requirements of that association is s 144(1)(g) provides that the proceeds likely to be helpful in this regard. Singapore of various forms of action – may be India assigned in accordance with There have been substantial changes the regulations. In comparison with other common in recent years to the law governing law jurisdictions, there is a longer litigation funding agreements in Channel Islands history in India of jurisprudence on Singapore. In 2017, the Civil Law Act Until the landmark Jersey case of Re the concept of litigation financing. was amended to abolish the torts of Valetta Trust (2012) the legality of legal Judicial precedent has held since maintenance and champerty, and finance agreements in the Channel 1876 that the common law doctrines also to permit the use of litigation Islands had not been considered by of champerty and maintenance do funding in international arbitrations, the Channel Islands courts. In that not apply to India and that funding provided that the funder meets case the court established that there agreements are generally enforceable certain qualifying conditions. This is was no material difference between unless the object of the contract is to be extended to include domestic the law of Jersey and English law contrary to public policy. arbitration, certain proceedings in the as to maintenance and champerty, Singapore International Commercial In 2015 the Supreme Court in Bar Council recognising the ‘sea change’ in opinion Court and mediations connected with of India v AK Balaji, clarified the legal elsewhere as to the permissibility of these proceedings. permissibility of third-party funding legal finance. The court held that it in litigation and observed that “There In the context of insolvency, the would not be an abuse for litigation appears to be no restriction on third Insolvency, Restructuring and to proceed on the basis of a litigation parties (non-lawyers) funding the Dissolution Act 2018 (“IRDA”) (which finance agreement citing the positive litigation and getting repaid after the consolidated Singapore’s various English and Australian case law history outcome of the litigation.” There is insolvency laws) has expanded and and Lord Justice Jackson’s favourable no legislation that expressly regulates clarified the circumstances in which report on the industry in his Review funding in the region; however the an insolvency practitioner may use of Civil Litigation Costs: Final Report Civil Procedure Code of certain Indian litigation funding. Prior to the IRDA, (2009) as rationale. The subsequent states expressly refers to “third parties the position concerning the use of decision in Barclays Wealth Trustees financing litigation,” and case law litigation funding by insolvency & Anor v Equity Trust (2013) provided has generally been supportive of the practitioners had been somewhat further clarification. The Court industry. Additionally, various High unclear, but successive courts had been reviewed the terms of the funding Courts have both expressly recognised expanding the circumstances in which agreement and, following the precedent litigation financing and made it could be used. in Re Valetta Trust, concluded that there provision for security for costs in such was nothing in the agreement that In Re Vanguard Energy Pte Ltd [2015] cases which all indicates a prevalent could adversely affect the purity 4 SLR 597, the High Court held, for acceptance of the industry. of justice. the first time, that the insolvency In spite of this, caution needs to be legislation (as it then stood) permitted The position in Guernsey is clear exercised when looking at funding the sale of the fruits of a cause of for insolvency cases but not quite as in India as there remains a degree SOUTH SQUARE DIGEST March 2020 www.southsquare.com

of uncertainty around its use. situations. The DIFC is a common The position in the Dubai local courts Additionally, a funder not based in law, English language jurisdiction is less clear. However, there are no India must structure the funding in completely separated from the local laws that prohibit third party funding compliance with India’s foreign capital civil law courts and offers rules and and no indication from reported cases controls. This adds an administrative regulations that are aligned with that it is discouraged (although funding burden and tax consideration to international best practices. appears to be uncommon and precedent any arrangement. is scarce). Commentators agree that Funding is permitted in the DIFC courts funding ought to be consistent with The recent implementation of the and 2017 saw the release of Practice Shari’a law principles of benefitting Insolvency and Bankruptcy Code and Direction No.2 of 2017 on Third Party public interest and allowing access to subsequent overhaul of the Companies Funding in the DIFC Courts. Under the justice, but care would need to be taken Act has resulted in a rise in the Practice Direction parties must disclose in structuring and drafting the funding number of insolvency cases resulting the fact that they are funded and the terms and agreement. from creditors taking distressed identity of the funder but are not companies to bankruptcy courts. required to disclose the terms of the About the authors The code has simplified the process funding agreement. Robin Ganguly is Counsel at Burford for seeking redress and updated There are no limits in the DIFC with responsibility for assessing and the previously outmoded complex Practice Direction on the fees and underwriting legal risk, focusing on corporate insolvency laws in India. It is interest that third-party financiers contentious insolvencies. therefore expected that the frequency can charge. However, it is a common of insolvency litigation will increase. Burford is a founding member of the law regime modelled on English law, Association of Litigation Funders and Dubai and so the doctrines of maintenance was instrumental in the launching of and champerty exist as a rule of Since the global financial crisis there a voluntary Code of Conduct for third- public policy. Although a legal finance have been a number of complex party funders operating in England agreement does not per se amount to insolvencies with a significant Middle and Wales. either maintenance or champerty, an East nexus. The development of agreement could be found contrary Stefanie Wilkins is a barrister at the financial free zone, the Dubai to public policy if there is a level of South Square. She will be submitting International Financial Centre (DIFC), disproportionate control or the recovery a DPhil thesis at the University of has encouraged new business and of excessive profit to the detriment of Oxford on the subject of third-party foreign investment in the region, some potential claimants. litigation funding.  of which inevitably leads to insolvency The Honourable Frank J C Newbould QC 23

The Honourable Frank J C Newbould QC

South Square is delighted to LLP in Toronto, a panel member of announce that The Honourable Arbitration Place in Toronto, a member Frank J C Newbould QC joined of the London Court of International Chambers as an Associate Member Arbitration User’s Council, a panel from January this year. member of the International Centre for Dispute Resolution (ICDR) of the Well-known and highly respected American Arbitration Association, in the world of restructuring and a panel member of the Singapore insolvency, Frank is no stranger International Arbitration Centre, a to South Square, having given panel member of the BVI Arbitration expert evidence in relation to the Centre, a member of the ICC Canada enforceability of the Syncreon Arbitration Committee, a panel scheme in Canada last year, and member of P.R.I.M.E. Finance, a shared platforms with us at member of INSOL International numerous international conferences. (International Association of Mr Newbould was appointed to the Restructuring, Insolvency & Ontario Superior Court of Justice in Bankruptcy Professionals), a 2006. Until his retirement on 1 June member of the International 2017, he was from 2013 the head of Insolvency Institute, and a fellow the Commercial List in Toronto, of the American College of Trial the country’s leading commercial Lawyers. He is a director of Firm court tasked with hearing a wide Capital Mortgage Investment variety of complex cases including Corporation, a TSX listed company. domestic and cross-border insolvency In July 2017, Frank joined Arbitration matters, corporate amalgamations Place, Toronto, and has since been and reorganizations, proceedings appointed to many arbitrations for relief under business corporation involving energy projects, commercial legislation, and oppression actions. and financial services disputes, In 2014, he presided over the first partnership and shareholder disputes, cross-border joint trial with the construction and engineering design, Delaware Bankruptcy Court in the real estate development and ground Nortel insolvency litigation involving lease disputes. the allocation of $7.3 billion, and in 2017 over Fairfield Sentry’s claim Frank will continue to be based in against PricewaterhouseCoopers LLP Toronto but, given his international for auditors’ negligence arising from reputation, will also be available to the Madoff fraud. provide strategic advice arising out of cross border insolvencies, neutral Prior to his appointment to the bench, assistance with the facilitation Mr Newbould was a partner at Borden of international disputes and the Ladner Gervais in Toronto with a broad provision of expert evidence on litigation and arbitration practice Canadian law. involving corporate and commercial disputes, banking and insolvency Please direct any enquiries about matters, class actions, re-insurance Mr. Newbould’s availability to accept disputes, real estate and estate matters. instructions in any particular case to [email protected].  Frank is currently counsel to the firm of Thornton Grout Finnigan SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Cryptoassets, cryptocurrencies and insolvency: The UK jurisdiction taskforce’s legal statement

WILLIAM WILLSON Cryptoassets, cryptocurrencies and insolvency 25

Introduction characterise or classify it at all, then it is best treated as being another, third kind of property, In the last edition of the Digest (November 2019) as the court was prepared to do with the EU we featured two pieces on the zeitgeisty topic of carbon emission allowances in Armstrong v cryptoassets and cryptocurrencies: Alex Riddiford Winnington [2013] Ch 156. ventured down the rabbit hole to consider Bitcoin transaction avoidance and a creditor’s standing As the Legal Statement indicates, this conclusion to present a bankruptcy petition in respect of is likely to have importance in a number of areas, unpaid Bitcoin; and we were privileged to publish most notably the vesting of property in personal Mr Justice Zacaroli’s lecture to the Insolvency insolvency and the rights of liquidators in Lawyers Association entitled “Crypto-currencies corporate insolvency. The authors point out that and insolvency”. The latter indicated that we the definition of property in Section 4361 of the were due an imminent statement from the UK Insolvency Act 1986 is “very wide indeed”, and that Jurisdiction Taskforce (the “UKJT”) (under the so much is a deliberate decision of the legislature Chairmanship of the Chancellor of the High Court, to allow as many valuable assets as possible to be Sir Geoffrey Vos) on the legal status of crypto- classified as property so that they can be collected assets and smart contracts. and realised for the benefit of the estate. Even if a particular cryptoasset is not property at common The UKJT published its legal statement on 18 law, it could still be property for the purposes November 2019 (the “Legal Statement”). In the of IA86 if it falls, for example, within the words introduction, its authors make clear that the “obligations and every description of interest, whether Legal Statement is not a treatise or an academic present or future or vested or contingent, arising out of, paper; it seeks to answer several groups of or incidental to, property”. questions put to the authors in relation to the legal status of cryptoassets and, in particular, However, cryptoassets cannot be physically whether the law treats them as property. We are possessed: they are purely “virtual”. This means reminded that time and again over the years the they cannot be the object of bailment, nor common law has accommodated technological would it be possible to sue for conversion in and business innovations: cryptoassets, respect of them. Nor are they documents of title distributed ledger technology and smart contracts (i.e. documents that enable the holder to deal are merely the most recent in a long history of with the property described as if they were the fast-changing technologies. owners), documentary intangibles or negotiable instruments. Nor are they “goods” under the Sale Summary of Conclusions of Goods Act 1979. However, if and to the extent Property that a certain cryptoasset is property, a mortgage or charge can be created over, just as it can be The UKJT have reached the following, broad created over other intangible property; but since conclusions on whether English law would cryptoassets cannot be possessed, they cannot be treat a particular cryptoasset as property (whilst the object of a pledge or a contractual lien. noting that in a given case the answer will depend on the precise nature of the asset and the rules of Finally, in relation to what factors would be the system): relevant to determining whether English law governs the proprietary aspects of dealings in (a) Cryptoassets have all the indicia of property. cryptoassets, the authors “tentatively” suggest the (b) The novel or distinctive features possessed following factors will be of particular relevance: by some cryptoassets – intangibility, (a) Whether the relevant off-chain asset is located cryptographic authentication, use in England & Wales. of a distributed transaction ledger, decentralisation, rule by consensus – do not (b) Whether there is any centralised control in disqualify them from being property; England & Wales.

(c) Nor are cryptoassets disqualified from being (c) Whether a particular cryptoasset is controlled property as pure information, or because they by a particular participant in England & Wales. might not be classifiable either as things in (d) Whether the law applicable to the relevant possession or as things in action; transfer (perhaps by reason of the parties’ (d) Cryptoassets are to be treated in principle choice) is English law. as property; Smart Contracts (e) But a private key is not in itself to be treated as property because it is information. The Legal Statement concludes that a smart contract is well capable of satisfying the basic On the ancillary question of whether a cryptoasset requirements for formation of contract at is a thing in possession, a thing in action, or common law and is therefore capable of having another form of personal property, the authors contractual force. concluded that, to the extent it is necessary to SOUTH SQUARE DIGEST March 2020 www.southsquare.com

As the parties’ contractual obligations may be the context of cryptocurrency ransom payments. 1. ““Property” includes money, goods, things in defined by a computer – in which case there In short, the applicant insurance company was action, land and every may be little room for “interpretation” in the hacked with malware that encrypted all its description of property wherever situated and traditional sense – or the code may merely computer systems. A ransom was demanded, and also obligations and every implement an agreement whose meaning is to paid, in Bitcoin. A specialist company tracked description of interest, whether present or future be found elsewhere – in which case the code is the transfer of 96 of the Bitcoins to a specified or vested or contingent, unimportant from the perspective of defining the address linked to the exchange known as Bitfinex. arising out of, or incidental to, property”. agreement – the authors conclude that an English Bankers Trust/Norwich Pharmacal relief and/ 2. Under Schedule 1 court can in principle “interpret” a smart contract or a proprietary injunction was sought against a of the Interpretation (though one assumes that expert evidence will be variety of defendants. Act 1978, “writing” necessary to do this) is defined as The judge noted that, in his foreword to the included “typing, printing, lithography, Finally, a private key can amount to a statutory Legal Statement, the Chancellor had not in fact photography and other “signature”, since an electronic signature endorsed its contents, and that it followed that modes of representing or reproducing words which is intended to authenticate a document the statement was not in fact a statement of in a visible form, and will generally satisfy a statutory signature law. However, he considered that the analysis expressions referring to writing are to be construed requirement; whilst a statutory “in writing” of the proprietary status of cryptocurrencies accordingly”. 2 requirement can be met in the case of a smart was compelling, and concluded that, for reasons 3. Sir John Laws, The contract whose code element is recorded in source identified in the Legal Statement, a cryptoasset Common Constitution, Hamlyn Lectures code (and to the extent that it is in readable such as Bitcoin is property (meeting the four (Cambridge University format, object code). The authors of the Legal criteria set out in Lord Wilberforce’s classic Press 2014), 9-10. Statement conclude that in very many cases definition of property in National Provincial the terms of the relevant contract will not be Bank v Ainsworth [1965] 1 AC 1175 i.e. 1) definable contained in the code itself, and the correct 2) identifiable by third parties 3) capable of analysis will be that the parties have agreed to assumption by third parties and 4) having some be bound by the effect of whatever the code does, degree of permanence). On that basis Bryan rather than what it says. J found that “as elaborated upon in the Legal Statement, which I consider to be an accurate statement The Legal Statement in Practice as to the position under English law, I am satisfied for the purpose of granting an interim injunction in the In the last 18 months the English courts have form of an interim proprietary injunction that crypto started to grapple with the novel legal and currencies are a form of property capable of being the factual issues thrown up by cryptoassets and subject of a proprietary injunction” (emphasis added). cryptocurrencies: see Vorotyntseva v Money-4 Limited [2018] EWHC 2598 (Ch) (Birss J) and Liam The Legal Statement has now, therefore, been David Robertson v Persons Unknown (unreported 15th endorsed as an accurate position of English law July 2019) (Moulder J). (at least in respect of its summary conclusions on the proprietary nature of cryptoassets). However, in the recent case of Aa v Persons Unknown [2019] EWHC 3556 (Comm) the Business Thus begins a new chapter in the evolution of & Property Courts (Bryan J, Commercial Court) the “endlessly creative” common law, “a living have considered the Legal Statement for the law built on what has gone before, but open to first time. The case concerned applications for constant renewal”3.  freezing injunctions and Bankers Trust orders in Case Digest Editorial 27

Case Digest Editorial

latter view. In its judgment, at [36], Court, at [36], distinguished the the Supreme Court considered Berg and banker’s Quincecare duty of care observed that, depending on the facts, from that of an auditor’s duty of reliance might be a critical element care but without a definite statement in establishing factual causation in as to how it was different and with relation to an auditor negligence what implications. claim in connection with a “one-man A further case of important general company”, i.e. where the “one-man” interest in this edition is Auden Adam Al-Attar already knew the true position and McKenzie (Pharma Division) Ltd v Patel therefore the audit opinion had no [2019] EWCA Civ 2291, digested by causal effect. The logical implication The most significant case of general Edoardo Lupi in the Company Law is that if factual causation can be application in this edition of the Digest section. In that case, the Court of satisfied by means that do not involve is Singularis Holdings Ltd (in liquidation) v Appeal allowed an appeal against reliance (for example, by creditor action Daiwa Capital Markets Europe Ltd [2019] a summary judgment in which the to initiate an administration) that 3 WLR 997. It is the latest development judge had held a director liable to is sufficient. in the Supreme Court of the illegality pay equitable compensation to a defence in the context of a claim by an Secondly, the Supreme Court (finally) company for a transfer of £13m of its insolvent “one man” company against laid to rest Stone & Rolls [2009] AC funds to a third party notwithstanding a third party. On the facts, Singularis 1391 (for now). In its judgement, the that, but for the breach of duty, concerned a claim against a bank that Supreme Court clarified that “[t]here is the same amount would have been had failed to act in accordance with no principle of law that in any proceedings transferred to the same person for no its Quincecare duty of care in respect where the company is suing a third party value. The Court of Appeal held that of suspicious payments. The case for breach of a duty owed to it by that the law was developing in this area and has wider implications for reliance third party, the fraudulent conduct of that the courts had been prepared to and causation in negligence claims, a director is to be attributed to the recognise in the company law context including against auditors. The case company if it is a one-man company”, departures from the trustee analogy. is digested by Stefanie Wilkins in the and “[t]he answer to any question The case was not therefore appropriate Commercial Law section below. What whether to attribute the knowledge of for summary determination. This case follows is a further consideration of the fraudulent director to the company should be read with Novoship (UK) Ltd v the principles discussed in Singularis. is always to be found in consideration Mikhaylyuk [2015] QB 499 in which the of the context and the purpose for which Court of Appeal held that a defendant First, there are different views as the attribution is relevant.” liable for dishonest assistance but to whether reliance by the company who was not a fiduciary was not is a distinct element in addition to However, there is an important necessarily liable to the same extent causation in a claim for a breach of a qualification to this clarification. as the fiduciary in whose breach that duty of care owed to a company, for It is apparent that considerations of defendant had existed. These cases example, by an auditor. In Berg Sons “purpose” and “context” are not factual represent a further alignment of the & Co Ltd v Adams [2002] Lloyd’s Rep matters that a first instance judge can rules of remoteness, causation and PN 41, Hobhouse J found as a fact definitively resolve. The question is loss in equity with those of the that even if the accounts had been one of law. The essential choice in common law. The extent to which qualified, as they should have been, Singularis was whether to apply the those rules should differ in the sphere by the auditor, that would not have normal rules of attribution with the of equitable compensation is likely to stopped the company trading as it consequence that the company could be litigated further. did because the sole shareholder and not sue the bank, or to disapply those director already knew the relevant rules with the consequence that the Finally, Pearson v Primeo Fund [2020] information. This view has been bank was liable. The Supreme Court UKPC 3 is an important decision for the followed in other cases, albeit with a chose the latter. It held, at [35], “[i]f the Cayman Islands and is worth a read for heavily diluted concept of reliance by appellant’s argument were to be accepted insolvency lawyers generally because the company. The contrary view has in a case such as this, there would in of Lord Briggs’ consideration of the also been expressed, in which reliance reality be no Quincecare duty of care or its operation of the statutory scheme in is merely an aspect of causation breach would cease to have consequences. insolvency, the definition of members’ save in the context of negligent This would be a retrograde step.” Whilst rights thereunder and its explanation misrepresentation in which context it such policy decisions will have to be of the reluctance of an appellate court also forms part of the analysis of the made by judges at first instances, the to conclude that a legislative change to duty of care: see, for example, Salzedo final word is likely to be reached only that basic regime should be read as if a and Singla, Accountants’ Negligence after successive appeals. The next licence to the liquidator to re-write the and Liability, 1st Ed. 2016, para 8.48. likely appeal will be another auditor’s priority under that scheme or the rights Singularis goes some way towards the negligence case because the Supreme to a satisfied in accordance with it.  SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Case Digests

reasonable skill and care in carrying the result would be to “denude the duty out the customer’s orders. The bank had of any value in cases where it is most made payments out of the accounts of needed” – it would render the Quincecare Singularis on the instructions of Mr Al duty effectively otiose. Sanea, who controlled Singularis. The In any event, the bank could not succeed payments were a misappropriation of in respect of its causation argument: the Singularis’ funds, and it was found at Quincecare duty was a duty to protect trial that any reasonable banker would a customer from the actions of the have recognised the ‘glaring’ signs. company’s agents. It would defeat the The bank argued, before the Supreme purpose of the duty to say that there Court, that the fraud of Mr Al Sanea was no breach because the customer ought to be attributed to Singularis. As itself had caused the loss. Further, such, any Quincecare claim must fail, the action of the customer – i.e. the Banking either because of a lack of causation (in fraudulent instruction from Mr Al Sanea that the company was the architect of – was the very matter which engaged and Finance its own loss), or because of the illegality the Quincecare duty. defence, or because any such claim Digested by Stefanie Wilkins Similarly, a claim in deceit by the bank would be cancelled out by a claim in against the company would fail. Whilst deceit by the bank against the company. it was true that the instructions were On the question of attribution, the Court fraudulent, it was the very duty of the explained that, following Bilta (UK) Ltd bank to protect the customer against v Nazir (No 2), there was no general rule such instructions. that where a one-man company sued In respect of the illegality defence, a third party for breach of duty, the the Court observed that it necessarily fraud of a director would necessarily Singularis Holdings depended on the question of attribution. be attributed to the company. Rather, It also noted that there were cases Ltd (In Liquidation) the question whether to attribute the pending before the Court which conduct of a director to a company was v Daiwa Capital squarely raised questions concerning the “always to be found in considerations of illegality defence; as such, it ought not Markets Europe Ltd the context and the purpose for which to be assumed that the approach of the [2019] UKSC 50 (Hale, Reed, Lloyd-Jones, the attribution was relevant”. Thus, the Court of Appeal would be endorsed.  Sales and Thomas SCJJ) 30 October 2019 Court’s earlier judgment in Stone & Rolls v Moore Stephens could be “laid to rest”. Quincecare duty – illegality defence – attribution of conduct to a company In the present case, the purpose of the Quincecare duty was to protect The liquidators of a company brought companies against the fraud of those a claim against its bank for breach of who were trusted to control payments its Quincecare duty – that is, the duty from its bank accounts. If the fraud of owed by a bank to its customer to use the agent was attributed to the company, Case Digests 29

valid Part 36 offer. This was upheld by objection to an offer excluding interest the High Court. However, submissions because Part 36 allowed an offer to be were made that differing opinions on limited to a part of a claim, so that in the topic had been expressed by other this case, the offer was limited to the costs judges. For example, in Horne v part of the claim that did not account Prescot (No.1) Ltd [2019] EWHC 1322 (QB), for interest. Nicol J dismissed an appeal, holding The answer to the second question that at least in the context of detailed was also no. CPR 47.20(4) provides for assessment proceedings, an offer Part 36 to apply to the costs of detailed excluding interest could be effective. assessment proceedings subject to In giving judgment, Newey LJ addressed certain modifications, none of which Civil Procedure three questions: (i) Can a Part 36 offer applied. Also, r.36.5(4) states that an generally exclude interest? (ii) If not, offer to accept a sum of money is to Digested by Roseanna Darcy can a Part 36 offer nevertheless exclude be treated as inclusive of “all interest”. interest in the context of detailed This applied to all forms of interest as assessment proceedings? (iii) Should confirmed by CPR 36.17(6). Horne v Prescot the offer made nevertheless be treated was not of assistance, and the judgment as inclusive of interest as a result of there did not provide a satisfactory CPR 36.5(4)? explanation of how r.36.5 could be reconciled with the conclusion reached. The answer to the first question was no. The court rejected the submission that In answer to the third question, it was King v City of r.36.5(4) was not mandatory. In making inconceivable that r.36.5(4) was meant London Corp this argument, the appellant had relied to turn an offer specifically stated to on CPR PD 49 para.19 which provides be exclusive of interest into one [2019] EWCA Civ 2266 (Newey, Coulson, that an offer to settle made under Part including interest. Arnold LJJ, 18 December 2019) 36 should specify whether or not it was Whilst Coulson LJ and Arnold LJ Costs – Part 36 Offers – Interest intended to include interest. However, it agreed with Newey LJ’s judgment, was determined that Part 47 could not In the context of detailed assessment Arnold LJ considered that the issue control the interpretation of Part 36, it proceedings, the Court of Appeal was merited consideration by the Civil merely supplementing the rule, and that required to consider whether a Part 36 Procedure Rules Commitments, as a proper analysis of r.36.5(4) indicated Offer was effective in circumstances there were arguments in favour of that it was mandatory. The court also where it had been made exclusive permitting Part 36 offers to be made rejected the appellant’s argument of interest. The deputy master had exclusive of interest, at least in detailed based on r.36.2(3) that there could be no concluded that the offer was not a assessment proceedings. 

Griffith v Gourgey to the B petition. The appellant appealed against this, as well as the earlier May 2018 strike out order. [2019] EWCA Civ 2046 (Etherton MR, David Richards, Newey LJJ, 22 November 2019) The appeal was allowed. The petition in respect of G should not have been struck out on the basis of pleading inadequacies. Statements of Case – Case Management – Unfair Prejudice The court considered that the respondents could have sought This was an appeal by the appellant director against orders further information before submitting points of defence, or, made in respect of two unfair prejudice petitions brought made an application for strike out earlier. As to the B petition, against his co-directors in two companies, G and B. The the court held that the proposed amendments simply extended proceedings had been ongoing for six years, with various the claim for existing relief, rather than introducing a new applications being made by each party. In the early stages, the claim for relief, meaning there was no reason to allow the parties agreed to submit combined points of claim, defence, respondents to plead back and bypass the earlier order striking and reply. In May 2015, the court struck out the points of out the points of defence. defence as the respondents had failed to respond to requests Within this wider context, David Richards LJ also gave for further information. Their appeal against this was comments on the importance of proper pleadings in unfair unsuccessful. Further applications were issued throughout prejudice petitions, in which he endorsed the numerous 2018. Of relevance, in May 2018, a successful strike out judgments at first instance, such as Re Tecnion Investments Ltd application was made in respect of G on the basis that neither [1985] BCLC 434. This importance, it was said, was especially the petition nor the points of claim contained a sufficient because of the breadth of the court’s jurisdiction in unfair pleading of unfairly prejudicial behaviour. Permission was prejudice cases (as well as just and equitable winding up cases) subsequently granted for the petitions to be amended, the meaning respondents must know the case they have to meet, judge also allowing the first respondent to plead a full defence and the court be able to keep proceedings within manageable SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Civil Procedure bounds. It was also noted that it was not generally the the Rules. It was explained that the modern practice of the practice to have points of claim and defence in such petitions, court is to issue directions in standard form shortly after although the court could direct them under paragraph 5 of the the presentation of a petition, which would include a direction Companies (Unfair Prejudice Applications) Proceedings Rules for the petition to stand as points of claim and for the service 1986 (the “Rules”). Where, however, the petition is the only of points of defence. This does not mean however that the pleading, they must be fully and properly pleaded, and in all court cannot vary those directions upon application of a party, causes, the petition must define “the ambit” of the case. This and in any event, in some cases there will be separate points was not just a question of good practice, but a requirement of claim.  under s.996 of the Companies Act 2006 and paragraph 3(2) of

Burnden Holdings There were three issues for the judge party’ to the litigation. Zacaroli J held to consider: (i) whether the liquidator’s that the answer to that question was yes (UK) Ltd v Fielding firm could be considered a commercial as the firm stood to benefit financially, [2019] EWHC 2995 (Ch) (Zacaroli J, funder, (ii) whether there should be a with an uplift having been negotiated, 7 November 2019) limitation on time for the amount of amongst other factors. It was therefore costs the firm should be liable for, and seen to have sufficient interest in the Costs – Funding Arrangements – Third (iii) whether the Arkin cap applied. proceedings to characterise it as a Party Funding commercial funder. On the first point, generally, it was Following unsuccessful claims brought recognised that s.51 of the Senior Courts As to whether there should be any by the company and liquidator against Act 1982 gave the jurisdiction to award limitation by reference to time, the judge two of the company’s directors, the costs against a third party. It was considered that the firm should not court was required to determine the common ground that where a non- be liable for costs awarded after it had costs liabilities of the liquidator and a party not only funded the litigation but ceased funding. The fact that the firm third-party funder, who happened to substantially controlled it, or benefitted maintained a potential upside after it be the liquidator’s firm, in which he from it, justice ordinarily required that had ceased funding did not cause either was a partner. The firm had advanced they would pay the successful party’s the continuation of the proceedings or funds interest-free to appeal the costs, as the non-party was seeking the incurring of any further costs. decision that certain claims against the to gain access to justice for their own directors were struck out on limitation Further, the judge considered that it purposes, rather than for the benefit issues. That appeal was successful, and was appropriate to apply the Arkin cap of the funded party (Dymocks Franchise another funder provided funding to take (derived from Arkin v Bochard Lines Ltd Systems (NSW) Pty Ltd v Todd (Costs) [2004] proceedings forward. Following the (Costs Order) EWCA Civ 655) and that it was UKPC 39 applied). The judge therefore dismissal of the claims, the company just to apply a cap on the firm’s liability had to consider whether the liquidator’s was ordered to pay the directors’ costs equal to the amount of funding it had firm should be characterised as a ‘pure and to make a payment on account of contributed. This was held to strike the funder’ or a ‘commercial funder’, with £1.2million. The directors submitted that right balance between the entitlement the question being whether the firm the liquidator’s firm should be regarded of the directors, as the successful party, was to be regarded as having done more as a commercial funder and so held on a being paid their costs, and the risk of than merely facilitate access to justice joint and several basis with the claimant discouraging funding which facilitated for the company and so become a ‘real for the director’s costs. access to justice.  Case Digests 31

Barton v Gwyn-Jones Mr Barton introduced a purchaser [2019] EWCA Civ 1999 (Davis, Asplin, Males willing to pay less than £6.5m. LJJ, 21 November 2019) There was nothing in the terms of the agreement, objectively construed, Contracts – unjust enrichment which meant that Mr Barton should Mr Barton lost £1.2m in an receive nothing at all unless the £6.5 unsuccessful attempt to purchase a million purchase price was achieved. property from a company. The company The principle in MacDonald Dickens & agreed to allow Mr Barton the chance Macklin v Costello [2011] EWCA Civ 930 to recoup his loss by offering him a is that an unjust enrichment claim £1.2m introduction fee in return for will not be allowed where the claim introducing a purchaser willing to Commercial would undermine the contractual pay £6.5m for the property. arrangement and agreed allocation Mr Barton introduced a purchaser Litigation of risk between the parties. This who paid £6m. The company refused Digested by Madeleine Jones principle did not apply here. The to pay any of the introduction fee. contract did not expressly exclude Mr Barton made claims in breach any claim for remuneration other than of contract and unjust enrichment in relation to a sale at £6.5m and so which failed at first instance. allowing the unjust enrichment claim The Court of Appeal allowed did not affect any agreed allocation of Mr Barton’s appeal. risk in relation to this.

The question for the court was what, The measure of damages for unjust taking into account the informality of enrichment is the value of the benefit the agreement, a reasonable person, gained not damages for loss. In this with all the background knowledge case the starting point was the market which would reasonably have been value of the services rendered, for available to the parties in the situation which it was appropriate to rely on in which they were at the time of the the evidence of other agreements agreement, would have understood the which the company had reached parties to have meant. The agreement with introducing agents.  was silent on what would happen if

Abbhi v Slade (t/a Richard father-in-law, but Mr Abbhi did not provide the funds to Slade and Co) pay Mr Slade’s fees. The Court of Appeal confirmed the finding of the first instance [2019] EWCA Civ 2175 (King, David Richards, Flaux LJJ, 6 judge that this agreement was not a guarantee to which s. 4 December 2019) of the 1677 applied, and therefore it was enforceable. Guarantees – Statute of Frauds Mr Abbhi’s promise was a promise to pay in any event, not This was a case about section 4 of the Statute of Frauds 1677. a promise to pay upon his father-in-law’s default. Mr Abbhi This provides that no action shall be brought upon a “special had agreed to put the father-in-law in funds before the debt promise to answer for the debt default or miscarriages of came due. It was even a term of the oral agreement that the another person” (ie a guarantee) unless it is made or recorded father-in-law could not pay. The fact that the agreed method in writing. of payment was for Mr Abbhi to put the father-in-law in funds and for him to pass funds on to Mr Slade was irrelevant. Mr Abbhi told Mr Slade, a solicitor, that if Mr Slade agreed to The agreement was an independent promise to put the father- represent Mr Abbhi’s father-in-law, Mr Abbhi would put the in-law in funds, for which Mr Abbhi was liable as primary father-in-law in funds to pay Mr Slade’s fees. The agreement obligor and thus s. 4 did not apply.  was not recorded in writing. Mr Slade acted for the SOUTH SQUARE DIGEST March 2020 www.southsquare.com

did not give rise to any liability under in the facility agreement, considering Etihad Airways PJSC English law, because the comfort letter the closeness of the connection of v Flother relied on by the administrator did not the comfort letter and the facility give rise to a legally binding contract agreement. Applying these standards, [2019] EWHC 3107 (Comm) (Jacobs J, 18 under English law, and the other the Judge found the letter and facility November 2019) claim, culpa in contrahendo (“fault in agreement were part of an overall Jurisdiction – Recast Brussels Regulation contracting”), was not a cause of support package, the jurisdiction clause action known to English law. was broadly drafted and there was no Mr Justice Jacobs considered competing jurisdiction clause in any the validity of an “asymmetric” Mr Justice Jacobs first considered other agreement. It was reasonably jurisdiction clause – that is one whether the jurisdiction clause in the foreseeable that disputes of this sort which contained different provisions facility agreement applied to a comfort would arise. Therefore, the jurisdiction regarding jurisdiction depending on letter provided by Etihad, which was clause in the facility agreement did which party commenced proceedings. the subject of the claims. extend to the comfort letter. The claimant, Etihad, was a The standard of proof to be applied He also found that the jurisdiction shareholder in and creditor of Air in determining whether the English clause was applicable under EU law. Berlin, whose administrator defended court has jurisdiction under Article Under Art. 25 the clause would apply to the claim. Etihad lent funds to Air 25 of the Recast Brussels Regulation a dispute arising in connection to the Berlin under a facility agreement with is that of good arguable case. The “particular legal relationship” between an English governing law clause and scope of the English jurisdiction the parties. In this case the dispute a clause providing that the English clause in the facility agreement (and arose between the parties as borrower courts had exclusive jurisdiction, but therefore whether it extended to the and lender, so Art. 25 was satisfied. also a provision that Etihad, but not Air comfort letter and claims relating to Berlin, could open proceedings in any this) was itself a question of English The effect of Art. 31.2 of the Recast court with jurisdiction. law. The starting point is that a Brussels Regulation was that the jurisdiction clause will govern the English court was not obliged to stay Air Berlin then went into parties’ whole relationship so long proceedings pending judgment of administration in Germany and as there are not several agreements the German court. The administrator the administrator made claims containing competing jurisdiction argued this article did not apply against Etihad in Berlin. In the clauses. The question is, applying because the jurisdiction clause was English proceedings Etihad sought a the good arguable case test, whether “asymmetric”. The judge dismissed declaration that the claims started looking at the overall scheme the this contention. Each “asymmetric” in Berlin were subject to the English parties’ intention, as revealed by the obligation was to be considered on its Court’s exclusive jurisdiction under agreements reached between them, own. The fact that the other party was Regulation 1215/2012 (Brussels was that a dispute under the comfort not under such an obligation did not Recast) art.25. It also argued that the letter fell within the jurisdiction clause come into the question of whether it substantive actions started in Berlin fell under the Regulation.  Case Digests 33

share buy-back which NAL undertook the scheme, such that they could not in 2010. NAL’s shareholders included have required the scheme to transfer all Mr Dickinson, Mrs Dickinson and the of the shares in NAL to them. trustees of a pension scheme. The alternative ground of appeal At first instance, the trial judge held relating to the property transfer rested that the property transfer had been on section 1157 of the 2006 Act. There made without authority and declined to was an initial jurisdictional hurdle. grant Mr Dickinson relief under section After a comprehensive review of the 1157 of the Companies Act 2006 (“the authorities, Newey LJ concluded that 2006 Act”). As regards the share buy- there was jurisdiction to grant relief back, the Judge concluded that it was under s. 1157 of the 2006 Act in the case void for non-compliance with section notwithstanding that the relief awarded 691 of the 2006 Act. was proprietary in nature. Section 1157 applies to “proceedings for negligence, On appeal, the appellants first default, breach of duty or breach of trust”. challenged the judge’s conclusions on The trial judge found Mr Dickinson the transfer of the property by relying to have caused company property Company Law on the Duomatic principle. An initial to be transferred to himself without Digested by Edoardo Lupi obstacle was that certain shares were authority. The words “negligence, default, registered in the names of the pension breach of duty or breach of trust” were apt scheme trustees. Newey LJ was prepared to describe that conduct. Section 1157 to assume, without deciding, that the was not limited in its terms to personal assent of beneficial owners of shares liability. However, exercising the could meet the Duomatic requirements. discretion afresh, the Court of Appeal Nevertheless, there remained refused to grant relief. insuperable difficulties with the Dickinson v submission that the Duomatic principle As regards the share buy-back, section applied in relation to the property 691(2) of the 2006 Act provides that in Nal Realisations transfer. For instance, Mrs Dickinson order for the acquisition by a company (Staffordshire) Ltd was not shown to have approved the of its shares to be valid, the shares transfer: it was not sufficient to say “must be paid for on purchase”. Newey [2019] EWCA Civ 2146 (David, Newey, that she left matters to her husband. LJ held that it was not sufficient for Baker, Dingemans LJJ, 3 December 2019) The Court of Appeal reiterated that a contract to provide for payment Duomatic principle – share acquisitions – nothing short of unqualified agreement, forthwith; payment must in fact be section 1157 Companies Act 2006 objectively established, will suffice for made. Accordingly, the arrangement the Duomatic principle. Moreover, it whereby payment was by loan but not The case concerned the validity of was clear from a version of the pension actually effectuated at the time of the the transfer of a property from the scheme rules that the Dickinsons were transfer did not meet requirements of first respondent, NAL, to the first not the only potential beneficiaries of the section, such that the share buy- appellant, Mr Henry Dickinson, and a back was void. 

The first appellant had unsuccessfully argued that if the Auden McKenzie (Pharma Division) Payments had not been made lawfully, the shareholders Ltd v Patel would have caused the company to make equivalent payments to them as dividends or in some other lawful manner. [2019] EWCA Civ 2291 (David Richards, Lewison, Newey LJJ, Accordingly, it was submitted that the company could show no 20 December 2019) loss flowing from the Payments. Summary judgment – equitable compensation The Court of Appeal formulated the following question of law The case involved an appeal against the summary judgment on the appeal as follows: in a claim for equitable compensation awarded by Knowles J on a claim for equitable compensation in respect of the misappropriation by a director of a company’s (digested in a previous edition). The first appellant accepted funds, is a defence open to the director on the grounds that, if that he had caused the company to make £13 million odd in the misappropriation had not occurred, the funds would have payments to offshore entities to enable the company to evade been lawfully transferred to the same persons for no value, so corporation tax and him and his sister (the second appellant) that it can be said that the company has sustained no loss as a to evade income tax (the “Payments”). At first instance, result of the misappropriation that can be recovered by way of Knowles J awarded judgment in the sum of £13,149,479 equitable compensation? plus interest. SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Company Law

In the summary judgment context, the question was whether some departure from the strict obligation of trustees and the first appellant’s argument was unsustainable in law. fiduciaries to restore the fund under their control. Noting that Having considered the authorities on equitable compensation he was far from being convinced that the first appellant would and noting that they did not appear to lend direct support be successful on this legal argument even if he established the to the first respondent’s contention, David Richards LJ assumed facts, David Richards LJ said he was not prepared to nevertheless observed that the cases did demonstrate a hold that the argument was unsustainable in law: the area was willingness on the part of the courts to develop the equitable a developing one, required fuller submissions and was best remedies for breach of trust and breach of fiduciary duty and, decided at trial after factual findings were made. Accordingly, where required, to do what is practically just, to entertain the appeal was allowed. 

BTI’s claim against Sequana failed. Rose nevertheless abusive. Having reviewed BTI 2014 LLC v J held that the accounts relied on by the the cases, Fancourt J summarised the Pricewaterhousecoopers directors for payment of the dividends following principle. Whilst it is not were proper accounts for the purposes prima facie an abuse of process to bring LLP of Part 23 of the 2006 Act and that a second claim against a different party, [2019] EWHC 3034 (Ch) (Fancourt J, 15 accordingly the dividends could not who would not have been bound by any November 2019) be recovered from the defendants. material findings in the first claim, and usually will not be so, it may be abusive Strike out – abuse of process – professional In the professional negligence claim, in a case where success on the second negligence BTI alleged that PwC negligently audited claim will involve re-litigating the very AWA’s 2007 and 2008 annual accounts BTI brought a claim against PwC for same issues as in the first claim and thereby causing it loss, in that the professional negligence in respect of the court reaching different conclusions directors would not have resolved to their auditing of the second defendant, on those issues on the basis of the pay the very large dividends had PwC AWA. The negligence claim was related same evidence: the ultimate question acted non-negligently. They would not to the claim in BTI v Sequana digested is a general one of whether, in all the have done so, BTI alleged, because the in previous editions, with the former circumstances, a party is abusing or accounts of AWA would then have shown stayed pending the resolution of the misusing the court’s process. that it had considerably greater liabilities latter. In BTI v Sequana, BTI had and fewer distributable reserves. BTI Applying this principle to the facts, challenged the payment of two interim claimed the loss in the full amount of Fancourt J held that the claim did not dividends in the sum of €443 million the Dividends paid to Sequana. In light involve a collateral challenge to the and €135 million to its parent company, of Rose J’s judgment and the subsequent findings made by Rose J. Rather, BTI was Sequana, respectively in December appeal, PwC sought summary judgment, contending that the directors would in 2008 and May 2009 (the “Dividends”). alternatively, judgment in default. fact have made different provision and Prior to the payment of the Dividends, disclosure in the accounts if PwC had AWA effected a reduction of capital Fancourt J rejected PwC’s application. done what it should have done. It was by special resolution supported by a It had been alleged on behalf of PwC not therefore simply a claim based on solvency statement in order to free up that BTI’s claim amounted to an what the relevant accounts should have distributable reserves. AWA’s accounts, abuse of process, which involved a stated: it was a claim based on what the audited by PwC, made provision for the collateral attack on the findings of directors would have done had they had company’s liability to BTI during the Rose J. The question therefore was had the benefit of a non-negligent audit relevant period. whether litigation of issues not decided report, and thus the negligence claim as between the same parties was did not constitute an abuse of process. 

shares. Under section 238, a dissenting the fair value of dissenters’ shares Re Shanda Games shareholder has the right to payment under section 238, but did not agree [2020] UKPC 2 (Reed, Wilson, Briggs, of the fair value of its shares. At with the CICA that one fell to applied Arden, Kitchin SCJJ, 27 January 2020) first instance, adopting a discounted in every case as a matter of law. Rather, cashflow valuation, Segal J awarded the legislature directed the Cayman Minority discount – valuation – the dissenting shareholders $8.34 Court to find the fair value of the Section 238 per share and held that no minority dissenter’s shareholding, such that the In the first case under section 238 of discount should be applied. He was Board could not rule out the possibility the Cayman Islands Companies Law reversed on the minority discount point that there might be a case where a (“section 238”) to reach the Privy by the Cayman Islands Court of Appeal minority discount was inappropriate Council, the principal issue before the (“CICA”). The Privy Council held that a due to the particular valuation exercise Board concerned the applicability of minority discount should be applied in under consideration. A cross-appeal a minority discount to a dissenter’s most circumstances when determining concerning the fair rate of interest was also dismissed.  Case Digests 35

This case concerned the powers of Conflicting views were reached at liquidators to rectify a company’s first instance, where Jones J adopted register of members under the the broader view, and in the Cayman Cayman Islands Companies Law (“the Islands Court of Appeal, which adopted Companies Law”). The issue arose in the narrower view. further litigation following discovery The Privy Council dismissed the appeal. of the Madoff fraud which, as is well Lord Briggs considered section 112(2) known, was carried out through of the Companies Law in the context of Bernard L Madoff Securities LLC that legislation as a whole, and while (“BLMIS”). Herald Fund SPC (“Herald”) the provision has no direct antecedent, operated as a feeder fund in BLMIS. it uses words, phrases and concepts Primeo Fund (“Primeo”) operated, in which engaged established legal ideas turn, as a feeder fund in Herald. (such as to ‘settle’, ‘rectify’, or ‘adjust’ Herald was in solvent liquidation, and a the register of members). In addition, surplus was available for distribution to the obvious purpose of the process Corporate members. In this regard, the liquidator contained in that section was to enable of Herald produced proposals for the liquidator to establish by enquiry Insolvency the distribution of the surplus in a what were the true legal rights of the Digested by Ryan Perkins way which, in his view, resulted in a members, and to bring the register of & Daniel Judd more just outcome given the adverse members in accordance with them, as consequences of the Madoff fraud than the basis for the proper distribution would be achieved by distributing in of any surplus. A broader power of accordance with the shareholdings set liquidators to impose a fair scheme out in Herald’s register of members. of their own devising, in substitution The question became whether the for members’ legal rights, would work liquidator had the power to do so. a large and unprecedented change in the law. The statutory history did The powers of the liquidator were set not support such a consequence, and out in section 112(2) of the Companies in any event the equitable remedy of Pearson (as Additional Law as being “to settle and, if necessary rectification was available. Lord Briggs rectify the company’s register of members, Liquidator of Herald also observed that the proposed power thereby adjusting the rights of members would run contrary to the pari passu Fund SPC (in Official amongst themselves”. principle, which required distribution Liquidation)) v Primeo The question considered by the Privy of estates in accordance with the Fund (in Official Council was short but important. Is the legal rights of stakeholders as at the Liquidation) scope of the liquidator’s power confined commencement of the liquidation. to altering the register consistently As a result, the appeal was dismissed.  with the members’ underlying legal (Cayman Islands) [Tom Smith QC, Adam Al Attar] rights at the commencement of [2020] UKPC 3 (Kerr, Carnwath, Black, the liquidation, or did it allow the Briggs, Arden SCJJ, 27 January 2020) liquidator to amend the register of Liquidators’ powers – register of members members in a way which alters the members’ legal rights, so as to bring about what the liquidator considered achieves substantial justice between the members? SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Corporate Insolvency

The judge located the legal basis of this position in Article In the Matter of Nektan 355(3) of the Treaty on the Functioning of the European Union (Gibraltar) Limited (“TFEU”), which provides that the provisions of EU treaties apply to “the European territories for whose external relations a [2020] EWHC 65 (Ch) (Falk J, 17 January 2020) Member State is responsible”. The case law of the Court of Justice Winding up – foreign companies – EU Insolvency of the European Union had already affirmed that Gibraltar Regulation – Gibraltar was such a territory with respect to the United Kingdom, even though Gibraltar was not itself a Member State in any way. This was the full judgment of Falk J, following an order made in the interim applications court. An administration order The remaining issue concerned the meaning of ‘company’ had been sought on an urgent basis. The judge considered the under Schedule B1. For this purpose, ‘company’ was defined in evidence and concluded that the purpose of the administration paragraph 111(1A), which at (b) includes “a company incorporated was reasonably likely to be achieved. The evidence showed in an EEA State other than the United Kingdom”. The EEA State that the company had negotiated the sale of its gambling concept was further defined in section 436 of the Insolvency business to a third party, but that an administration order Act 1986. Gibraltar was not an EEA State as defined, not being a was required in order for the sale to be concluded. This was ‘Contracting Party’. Reference to ‘The United Kingdom of Great for reasons principally connected with the preservation of the Britain and Northern Ireland’ did not ordinarily extend company’s gambling licence. to Gibraltar.

The case also raised, for what appears to be the first time, a The judge went on to consider that jurisdiction could be jurisdictional difficulty of particular interest. The question can established on the separate basis of paragraph 111(1A)(c). be shortly stated. Is a company incorporated in Gibraltar, and On considering the background to the current wording of which has a centre of main interests (“COMI”) in Gibraltar, a paragraph 111(1A), Falk J concluded that the draftsman should “company” within Schedule B1 of the Insolvency Act 1986, such be treated as being aware that the EU Recast Insolvency that English courts have jurisdiction to make administration Regulation did not address the question of COMI within the orders over such companies? territories of an individual Member State, only the position between Member States. Accordingly, reference to ‘Member Falk J granted the administration order, and decided that the State’ should be read as referring to the concept as it is used case could be decided on the basis that the company’s COMI in Article 3 of the EU Recast Insolvency Regulation, and here was ultimately located in England. Nevertheless, Falk J set out the United Kingdom encompasses Gibraltar. her analysis of the position regarding Gibraltarian companies in full, should the matter arise for determination in the future. The judge also concluded that, on the facts, the company’s COMI was located in England, and that the presumption Gibraltar is not referred to by name under the EU Recast of COMI in favour of the company’s registered office was Insolvency Regulation. However, commentary and case law rebutted. The judge held than an administration order could treats the EU Recast Insolvency Regulation as applying to equally be made on that basis.  Gibraltar, including on the basis that the component parts of the United Kingdom are treated as one jurisdiction thereunder.

An order of the Supreme Court of ‘foreign proceedings’ under the CBIR. Michael Carter v Roy Bermuda appointed Joint Provisional After an extended consideration of the Bailey and Keiran Liquidators over the company, following case law, commentary, and materials an earlier decision of the Court of Appeal underlying both the Model Law and the Hutchison (as foreign of Bermuda that the company should be CBIR, he ultimately considered that it representatives of wound up on just and equitable grounds. would be contrary to the stated purpose and object of the Model Law to interpret The central question arising for Sturgeon Central Asia ‘foreign proceedings’ to include solvent determination was whether that debtors, which would have the purpose Balanced Fund Ltd) winding up in Bermuda should continue of producing a return for members. [2020] EWHC 123 (Ch) (Chief ICCJ Briggs, to be recognised in this jurisdiction, Adopting a purposive approach, Chief 27 January 2020) the answer depending on whether or ICCJ Briggs took the view that the not those proceedings were a “foreign Foreign proceedings – CBIR – just and reference to ‘purpose’ Article 2(i) main proceeding” for the purposes of equitable winding up of Schedule 1 to the CBIR should be the Model Law and the CBIR. interpreted as meaning for the purpose These proceedings follow the making The application was advanced by way of of insolvency (liquidation) or severe of the first order to recognise the a review of the order already granted by financial distress (reorganisation). liquidation of a solvent company as Falk J at an ex parte hearing. a foreign main proceeding under the The consequence of the judge’s Cross-Border Insolvency Regulations Chief ICCJ Briggs concluded that the conclusion was that the recognition (“CBIR”) in this jurisdiction. proceedings should be not considered order had been wrongly made, and was terminated accordingly.  Case Digests 37

treated as either acting as, or in the capacity of, an English Candey Limited v Russell Crumpler liquidator. Their treatment under the rules was clear and was and Christopher Farmer (as Joint distinguished from that of an English liquidator. One odd consequence of Candey’s submission would be that where a Liquidators of Peak Hotels & foreign representative brings proceedings in the company’s Resorts Limited) name, that company would need to be a company being wound up in England and Wales, in order to recover the success fee. [2020] EWCA Civ 26 (McCombe, Moylan, Rose LJJ, 23 January 2020) A second issue related to a claim by Candey in the liquidation of Peak for work done. Candey asserted an equitable lien, and Foreign-appointed liquidators – solicitors’ fees – equitable lien submitted that the court can and should convert this into a This appeal concerned the recovery of legal costs. Candey charge on Peak’s assets. Reliance was also placed on section Limited (“Candey”) acted for a number of years as the legal 73 of the Solicitors Act 1974 (“1974 Act”). representative of Peak Hotels & Resorts Limited (“Peak”) This issue was also decided against Candey. Solicitors have which went into liquidation in the BVI. A dispute then arose long had a lien to recover their unpaid fees out of the money as to Candey’s claim to unpaid legal fees owed to it by Peak. recovered by their client as a result of the litigation in which These appellate proceedings are one of a number of iterations they are instructed, and it is also established that the lien of this litigation. prevails despite the client’s insolvency. It gives the solicitor Rose LJ identified two principal issues for determination. a first-ranking charge.

The first was whether the liquidators were bound, by an order There was no appeal against the finding that Candey was to pay some of Candey’s costs, to also pay a success fee under instrumental to obtaining certain Settlement Proceeds for a conditional fee agreement. That in turn depended on the the purpose of imposing under section 73 of the 1974 Act. The status of the liquidators, and the extent to which they were issue which followed concerned whether Candey had waived similar to or different from English liquidators. its equitable lien. Rose LJ addressed the tests for waiver, including in the light of the solicitor’s position as a fiduciary, The recovery of success fees was prohibited by section 44 of and considered that here the lien had been waived. She relied the Legal Aid, Sentencing and Punishment of Offenders Act principally on various inconsistencies between the continued 2012 (“LASPO Act”). The introduction of the LASPO Act into existence of the lien and new arrangements for the provision force was made subject, however, to saving provisions, one of of security. In addition, the lien was not effectively reserved. which applied to “proceedings in England and Wales brought by a Rose LJ underlined that the reservation by a solicitor of their person acting in the capacity of … a liquidator of a company which lien had to be made in a transparent and straightforward way. is being wound up in England and Wales or Scotland under Parts IV or V of the 1986 Act”, among others. This meant that, in the Rose LJ also noted that there were difficult questions regarding case of English liquidation proceedings, such fees may still the nature of the interest held by a solicitor as a result of the be recoverable. In the present case, the complication was that equitable lien, before a fund comes into sight, though these the liquidators were appointed in the BVI, and had obtained issues did not need to be decided in the appeal.  recognition in England and Wales. Candey submitted that [Stephen Robins] such liquidators were not acting ‘in the capacity of’ English liquidators. Candey pointed to other limitations applying to liquidators appointed overseas.

Rose LJ rejected this argument. On analysing the Cross- Border Insolvency Rules (“CBIR”), a recognition order does not have the effect that foreign representatives are thereafter SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Corporate Insolvency

Lord Briggs, giving the judgment of the The above point decided the outcome of Stanford International majority, held that such relief was not the appeal, with Lady Arden and Lord Bank Ltd (in Liquidation) available where a company was in an Carnwarth dissenting. insolvent liquidation. While there was [2019] UKPC 45 (Wilson, Carnwath, Briggs, Nevertheless, even if section 204 relief nothing express in the language of the Arden, Longmore SCJJ, 16 December 2019) were available in principle, all members statute that prohibited such relief, on of the Board agreed that the judge was Liquidators’ powers – unfair prejudice – considering authorities from across right to refuse the liquidator permission Ponzi schemes the Commonwealth, he considered that to pursue claw-back claims, and to allow liquidator must take the company’s Stanford International Bank (“SIB”), the same would have been an improper property and rights as he or she a company registered in Antigua and exercise of discretion. Those receiving finds them. The liquidator must also Barbuda, was the vehicle used for a payment had a reasonable expectation take the insolvency scheme as he or Ponzi scheme by Mr Robert Stanford. that they could keep the money, and she finds it; it is not the liquidator’s The scheme collapsed, and SIB was there was no basis in the applicable job to achieve some other outcome. placed into liquidation in April 2009. insolvency regime for regarding them as Entry into insolvent liquidation is a preferred. In addition, those depositors In advance of the liquidation, a number watershed event. It is accepted that were also bona fide purchasers for of investors managed to withdraw investors who escape before the onset value without notice, having been paid $1.3 billion. The losses therefore fell of any insolvency process receive the pursuant to contractual entitlements. An on creditors still invested in SIB at the payments they do, whereas others may equitable claim under section 204 would time when the Ponzi scheme failed. The get little or nothing; a Ponzi scheme fail in such circumstances. central question was whether or not the was merely an extreme example of liquidators of SIB, in accordance with this common occurrence. There was A third issue was whether, if section their perception of what was fair and nothing in section 204 of the IBC Act 204 relief was in principle available, the equitable, could adjust the losses among which compelled provision of such re-adjustment of creditors’ claims in the SIB’s depositors under unfair prejudice relief. Further, there was a fundamental liquidation should have been permitted. legislation. The Privy Council addressed incompatibility between granting This, in effect, sought to account for three issues that arose in order to discretionary relief for unfair prejudice any credits received in full by creditors, determine this question. on broad equitable principles, and when determining the entitlements the implementation of an applicable they would receive as creditors in the The first and principal hurdle related to insolvency scheme. Once a company liquidation. The Board regarded such whether relief for oppressive or unfairly has crossed the threshold into insolvent relief as no more principled under prejudicial conduct was available where liquidation, the framework for granting section 204 than permitting claw-back the company was in an insolvent relief from oppression was wholly claims, with similar considerations liquidation. In the instant case, the point displaced. Aggrieved creditors could not applying, and held that the judge at first arose in the context of section 204 of therefore claim for section 204 relief instance was wrong to allow it. the Antiguan International Business based upon the conduct of the company Corporations Act (“the IBC Act”), which Accordingly, the joint liquidators’ appeal prior to its liquidation. on its face gave wide scope for making was dismissed.  discretionary relief available to creditors and shareholders.

System Building Services Group company, Mr Brian Michie, as well as another company which received a number of payments whilst the Company was in Limited (in Liquidation) v System administration.

Building Services Limited Those claims included claims against the director for EWHC 54 (Ch) (ICCJ Barber, 21 January 2020) purchasing property from the Company at what he knew to be a substantial undervalue, and for causing payments to Directors’ duties – administration – CVL be made from the company to a particular creditor. These System Building Services Group Limited (“the Company”) actions were alleged to constitute breaches of a director’s went into administration, followed by creditors’ voluntary fiduciary duties, owed under sections 170-177 of the liquidation (“CVL”), and was finally dissolved. The office- Companies Act 2006. holder on both occasions was Mrs Gagen Sharma. In her These proceedings required a preliminary question of law to capacity as an office-holder of other companies, Mrs Sharma be resolved. It was accepted that, if there was a breach of duty, was subsequently found liable for misfeasance. She was then then constructive trusts would arise in favour of the Company. adjudged bankrupt. In light of those events, the Company It was also accepted that, notwithstanding the CVL, Mr Michie was restored to the register, and placed into compulsory remained a director of the Company. However, the question for liquidation. Following various investigations, the liquidator ICCJ Barber was whether a director’s ‘general duties’ under the then brought claims against a former director of the Companies Act 2006 survived entry into a formal insolvency Case Digests 39

process at all, in the present case, administration and a CVL. codified in sections 170-177 of the Companies Act 2006 – were themselves sufficiently flexible to extend beyond entry into The judge considered that the general duties did continue to a formal insolvency process. Accordingly, the general duties apply notwithstanding a formal insolvency process. Simply of directors under the Companies Act 2006 survived entry ‘being’ a director was sufficient to trigger the director’s duties, into administration or CVL. Those duties are independent of, and entry into administration or CVL did not itself result in and run parallel to, the duties owed by an administrator or the removal of a director from office. There was no need for liquidator appointed in respect of the company. an individual to exercise powers qua director in order to be subject to the fiduciary duties binding company directors. The judge went on to find that Mr Michie acted in breach of It was also apparent more generally that, where Companies his directors’ duties, ordered that the property was held on Act 2006 provisions did not apply to an administration, trust for the Company, and declared that Mr Michie was liable compulsory liquidation, or CVL, this was expressly stated. In to the Company for those sums paid out from the Company in any event, the underlying common law and equitable duties – breach of duty. 

by the Fund Manager. In the second to commence a voluntary liquidation to Re Asia Private Credit appeal, Kawaley J had ordered that the holder of management or founder Fund Limited and Re the liquidation be brought under the shares, the participating shareholders supervision of the Court and that the were the primary economic stakeholder Adamas Asia Strategic FTI liquidators should be appointed in relation to a voluntary liquidation, Opportunity Fund in place of the incumbent voluntary and that the starting assumption in liquidators. The Fund Manager appealed determining the choice of voluntary (in Voluntary Liquidation) (Civil Appeal No. against both decisions. The Petitioner liquidator should be to give weight to 17 of 2019 and Civil Appeal No. 27 of 2019 cross-appealed against the joint the views of the majority of economic (Consolidated) (Cause No. FSD 232 of appointment of the voluntary liquidators stakeholders. The Court of Appeal 2018); (in Voluntary Liquidation) (Civil in the first appeal. The Court of Appeal agreed that it was appropriate to reject Appeal No. 26 of 2019) (Cause No. FSD 72 dismissed both appeals brought by the the Fund Manager’s submissions that, of 2019) (Field, Morrison, Beatson JJA, Fund Managers and upheld the cross- in such circumstances, participating 8 November 2019) appeal brought by the Petitioner. shareholders have no right to influence Voluntary liquidation – supervision orders the choice of voluntary liquidator In the first appeal, the Court of Appeal (or decide the appropriate winding The Cayman Islands Court of Appeal set aside the supervision order made up process). heard consolidated appeals against by McMillan J on the basis that the making of supervision orders by the Judge had failed to identify the The Court of Appeal confirmed that the Grand Court. In both cases, the jurisdictional basis on which the order once it has been established that Petitioner (being the sole participating was made. Notwithstanding this, a solvent liquidation will be more shareholder of each Fund) had requested the Court of Appeal found that it was “effective”, “economic” or “expeditious” that the Fund Manager exercise open to it to make its own findings if brought under the supervision of the shareholder voting rights (exercisable on the evidence and ordered that Court pursuant to Section 131(b) of the only in respect of the Founder or the voluntary liquidation be brought Companies Law (2018 Revision), the Manager Shares held by the Fund under the supervision of the Court views of participating shareholders as Manager) to appoint representatives and that the Petitioner’s nominees to the identity of the liquidators should of FTI as voluntary liquidators of the (representatives of FTI) be appointed as be respected, and that a fund manager Funds. Notwithstanding such request, official liquidators. The Court of Appeal should take a measured and neutral the Fund Managers unilaterally commented that, if it appointed the approach to any such application by elected to appoint their own voluntary incumbent joint voluntary liquidators a shareholder to assist the Court to liquidators. The Petitioner commenced of the Fund, such appointment would determine whether the grounds for proceedings under Section 131(b) of the undermine the effectiveness of the the application have been made out as Companies Law (2018 Revision) citing supervised liquidation by an appearance well as the identity of the liquidators. concerns regarding the operation of of partiality attaching to the voluntary The Court of Appeal found that it is the Funds and seeking orders that the liquidators resulting from their original not appropriate (without justification) voluntary liquidators be brought under appointment by the Fund Manager for a fund manager to seek to oppose a the supervision of the Court and (whose role and conduct of the affairs of petition or to frustrate a participating appointing representatives of FTI Fund Company would be the subject of shareholder’s attempts to appoint its as official liquidators. investigation). preferred choice of liquidators. 

In the first appeal, McMillan J had In the second appeal, the Court of [David Allison QC] ordered that the voluntary liquidation Appeal upheld the supervision order be brought under the supervision of made by Kawaley J. The Court of the Court and directed that the FTI Appeal found that Kawaley J adopted liquidators be appointed in addition the correct approach in that whilst the to the voluntary liquidators appointed articles of association gave the power SOUTH SQUARE DIGEST March 2020 www.southsquare.com

This case raised the question of Mr McNamara’s Irish pension whether the impact of bankruptcy arrangements did not constitute an on accrued pension rights with “approved pension scheme”, and fell within the scope of Article 49 of the outside of both sections 111 and 112 Treaty on the Functioning of the WRPA 1999. Accordingly, the position European Union (“TFEU”). Article 49 under the English legislation was prohibits restrictions on the freedom that his accrued pension rights were of establishment of nationals of one included in his bankruptcy estate. Member State in the territory of Mr McNamara contended that, if this another member state. Freedom of were the case, the English pensions establishment includes operating as a legislation was contrary to EU law. self-employed individual and protects Although it was possible for nationals the right to take up and pursue activities of other Member States to register their Personal “under the conditions laid down for its own pension rights for tax purposes under nationals by the laws of the country where section 153 of the Finance Act 2004, Insolvency such establishment is effective” (subject in practice it was far more likely that Digested by Lottie Pyper to certain provisions). It is presently English nationals would benefit from unclear whether this extends to the having an approved pension scheme impact of bankruptcy in different than nationals of other Member States. Member States, and accordingly Nugee J It followed from this that, if the impact made a reference to the Court of Justice. of bankruptcy on accrued pension rights The background to this question arose is within the scope of Article 49 TFEU, because Mr McNamara had spent the English legislation constitutes the majority of his working life as a discrimination in enjoyment of a social self-employed property developer in advantage by English nationals, and is Mark John Wilson, Ireland, where he set up certain pension therefore contrary to EU law. arrangements. However, having shifted George Maloney (Joint Rather than determining the case, the his centre of main interests to England, Court made a reference to the Court of Trustees in Bankruptcy he was made bankrupt here on his own Justice on its own initiative. However, petition in November 2012. of Michael Bernard Nugee J indicated that, in his view, McNamara) v Moira Under English law, specifically section Article 49 was engaged, such that the 11 of the Welfare Reform and Pension English legislation was incompatible McNamara, Marine Act 1999 (“WRPA 1999), the rights of a with EU law. He suggested that the House Trustees Ltd, person who is made bankrupt under appropriate approach in this case would any approved pension arrangement are be to read down section 11 WRPA 1999 Irish Life Assurance excluded from his bankruptcy estate. so as to include any unapproved pension Plc, Michael Bernard The definition of an “approved pension arrangements of nationals of other McNamara scheme” includes a scheme registered Member States that are recognised for with HMRC for tax purposes under tax purposes.  [2020] EWHC 98 (Ch) (Nugee J, 23 January section 153 of the Finance Act 2004 and [John Briggs] 2020) any pension arrangements prescribed by regulations made by the Secretary Bankruptcy – pension schemes – freedom of State. Pursuant to section 112 WRPA of establishment – EU law 1999 the Secretary of State may also make regulations enabling rights under an unapproved pension arrangement to be excluded from a bankrupt’s estate. Case Digests 41

Personal Insolvency

The Court analysed the terms of the Agreement in order Karen Mulville v Jonathan Sandelson to ascertain whether the obligations were dependent or [2019] EWHC 3287 (Ch) (Roth J, 4 December 2019) independent. It was notable that the Settlement Sum was described as being payable “without any set-off, dedication, Bankruptcy petitions – liquidated sum – independent and counterclaim, reduction or diminution of any kind or nature”. dependent obligations – contractual interpretation In addition, KM was not required to take any steps under Mr Sandelson (“JS”) sought to strike out a bankruptcy petition the Agreement until after the Settlement Sum had been issued against him by the petitioner, Ms Mulville (“KM”) on paid: her obligations were subject to receipt of that sum. the basis that the alleged debt was not a liquidated sum, but In those circumstances, the obligations of JS and KM were was instead a damages claim. independent, and KM was entitled to petition for Settlement Sum as a debt claim. Accordingly, the Court refused to strike The petition was founded on a financial obligation of out the petition.  £1,250,000 (the “Settlement Sum”) owed by JS to KM under a settlement deed (the “Agreement”). Under the terms of the [Jeremy Goldring QC] Agreement, JS was required to pay the Settlement Sum by 31 January 2019, which he had failed to do. KM had therefore not discharged any of her obligations under the Agreement.

The legal analysis turned on whether the obligations of JS and KM under the Agreement were independent or dependent obligations. If they were dependent obligations, then KM’s claim against JS was a damages claim, not a liquidated sum.

The panel considered the breaches Premier Rugby Limited v of the Regulations by Saracens to be Saracens Limited serious because: (i) it had recklessly and continually failed to cooperate with the Rugby – disciplinary proceedings – SCM; (ii) there were several breaches in salary cap the salary cap years 2016/17 and 2018/19; A disciplinary panel imposed financial and (iii) the breaches involved Saracens penalties and a points deduction on massively exceeding the salary cap for Saracens Rugby Club (“Saracens”) for both of those salary cap years. its breaches of the Premiership Rugby The panel exercised its discretion to Salary Regulations (the “Regulations”). halve the points sanction provided for The Regulations contain detailed rules by the Regulations to 35 points for the Sport which limit the amount of salary that salary cap years 2016/17 and 2018/19 rugby clubs may pay their players within because it considered that otherwise Digested by Andrew Shaw each year running from 1 July to 30 June. Saracens would almost certainly have The Regulations define the role of the been relegated from the Premiership Salary Cap Manager (the “SCM”) who and this outcome would not have been is responsible for all aspects of their within the spirit or underlying purpose operation. An important part of the of the Regulations. The panel also scheme provided by the Regulations decided that Saracens should pay a is that clubs must cooperate with the fine of £5,360,272.31 for its breaches of SCM, including by disclosing to him the Regulations in the salary cap years all contracts and other arrangements 2016/17, 2017/18 and 2018/19.  entered into with their players. SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Champions League Ban for Manchester City

On 14 February 2020, UEFA announced by UEFA’s Club Financial Control Body followed leaks of MCFC’s emails, that its independent Adjudicatory (“CFCB”). The Adjudicatory Chamber which were published by Der Spiegel Chamber had determined that imposed a ban on MCFC from UEFA the previous November. The Times has Manchester City Football Club (“MCFC) club competitions for the 2020/21 reported that these emails “appeared had “committed serious breaches of and 2021/22 season and a fine of to show that Sheikh Mansour bin Zayed the UEFA Club Licensing and Financial €30 million. al Nahyan, the City owner and head of Fair Play Regulations by overstating its the Abu Dhabi United group that runs The case was referred to the sponsorship revenue in its accounts and the club, was mostly funding the £67.5 Adjudicatory Chamber in May 2019 in the break-even information submitted million annual shirt, stadium and academy by the CFCB Chief Investigator, to UEFA between 2012 and 2016” and that sponsorship deals himself, rather than the former Belgian prime minister MCFC had failed to cooperate with the Etihad, the Abu Dhabi airline.” Yves Leterne. The CFCB is tasked investigation carried out with ensuring that football clubs However, the grounds on which comply with the Financial Fair Play the Adjudicatory Chamber made its Regulations, which were implemented findings have not been published with the objectives of encouraging and will not be until the final football clubs to be more self- determination by the Court of sufficient and introducing more Arbitration for Sport of the appeal discipline and rationality into club which MCFC has stated it intends to football finances. make “at the earliest opportunity”.

According to a report in the Guardian, Mark Phillips QC and Andrew Shaw were the investigation opened by the CFCB appointed English legal counsel to the Chief Investigator in March 2019 CFCB Chief Investigator. 

Time Estimates: Attention, Attention!

For anyone who missed it, important As a realistic rule of thumb, therefore, recent guidance on ½ day time parties should not ask for a half-day estimates sent to commercial hearing unless they are confident, practitioners by Andrew Baker J, in having considered the matter with his capacity as the Chair of COMBAR, care, that substantive argument will be and taken from his recent decision in completed within 1 ½ hours maximum. Kazakhstan Kagazy PLC & Ors v Zhunus It should not be assumed that judgment & Ors [2020] EWHC 128 (Comm): will be reserved; and if it is reserved, the final hour or so of hearing time “Under estimation of the time not spent in court can and should required to argue applications in the be available to the judge to reflect Commercial Court, especially those for and make key notes, fresh from the which the parties seek a Friday listing, argument, for the structure and content is a significant current problem. In the of the judgment that he or she will hope that it may do something to start need to write”.  to turn the tide in that regard, I wish to emphasise that a half-day hearing estimate in this court is supposed to mean that a maximum of 21/2 hours will be required for all the substantive argument, an oral judgment and the determination (with argument as required) of consequential matters. INSOL 2020 Annual Conference 43

INSOL 2020 Annual Conference

Cape Town, South Africa

Learn, Unlearn, Relearn

The venue for this year’s INSOL Annual Conference, to be held between 15 and 17 March 2020, is the Cape Town International Convention Centre in South Africa. South Square, the only set of chambers who are members of the G36 Group, is delighted once again to be one of the sponsors Felicity Toube David Alexander of the event in this city of beauty, splendour and complex history.

INSOL conferences are always insightful and enjoyable and members of Chambers are much looking forward to catching up with old friends and meeting new faces. Some 800 insolvency professionals from around the world are expected to attend. At present from South Square Felicity Toube QC (joint conference chair with PwC’s Mark Arnold Stefanie Wilkins Stefan Smith), Fidelis Oditah QC, Heads of Chambers David Alexander QC and Mark Arnold QC, Tom Smith QC, William Willson and Stefanie Wilkins are due to be there, together with Chambers Director Will Mackinlay, with others keen to join should commitments permit.

The conference begins with a range of ancillary meetings,CANCELLED including the INSOL Offshore Meeting, on the Sunday, followed by a welcome cocktail Fidelis Oditah Tom Smith reception sponsored by BDO LLP. There then follows a two-day technical programme with the theme of ‘Learn. Unlearn. Relearn.’ to help delegates challenge their thinking, acquire new silks and mull over the significant issues of our day.

We hope to see you there.

For further information, please visit William Willson Will MacKinlay www.insol.org SOUTH SQUARE DIGEST July 2019 www.southsquare.com

Guernsey modernises its insolvency law

ALEX HORSBRUGH-PORTER DANIEL JUDD OGIER, GUERNSEY Guernsey modernises its insolvency law 45

Guernsey has updated its insolvency solvency test. If they are unable to following Re Med Vineyards, Royal Court, law with the Companies (Guernsey) make that declaration, the directors 25 July 1995 (unreported) permitting Law, 2008 (Insolvency) (Amendment) can only appoint liquidators who are the interviewing of directors, but the Ordinance, 2020, passed on 15 January independent third parties, unconnected extent of such common law powers was 2020. The changes include increasing with the directors or members of the uncertain and was recently doubted by creditor participation in insolvency company. This will normally be a Lieutenant Bailiff Marshall QC in Re processes, introducing clearer statutory professional insolvency practitioner, X (a Bankrupt), Brittain v JTC (Guernsey) transaction avoidance provisions, and ensuring that where a company is (2015). The position was certain where enhancing the investigatory powers of insolvent, and the creditors of that the Letters of Request procedure was office holders. The Ordinance brings company are at risk of being prejudiced, used, such as under section 426 of the Guernsey’s insolvency law into line an independent insolvency professional UK Insolvency Act 1986, though this with other commonwealth jurisdictions will safeguard the interests of creditors involved a degree of additional delay such as the UK, the Cayman Islands, and preserve the assets of the company and cost. All these doubts have been and the British Virgin Islands. The pending distribution to creditors. swept aside by clear statutory powers changes will affect all new liquidations outlined in the amendments. Where a statutory declaration of and administrations, and will come solvency is not signed by the directors, Additionally, liquidators have now into force when Regulations to that creditor participation in a members’ been granted the same powers as effect are made by the Committee for voluntary winding up is ensured by a administrators to require a statement Economic Development. This article requirement on the liquidators, within of affairs (summarising assets and sets out the principal changes that one month of their appointment, to liabilities and providing the names affect future administrations and call a meeting of all creditors, unless of creditors) from past and present liquidations in Guernsey. in their opinion there are no assets officers of the company, present Declarations of solvency in for distribution. employees, and those employed in the members’ voluntary liquidations year preceding the commencement of New statutory powers of the liquidation. The distinction between a solvent and investigation for liquidators insolvent members’ voluntary winding It is now clear that Guernsey The powers of liquidators to consider up is one of significance. While the liquidators benefit from clear and the company’s affairs have now been company is solvent it is the members enhanced powers to administer the put on a statutory footing. with the economic skin in the game, company’s estate for the benefit of for creditors’ claims can be met in full. The Ordinance makes it clear that creditors and shareholders, aligning The reverse is true when the company liquidators are able to require any Guernsey insolvency law substantially is insolvent. The new amendments prior officers of the company, anyone with the position in the UK and major introduce into Guernsey’s members’ employed by the company within the commonwealth jurisdictions generally. voluntary winding up provisions the previous 12 months to the liquidation, Transaction avoidance claims and requirement of a statutory declaration or indeed any other person (with extortionate credit transactions of solvency by the company’s directors, leave of the court), to produce all bringing Guernsey insolvency law into documents and information relating The adjustment of pre-liquidation line with other offshore jurisdictions. to the company that liquidators transactions is an important feature may reasonably require to carry out of modern insolvency codes. The new Guernsey insolvency law has almost their duties. The amendments also legislation contains a clear provision uniquely permitted members to enable the liquidator to apply to the allowing liquidators to challenge resolve, by special resolution, to Guernsey Court for the appointment transactions entered into at an wind up their company even when of an Inspector to interview officers undervalue, drafted in similar terms the company is insolvent, subject to or former officers regarding the to the familiar rules in section 238 of creditor ratification. This position has company’s formation, business and the UK Insolvency Act 1986. The new enabled companies to be quickly and affairs, and the conduct or dealings of law also addresses extortionate credit cheaply wound up without needing to the company’s personnel. A liquidator transactions, as would be found under involve the creditors or a professional is additionally obliged to make such section 244 of the UK Insolvency Act insolvency practitioner. The obvious an application as soon as reasonably 1986, but does not independently cover difficulty, however, is the reduced practicable where requested to do so preferences, which are already included control over the process exercised by by one half in value of the company’s in the present company law. creditors. It might have been possible creditors. for a director to wind up a company These developments provide a surer made heavily insolvent as a result of Before these new amendments there basis on which the Guernsey Court his or her own acts and omissions. was no statutory power or authority can make various orders against allowing a liquidator to demand third parties where property has The new provisions now require that, documents from directors or employees been transferred to them for no where a company is to be placed into of the company, or to interview consideration, or for consideration a members’ voluntary liquidation, directors or former directors. There which is significantly less than that the directors must declare that the was some common law authority provided by the company. company is able to satisfy the statutory SOUTH SQUARE DIGEST March 2020 www.southsquare.com

In situations where reciprocal Disclaimer of onerous property assistance has been unavailable, The recent amendments grant Guernsey liquidators have hitherto liquidators the power to release the had to rely on its customary law company from ‘onerous property’, such provisions, the availability of which as unprofitable contracts, and property was recently confirmed in express (including real property) which may terms by Lieutenant Bailiff Southwell not be readily saleable or which will as well as the Deputy Bailiff in Batty v lead the liquidator to incur liabilities. Bourse [2017] GLR 54. Common law and The wording of the new provisions customary principles of transaction bears very close resemblance to section avoidance have a long history, the 178 of the UK Insolvency Act 1986. most famous perhaps being the Roman law actio Paulina. These principles will There are protections in place for continue to be useful where the new persons affected by any disclaimer transaction avoidance provisions do in that they can force the liquidator not apply. to make a decision about whether to disclaim the property or contract or Under the new law, transactions not, and they can also apply to the will be challenged as made at an Court for relief including the vesting undervalue where: (i) the transaction of the property in the interested party. took place within six months of the The new legislation also makes it insolvency proceedings, extended clear that any person who suffers to 2 years where the transaction loss as a result of the disclaimer is with a related party; (ii) the would then rank as an unsecured company was insolvent at the time creditor of the company. of the transaction, or as a result of it; and (iii) the transaction cannot For the disclaimer to be effective, a be justified as entered into in good notice must be served by the liquidator faith for the purpose of carrying on on a variety of people including the the business of the company, where Registrar, Her Majesty’s Receiver there were reasonable grounds that General, and anyone interested in the transaction would benefit the the property to be disclaimed and In cases where there are no assets company. If those requirements are any person who may incur a liability to distribute to creditors, Guernsey met, the Guernsey Court can order in respect of the disclaimed property. companies are able to avoid the need that the property is returned to the The property in question must also for an interim liquidation which may company, and can make orders against be identified. prove costly. This may prove practical third parties (except for good faith Wider powers in administrations and economical, for example, where purchasers for value without notice). the company’s estate is exhausted in One particularly useful change Express provision is also made in making distributions to secured and effected by the Ordinance is the the new rules for extortionate credit preferential creditors, where it is clear express power given to administrators transactions. As with section 244 of that no distributions could be made to make distributions to secured the UK Insolvency Act 1986, the new to creditors. creditors and preferential creditors. Guernsey law provisions apply to The administrator may make Administrations will also involve those transactions which take place distributions which, in their view, greater creditor participation. within 3 years of the commencement are likely to assist the achievement Within 10 weeks of the date of the of the insolvency and which involve of any purpose for which the administration order (unless the grossly exorbitant terms in relation to administration order was made. Court orders otherwise) Guernsey the provision of credit or which grossly The benefits in making clear that administrators are now required to offend the principles of fair dealing. such powers exist are obvious. It was send a notice to all creditors inviting The Guernsey Court has the power previously doubted whether or not the them to a meeting and explaining to set aside the transactions and to court’s approval was required, given the aims and likely process of the amend the terms of the provision of that the Guernsey Companies Law administration. credit. There has been relatively little provided that an administration order case law on the meaning of “grossly Powers to wind up foreign would not have any effect on the rights exorbitant” and “grossly contravened companies of secured creditors. Administrators ordinary principles of fair dealing”. Cases in Guernsey can additionally make Guernsey Courts now have the power in England and Wales indicate that the distributions to unsecured creditors to compulsorily wind up overseas test is “stringent”, by reference to the if the court’s permission is obtained. companies, and the position closely fact that the test is modelled on the UK reflects that found in section 221 of Consumer Credit Act 1974. It remains It is now possible for a company the UK Insolvency Act 1986. to be seen how the Guernsey courts to proceed immediately from will approach the provision in the administration to dissolution. insolvency context. Guernsey modernises its insolvency law 47

A non-Guernsey company may be to the Registrar of Companies and Conclusion wound up where: (i) it has ceased the Guernsey Financial Services The new changes are to be welcomed. to carry on business or is carrying Commission (as regards supervised They ensure that office holders in on business only for the purpose of companies) where they consider Guernsey insolvency process have winding up its affairs; (ii) it is unable that there are grounds for making the necessary tools and powers to to pay its debts under section 407 of a disqualification order against a tackle, draw in and preserve the the Guernsey Companies law; or (iii) present or past officer of the company. assets of an insolvent company for the Court is of the opinion that it is just The report must be submitted within the benefit of creditors. A number of and equitable that the company should six months of the administrator or powers are placed on a clear statutory be wound up. liquidator vacating office. Office holders footing, ensuring that pre-insolvency are also required to assist the Registrar English cases under section 221 of the transactions can be challenged with and Commission by providing them Insolvency Act 1986 provide that there greater clarity, and former directors information which they may require. must be a ‘sufficient connection’ to can be questioned and required to the jurisdiction in order to wind up a Maintenance of essential services produce documents more expeditiously. foreign company. The locus classicus and utilities The changes also save time and cost, is the judgment of Lawrence Collins as with the new power to dissolve The amendments bring Guernsey J in Re Drax Holdings Ltd [2003] EWHC a company in administration. The into line with the UK by allowing 2743. Given the nature of financial and substantive and procedural changes the Insolvency Committee to make business disputes heard in Guernsey help bring Guernsey into line rules preventing providers of essential courts, it is difficult to conceive of with many other Commonwealth services, such as electricity and water, many circumstances in which that will jurisdictions, and enable parties and from making it a condition of continued not occur. A place of business, assets, office holders supply that the company in liquidation and registered office in the jurisdiction alike to know where they stand with pay all previous invoices up front. typically suffices. One would expect greater certainty. However, providers can ask that the considerations of comity to be relevant, liquidator or administrator personally Alex Horsbrugh-Porter advised on as they are in England and Wales. guarantee the payment of future the amendments as a member of Duties of office holders to report invoices following commencement the Legal and Regulatory committee delinquent company officers of the liquidation. This gives some of ARIES, the pan-Channel Islands protection to payments due to service industry body.  Liquidators and administrators are providers whilst disallowing threats now under an obligation to report to withhold essential services. SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Duties of administrators in respect of company claims

MATTHEW ABRAHAM PIERS ELLIOTT HENDERSON & JONES Duties of administrators 49

Introduction is how administrators should go about achieving 1. See the October 2018 a ‘proper price’. edition of South Square In recent years there has been a rise in litigation Digest for further analysis of this decision surrounding the steps taken by administrators Administrators could, of course, pursue causes by Tom Smith QC. while in office. In particular, there has been of action themselves on behalf of the company. an increased level of creditor claims against This is the most obvious method of unlocking administrators either arising from acts carried value - and is likely to be effective when dealing out by administrators while in office or, relevant with relatively simple claims (e.g. debt claims). to this article, the failure to take proper action. Problems may emerge, however, when dealing This article focuses on the duties of with more complex claims. Complex claims administrators when considering whether to are likely to take time to litigate and require pursue or assign litigation and the practical steps significant investment - for example in the that can be taken to minimise the risk of claims services of solicitors, barristers and other being brought against administrators. In this experts (e.g. forensic accounting experts to context the article reviews the principles that can advise on quantum). Such claims are also be drawn from the decisions in LF2 v Supperstone likely to carry significant risk - not only in [2018] EWHC 1776 (Ch) and Brewer v Iqbal [2019] terms of the loss of any investment in the EWHC 182 (Ch). claim itself but also in terms of adverse costs awards in the event the claim is ultimately Duties of administrators when realising unsuccessful. Additionally, defendants to company property claims brought by insolvent companies may An administrator owes a duty to the company over unscrupulously seek to deny liability and/or which he is appointed to take reasonable steps to use tactics to drag out claims in the hope that obtain a proper price for its assets per Re Charnley administrators run out of patience. Litigating Davies Ltd (No.2) [1990] BCLC 760 in which Millett J such claims may therefore be unattractive to held that: administrators. That does not, however, mean that such claims do not hold value. Value in such “An administrator must be a professional insolvency circumstances may be realised by assigning the practitioner. A complaint that he has failed to take cause of action to a third party. reasonable care in the sale of the company’s assets is, therefore, a complaint of professional negligence and LF2 v Supperstone in my judgment the established principles applicable It is well established that administrators have to cases of professional negligence are equally the power to sell causes of action as part of applicable in such a case. It follows that the their general powers to sell the company’s administrator is to be judged, not by the standards property pursuant to Schedule 1, Paragraph 2 of the most meticulous and conscientious member of the Insolvency Act 1986; per the decision in of his profession, but by those of an ordinary, skilled Re Park Gate Waggon Works Co (1881) 17 Ch. D. 234. practitioner. In order to succeed the claimant must establish that the administrator has made an error Assignment can have a number of benefits which a reasonably skilled and careful insolvency for administrators: practitioner would not have made.” 1. Administrators can realise value from causes The duties of administrators when acting of action without incurring the costs and risks as agents to sell the assets of a company in associated with litigation. administration was reconsidered in the recent 2. Litigation can be a lengthy process; assigning decision of Davey v Money [2018] EWHC 766 (Ch).1 the claim can enable administrators to resolve In that case it was held that administrators owe matters in a timely fashion so that they can a duty to the company to take reasonable care close the administration. to obtain the best price which the circumstances of the case permit. They do not owe the more 3. Assignees bring proceedings in their own onerous duties of a trustee selling trust property name so they also bear the risk of adverse and the relevant standard of care is that of an costs awards. ordinary skilled practitioner. But what duties do administrators owe when Realising value from causes of action considering whether to assign a cause of action? This question has recently been considered by the Causes of action vested in an insolvent company Court in LF2 v Supperstone. are to be treated as assets in the same way as other property owned by the company. As a result, The decision centred upon a conditional fee administrators have the same obligation outlined arrangement (CFA) which had been entered above to obtain a ‘proper price’. The key question into by Pennyfeathers Ltd with its solicitors, SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Fieldfisher LLP in relation to its claim in a he agreed that, on the available evidence, it was 2. See paragraphs real estate dispute. The claim was successful not possible to say whether the alleged claim was 64-67. and the Court made a declaration in favour of frivolous or vexatious, for the claim to succeed 3. See paragraph 69. Pennyfeathers and an order for costs. The costs it would need to have been shown that there order was insufficient to cover the costs of was evidence of unfair harm to Pennyfeathers’ Fieldfisher. Pennyfeathers did not have sufficient creditors and LF2 had not appealed on this ground. funds to meet the shortfall and Fieldfisher In dismissing the appeal, Morgan J took subsequently applied for an administration order. the opportunity to consider the approach The directors of Pennyfeathers later sought administrators should take when considering advice from a solicitor on the prospects of a whether to assign a claim to a third party. Morgan claim against Fieldfisher for professional J disagreed with the proposition that when it is not negligence. The solicitor offered to act for the clear whether the cause of action has merit, the company in connection with that claim on a administrator ought not to assign it and should CFA basis or alternatively, to purchase the claim instead place a burden on the party seeking the outright for £10,000. The administrators did not assignment to demonstrate that the claim is not believe the claim had any real prospect of success frivolous or vexatious: and rejected the offer of £10,000 on the ground “The administrator’s power to assign a cause of action that it would not make a material difference to is conferred by paragraph 2 of schedule 1 to the 1986 the unsecured creditors. Act, as a cause of action is “property” within that The solicitor took an assignment of a debt owed paragraph. That paragraph is not limited by any words to one of the directors of Pennyfeathers and in which require the administrator to satisfy himself as turn assigned the debt to a company, LF2 Limited, to the arguability of an alleged cause of action. of which he was sole director and shareholder. In A viable claim by the company against a third party doing so, LF2 became a creditor of Pennyfeathers is an asset of the company. A claim which is arguably and made an application under paragraph 74 viable, is a potential asset of the company. In principle, of schedule B1 to the Insolvency Act 1986 to an administrator ought to be ready to investigate challenge the conduct of the administrators in whether such an asset should be preserved and refusing to assign the claim, alleging that it pursued […] unfairly harmed LF2’s interests. If the administrator has no funds to investigate a The application was dismissed by Deputy ICC possible claim against a third party and he receives an Judge Barnett who held that: offer from a potential assignee of the claim to pay for 1. The claim against Fieldfisher was frivolous an assignment, that offer will potentially constitute and vexatious. an asset of the company. The administrator should normally wish to preserve and pursue that asset. If it 2. He was not satisfied that LF2 had discharged is clear to the administrator that the claim would be the burden of showing that the creditors hopeless and that the potential assignee is bent on would derive any benefit from an assignment pursuing a hopeless claim in order to harass the third of the claim and there was no evidence that party, then the administrator should normally decline the creditors would suffer unfair harm by the to assign the hopeless claim. The administrator is an administrators declining to assign the claim. officer of the court and the court expects him to behave 3. The applicable legal principles included honestly and fairly [...] the following: But there will be other cases. One such case is where a. officeholders are under a positive duty not to the administrator does not have a clear view that the assign a cause of action that is without merit; proposed claim would be vexatious and he is offered a sum of money for the assignment of the claim. In such a b. the court should not direct the assignment of case, the administrator should be prepared to obtain a a claim which is frivolous or vexatious, which proper payment for the assignment. If it is not clear that includes a claim with no real prospect of the offer reflects the true value of the cause of action, success; then the administrator may well be advised to conduct c. the applicant bears the burden of proving that some process of inviting rival bids or to hold an auction the claim does have prospects of success; and of the cause of action. The receipt of a sum of money for the claim would be likely to benefit someone, whether it d. where the proposed assignee of the cause of is the administrator (as a contribution to his expenses) action is unlikely to be able to meet an adverse or the creditors.”2 costs order made against it, the court will need to be satisfied that there are clear and certain Morgan J noted that the administrators had benefits for the creditors. focussed their submissions on protecting a third party from the possibility of being harassed LF2 appealed against this decision, on the basis by unmeritorious litigation rather than - as that the claim was not frivolous or vexatious. they should have - on the administrators The appeal was dismissed by Morgan J. Although Duties of administrators 51

realising assets of the company for the benefit of creditors.3 The Court’s rules and procedures will protect third parties from being harassed by unmeritorious litigation. Defendants have the ability to apply to strike out or seek summary judgment in respect of frivolous or vexatious claims. Defendants can also protect themselves against the prospect of being unable to enforce an adverse costs award made against an impecunious Claimant by seeking security for costs. How can administrators obtain a ‘proper price’ for causes of action?

One issue facing administrators will be the question of how to discharge their obligation to obtain a ‘proper price’ for the assignment of a cause of action. It is incredibly difficult to place a value on litigation - particularly at an early stage in the proceedings - due to the uncertainties associated both with measuring the prospects of proving primarily liability and also in calculating the quantum of recoverable sums.

Valuing litigation claims is something that experienced lawyers find difficult - let alone insolvency practitioners. However, a lack of expertise does not excuse or discharge administrators’ obligations. The recent decision in Brewer v Iqbal, although not a case in the context of assigning causes of action, is a helpful reminder that the Courts will not look kindly on administrators that fail to take specialist advice in order to obtain a proper price for a company’s assets. Brewer v Iqbal

In Brewer v Iqbal, Mr Iqbal was the former administrator of a company called ARY Digital UK Limited - a specialist broadcaster of Asian satellite television channels. Following his appointment in 2011, Mr Iqbal sought to sell the assets of the company rather than trade out of administration. The company’s key assets were ‘Electronic Programming Guides’ (EPGs). The EPGs were licensed from British Sky Broadcasting (BSB) and, in essence, facilitated the broadcasting of content on certain digital channels.

After Mr Iqbal’s appointment as administrator, the company continued to lose money. In particular, its debts owed to BSB were increasing and the directors of the company informed Mr Iqbal that BSB would “switch off the signal within a week, as the Company had not been paying its fees”. Mr Iqbal’s view at the time was that if there was a “switch off” the EPGs, the main asset of the company, would be rendered worthless.

Mr Iqbal was advised by the company’s accountant that the EPGs were worth approximately £10,000 and a director and shareholder of the company offered to purchase them for £35,000. Mr Iqbal instructed a third party to advertise the EPGs for sale for at least SOUTH SQUARE DIGEST March 2020 www.southsquare.com

• Failed to advertise in publications or websites likely to attract purchasers of EPGs;

• Failed to expose the assets to a proper market for a reasonable period of time; and placed too much reliance on the directors for: (i) a value for the EPGs; (ii) approval of advertising the EPGs on an inappropriate website; and (iii) dictating the timing of the sale of the EPGs. How to avoid the same mistakes when assigning a cause of action

A few key (low cost) steps can help to avoid the same mistakes:

1. Obtain specialist advice: As much as it can be difficult to value litigation, solicitors and barristers can advise on the prospects of success and expert advice (e.g. from accountants) can also be sought on quantum.

2. Test the market: Directly approach a number of litigation funders or buyers. There are also an increasing number of specialist brokers who can test the market and solicit bids from third parties specialising in the assignment, funding or after the event insurance of claims. The process often includes assessing cases where there is limited information (which assists in obtaining comfort on point 1 above). 4. See LF2 Ltd v £35,000. However, the EPGs were advertised on 3. Consider deferring consideration: Consideration Supperstone at a website that was unlikely to attract potential paragraph 66. for an assignment may be paid in the form of a purchasers of EPGs and the advertisement 5. See LF2 Ltd v ‘lump sum’ upfront premium - but can also be failed to refer to the EPGs themselves or provide Supperstone at deferred and structured in the form of a share paragraph 67. significant detail about the EPGs. Mr Iqbal of the proceeds. Taking a share of the proceeds instructed the third party to remove the EPGs can guard against the risk of missing out on from sale three days later due to pressure from the upside of a successful outcome. It is often the company’s management to possible to request a right of first refusal if the sell the EPGs to them. claim ultimately isn’t pursued by the purchaser. The EPGs were sold to the company’s Conclusion management for £40,000. After the sale, Mr Iqbal produced a report to creditors outlining his If an administrator is deciding what to do with proposals for the administration. The creditors a claim, in order to protect themselves from failed to approve his proposals, the Company criticism they should consider claims as an asset entered insolvent liquidation and Mr Iqbal was unless it is clearly “...a hopeless claim [used] in order discharged. The Claimants were appointed as joint to harass the third party...” .4 In considering this, liquidators and issued an application pursuant to administrators are reminded they are officers of paragraph 75(6) of Schedule B1 to the Insolvency the Court but the Court’s rules and procedures are Act 1986 to examine the conduct of Mr Iqbal. there to protect third parties from being harassed.

The application was heard by Chief ICC Judge If there is doubt in the administrators’ mind Briggs who held that Mr Iqbal had breached about merits and value of a claim they should his duty of care to the company. The judge obtain independent advice from solicitors and summarised that Mr Iqbal breached his duty of also test the market in the manner outlined care by failing to exercise reasonable skill and above. Ultimately, the administrators should care in that inter alia he: bear in mind that: “...The receipt of a sum of money for the claim would be likely to benefit someone…”5 • Failed to take specialist advice from a person Whatever decision is reached, it will be important in the EPG industry; to document how that decision was reached to • Failed to obtain a proper valuation of the EPGs protect against the risk of future challenge.  prior to sale; Open all hours? 53

Open all hours?

WILLIAM WILLSON SOUTH SQUARE DIGEST March 2020 www.southsquare.com

As many practitioners will know, 2019 Ecommerce Limited and HMV Retail The Practice Note provides that, in the saw a cluster of cases addressing the Limited [2019] EWHC 903 (Ch) (Barling case of notices of appointment by a messy overlap between three pieces of J); Re Skeggs Beef Limited [2019] EWHC company/its directors under paragraph relatively recent secondary legislation: 2607 (Marcus Smith J); Re SJ Henderson 22, Schedule B1 of IA86 which are (1) rules 3.20-3.22 of the Insolvency & Company Limited [2019] EWHC 2742 CE-filed when the court is closed, they Rules 2016 (“IR16”) dealing with out- (Ch) (ICC Judge Burton); Re Keyworker will be referred by the court clerks “at of-court appointments by qualifying Homes (North West) Limited [2019] EWHC the first possible opportunity to a specified floating charge holders (“QFCs”) 3499 (Ch) (HHJ Hodge QC); and Causer v High Court Judge. The Judge will determine (introduced on 6 April 2017); (2) All Star Leisure Group [2019] EWHC 3231 the validity and, if appropriate, the time paragraph 2.1 of PD51O of the CPR, (Ch) (HHJ David Cooke). at which the appointment takes effect. the Electronic Working Pilot Scheme, The Judge’s determination will be made As HHJ David Cooke said (with some as amended, introduced on 6 April on paper or following a short hearing, judicial exasperation) at the start of 2018; and (3) paragraph 8.1 of the for which he may request written or oral his judgment in Causer v All Star Leisure Practice Direction on Insolvency submissions”. In the case of an a notice Group: “[this is] another application…. Proceedings (“PDIP”), introduced on 4 of appointment which is (incorrectly) as a result of uncertainties arising from July 2018. not filed under rule 3.20 of IR16 “by( the interaction of the regime for electronic fax to a designated telephone number or As drafted, the three pieces of filing of documents…the Insolvency Rules… by email to a designated email address”), legislation pose difficult questions and the PDIP……The very fact that such but is instead CE-filed when the court about the interaction between the applications are having to be made and is closed, it will again “be referred at the general regime for the electronic that the answers are not straightforward first available opportunity to a specified filing of documents (which is broadly indicates that there is an urgent need for a High Court Judge who will determine the intended to enable all parties to issue review of the drafting of these provisions validity and, if appropriate, the time at proceedings and file documents online to ensure that they operate effectively in which the appointment takes effect. The 24 hours a day, all year round), and conjunction with each other and do not Judge’s determination will be made on the bespoke regime for the filing of produce unnecessary traps for the unwary”. paper or following a short hearing, for notices of appointment out-of-court by The cry for help has not gone which he may request written or oral QFC holders (which was an exceptional (completely) unheeded. On 29 January submissions”. right given to QFC holders when the 2020, the Chancellor of the High Court, Enterprise Act 2002 was introduced and This note, of course, without more The Rt. Hon. Sir Geoffrey Vos, noted QFC holders lost the right to appoint does not solve the inconsistent case that (“the Practice Note”): administrative receivers). law, with HHJ Hodge QC in Re Keyworker “Practitioners have expressed concern Homes (North West) Limited preferring Live issues include: (1) Can directors/ regarding the effect of the appointment (to the surprise of some) to follow companies apply out-of-hours? (2) (If of an administrator purportedly made Re HMV Ecommerce Limited and HMV so) when does such an appointment by filing a notice of appointment via the Retail Limited (which the ILA Technical take effect? (3) Are QFC holders special, court’s electronic filing system, outside Committee had previously commented and if so why? (4) (the one issue the court’s usual counter-opening hours. should be treated with a degree of everyone appears to be agreed on) do It is anticipated that these issues will be “caution” given concerns about its the rules/provisions need to be changed addressed by amendment to the Insolvency “precise legal rationale”) over Re Skeggs (and, in particular, does paragraph 8.11 (England and Wales) Rules 2016. Until Beef Limited and Re SJ Henderson & of PDIP need to be redrafted?) then, court clerks will be directed to process Company Limited. The uncertainty is reflected (in filings in the manner set out in this note”. chronological order) by: Re HMV Open all hours? 55

The very fact that such applications are having to be made and that the answers are not straightforward indicates that there is an urgent need for a review of the drafting of these provisions... HHJ David Cooke

The new procedure does at least put the dispute of procedure which could be waived pursuant to 1. This provision, described generously under the microscope, and disputes will now be CPR 3.10(b), and directed that the NOA should be in the case-law as reserved to a specified High Court Judge (who will treated as having been filed at 14:54 on 31 January “Byzantine”, and less generously as determine both the validity of the appointment 20 (i.e. on the day it had initially been rejected). a “clear mistake” provides that: “For and, where appropriate, the time at which the He noted that “I should make it clear, for obvious the avoidance of doubt, appointment takes effect). reasons, that wherever possible and until the position and notwithstanding is clarified by a rule change, practitioners should the restrictions in However, it remains unclear whether one specified sub-paragraph (c) to attempt to avoid CE-filing a notice of appointment notices of appointment judge will be allocated to deal with all out-of- made by made by QFC of administrators outside of Court hours”. hours NOAs and what factors will guide their holders, paragraph 2.1 of the Electronic Practice decision, so that caution should still prevail in Finally, in the third and most recent decision, Direction 51O shall relation to all out of hours appointments, unless Zacaroli J validated an NOA that had been not apply to any filing of appointment of an a QFC holder intends to use the designated fax/ electronically filed by the insolvent company’s administrator outside Court opening hours, email process provided in rules 3.20-3.22. directors outside court hours, and deemed the and the provisions of NOA to take effect at 10am on the next working Insolvency Rule 3.20 Pending the anticipated amendments, applying day. This was because: the out-of-hours filing to 3.22 shall in those well-inside court hours remains strongly circumstances continue was a defect that was simply an irregularity and to apply”. preferable to avoid potentially being summoned to caused no substantial injustice so could be cured an urgent and unplanned hearing. under rule 12.64 of the Insolvency (England and As if there could be any doubt of this, at the Wales) Rules 2016 (IR 2016); and it was appropriate time of going to press, there had been a further that an NOA filed by directors should be deemed flurry of cases: Re Carter Moore Solicitors Limited only to take effect when the Court next opened, [2020] EWHC 186 (Ch) (Snowden J); Re Statebourne rather than at the out-of-hours time at which it (Cryogenic) Limited [2020] EWHC 231 (Ch) (Zacaroli was originally filed. This was to be contrasted J) Re Symm & Company Ltd [2020] EWHC 317 (Ch) with the position where an NOA was filed outside (Zacaroli J). court hours by a QFC holder, where it could be appropriate that the NOA be deemed to be filed The first addressed a director’s NOA rejected due at the time it was originally submitted. This to clerical errors with the result that the e-filing was because the IR16 and Insolvency Rules 1986 was not in fact made until the following Monday. had long permitted QFCHs (and only QFCHs) to Snowden J treated the clerical error as an error file outside court hours. The intended meaning of procedure under CPR 3.10(b), which he directed of paragraph 8.1 of the Practice Direction on should be remedies with the effect that the Insolvency Proceedings is to prevent any NOA original filing did not fail (though he made it clear from being filed electronically outside court that the case was not subject to the new Practice hours. The remaining method of filing outside Note, pre-dating it by a matter of days),. court hours through the email and fax process in In the second, Zacaroli J considered an NOA the IR 2016 had always been intended solely for rejected on the basis of a similar defect – this QFCHs, to compensate them for the loss of the 24- time the inclusion of the incorrect court. The hour ability to appoint administrative receivers. judge followed the approach of Snowden J in Re As the first post-Practice Note guidance from the Carter Moore – though this time the Practice Note High Court, and not a binding precedent, this did apply, as the events post-dated 30 January. He decision hints that a future 24-hour filing window was satisfied that the mistake constituted an error for all types of appointors is perhaps not a given. SOUTH SQUARE DIGEST March 2020 www.southsquare.com

South Square RISA joint conference in the Cayman Islands

David Alexander QC (South Square), Clare Loebell (Rawlinson and Hunter), Barry Isaacs QC, Colette Wilkins (Walkers) Jeremy Goldring QC, Jennifer Colegate Mark Goodman (Campbells), Hilary Stonefrost (South Square) (Collas Crill)

Co-Chair Felicity Toube QC (South Square) Chris Keefe (Walkers) Michael Hurst (LynnPinkerCoxHurst)

We were delighted to host our 5th speakers drawn from both South a leading junior Caymanian lawyer joint conference with RISA Cayman Square and some of our local friends with an insight into the workings of in November 2019, held once again at and colleagues. the English commercial courts. The the Ritz Carlton on Seven Mile Beach, winning applicant will work closely We are delighted to maintain our close Grand Cayman. with South Square barristers, assisting links with the Cayman Islands, and are with the drafting of documents and The conference was co-chaired by very pleased to announce that we are attending court. Both South Square Rebecca Hume of Kobre & Kim together once again funding the South Square/ and RISA fund the scholarship, which with South Square’s Felicity Toube QC, RISA scholarship, and we look forward includes accommodation, airfare, and a with three panels of speakers covering to hosting a Caymanian lawyer for living allowance. Further details will Provisional Liquidations, Economic a secondment. The purpose of the be announced in due course.  Torts and Shareholder Disputes with South Square Scholarship is to provide South Square RISA joint conference 57

Carolyn Lum (BDO), Alice Carver (Nelson & Co) Chris Rowland (FFP), Colette Wilkins (Walkers) Emma Clifton (Kalo Advisors)

Mark Kish (Ogier), Rebecca Hume (Co-Chair, Lobre and Kim), Declan Magennis Helen Ennis (Duff and Phelps), Philip Pierson (Krys Global), Marie Spillane (BDO), Barry Isaacs QC (South Square), Mark Goodman (Campbells) (KRyS Global), Orla O’Regan (Duff and Phelps), Mehreen Siddiqui (Appleby)

Post-conference drinks on the terrace at the Ritz Carlton Declan Magennis (BDO), Toby Brown, Laura Stone (Broadhurst), Harry Shaw (Campbells)

Matthew Arvier (Borelli Walsh), Alex Riddiford (South Jason Trautman (Deloitte), Kirsten Celliers (Deloitte), Paula Richmond (Kalo Advisors), Robert Amey (South Square), Zoe Nolan (Walkers) Blake Egelton (Walkers) Square), Elizabeth Mackay (Kalo Advisors) SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Euroland

n this issue of the Digest, I report on three decisions Iof the Court of Justice of the European Union (CJEU), each one of them dealing one way or the other with insolvency related issues.

PROFESSOR CHRISTOPH G. PAULUS Euroland 59

CJEU, decision from 17 January of Directive 98/26, include a payment In sum, the decision is certainly 2019 – C-639/17 – KPMG Baltics order given by a depositor to a credit not ground-breaking; to the contrary, v. Ķipars Al institution for the transfer of funds the result is most likely the only to another credit institution?” The reasonable one. But it is good to know This decision clarifies that an subsequent question was dependent that the CJEU copes with challenges “ordinary” payment order given by on an affirmative answer to the like this one in a genuine, non- an “ordinary” person on the street first one and need, therefore, not be presumptuous way. to a credit institution for a transfer addressed here. to another credit institution is not CJEU, decision from 21 Novmber subject to the regulatory framework The CJEU gave a negative answer to 2019 – C-198/18 – CeDe-Group of Directive 98/26/EC of the European the first question. In its reasons for This case was brought to the Parliament, and of the Council of 19 doing so, the CJEU made reference Luxembourg Court by the Swedish May 1998 on settlement finality in to the Directive’s recitals (1-4) Supreme Court, the Högsta domstol. payment and securities settlement which clarify its purpose, namely to A bit like in the Ķipars Al case, one systems (OJ 1998 L 166, p. 45), as reduce systemic risks and ensure the wonders, however, at what level of amended by Directive 2009/44/EC stability of payment and securities simplicity a reference to the CJEU of the European Parliament and of settlement systems by minimising may be justified. In this case the the Council of 6 May 2009 (OJ 2009 disruption to such a system caused simple question to be answered was L 146, p. 37) (the Settlement Finality by insolvency proceedings against whether or not a law suit brought Directive). The case was submitted by one of its participants. The CJEU held by an insolvency administrator of a the Supreme Court of Latvia (Augstākā that an article 3(1) pre-insolvency main proceeding in another member tiesa) and was initiated by a payment “transfer order” - legally enforceable state falls under art. 6 EIR (in the order from the plaintiff, Ķipars Al. and binding on third parties in case at hand, the old law was still the event of a system participant’s Ķipars Al had a bank account at to be applied) by which he tries to insolvency – only covers instructions Latvijas Krājbanka and wanted all his collect a claim of the debtor against its entailing financial obligations given by funds there transferred to another bank customer. Even a cursory examination participants in a securities settlement account at a different bank. However, of previous decisions (e.g. C-133/78; system, in connection with the system, after all necessary internal steps to C-111/08; C-292/08; C-213/10; C-353/15; to other participants responsible for execute this order but before the final C-641/16; C-535/17; C-47/18 – to name executing them. It does not include transfer to the alternate bank took but a few) would quickly have revealed instructions involving financial place, Latvijas Krājbanka was declared the answer to be negative. Such lack, obligations issued by third parties, insolvent and was immediately or fear, of decisiveness in the present outside of such a system. The CJEU, subject to a direction of the Financial case is all the more regrettable as therefore, saw the transfer order under and Capital Market Commission of questions 2 to 5 in the matter address discussion as being outside the scope of Latvia to stop the execution of any highly interesting issues which await the Settlement Finality Directive (see transaction above €100k. In other competent answers; but these questions paragraph 15 of the judgment). Indeed, words, the plaintiff found himself in were dependant on an affirmative it would be hard to argue that the non- the deplorable situation of seeing his answer to the first one and, therefore, fulfilment of the plaintiff’s order could funds frozen. no answer by the CJEU. possibly transcend into anything like a Unwilling to accept this and the systemic risk for the Latvian, let alone The facts are as follows: CeDe from administrator’s (KPMG, the defendant) for the European banking system! Sweden and PPUB Janson from Poland refusal to comply with his request to had concluded a contract on the The remainder of the judgment mostly finalize the transaction, he turned to supply of goods in 2010. It was agreed centred around the wording of the the courts and, indeed, found support that Swedish law would govern any Directive. Art. 2(f) of the directive from the Latvian courts at first and question relating to the interpretation provides an “exhaustive list” of entities second instance – based on the of the contract. In 2011, PPUB Janson covered by the concept of “participant”. application of the Settlement Finality was declared insolvent in Poland These may be an “institution”, a Directive. Those courts applied the and a respective procedure there was “central counterparty”, a “settlement mechanism of that Directive (more commenced. The liquidator of that agent”, a “clearing house” or a “system precisely: the respective national proceeding commenced proceedings operator”: the “ordinary” person on transmission statute) which enables against CeDe at the District Court the street could be included only by ongoing transactions to be performed of Malmö for payment of a previous explicit national legislation which is irrespective of the commencement of delivery of goods. CeDe opposed the absent in the case of Latvia (para. 19, an insolvency where those transactions claim by arguing that it had a counter 23-26). Art. 2(a), (b) and (i) indicate were entered into the system before the claim resulting from non and defective that a transfer order in the Directive’s commencement of insolvency. deliveries. This attempt to set-off was meaning is only one that is given by a rejected by the plaintiff by referring The Latvian Supreme Court, however, participant within such system (para. to the liquidator’s rejection of those had doubts about the applicability of 22) from which it follows that an order very claims when they were lodged that Directive and referred to the CJEU from outside (like in the present case) in the Polish proceeding. Accordingly, the following question: “Does the term is not included. the Malmö court had to deal with the “transfer order”, within the meaning SOUTH SQUARE DIGEST March 2020 www.southsquare.com

issue of set-off and its applicability in light of art. 2(d) and with the problem of whether art. 6 EIR 9 EIR. The Polish plaintiff referred to the Polish becomes inapplicable as soon as there is a general rule which admits a set-off in an insolvency rule in the lex concursus permitting set-off or proceeding and argued that, consequently, there if this rule is also applicable when there are was no room for art. 9 in the present case. The differences in the concrete case at hand. defendant relied upon art. 3 Rome I-Regulation CJEU, decision from 4 December 2019 – and to an interpretation of art. 9 EIR pursuant to C-493/18 – Tiger which a set-off is permissible in any case when and if the debtor’s claim is governed by the law In Tiger and Others [2019] EUECJ C-493/18 of the party which requires set-off. The Malmö the Court of Justice of the EU (ECJ) issued a Court rejected the latter argument and decided in preliminary ruling on whether an EU member favour of the Polish plaintiff. state’s court has the power to confer its insolvency jurisdiction in clawback proceedings CeDe appealed against this decision in the course on another member state’s court. of which the plaintiff assigned the claim at issue to KAN, a Polish company which then took the The decision is the CJEU’s answer to a referral place of PPUB in those proceedings. The Court of the French Cour de Cassation. The facts are of Appeal upheld the first instance judgment somewhat complicated but the result was, due to and the case was transferred to the Swedish a decision given by the CJEU between the referral Supreme Court. In the course of that proceeding and deciding in the present case, predictable. it was now KAN which was declared insolvent in The plaintiff, UB, was a debtor of an English Poland. The appointed administrator there stated insolvency proceeding. The insolvency that the creditors would not pursue the lawsuit administrator was WZ. The latter sued UB, his so that from then on it was KAN in liquidation sister VA and Tiger – a freshly-founded company which acted as plaintiff. that had bought UB’s French real estates – before In its referral to the Luxembourg Court the a French court to get that sales transaction Supreme Court noted that it was aware that the declared null and void. After losses at first and CJEU had already decided several times on the second instance, the Cour de Cassation turned demarcation of the Brussels I-Regulation and to the CJEU. the EIR but wondered whether the claim in The background of the case reaches back to question would not fall by reason of tis subject 2008. In August of that year, Wirecard, a German matter within the scope of art. 7 (in the judgment: company obtained from a court in the UK an order art. 4) and if so whether it should then be freezing the assets of UB who, on that date, owned interpreted in line with the reasoning underlying an apartment and a property complex in France. art 6 (in the judgment: art. 3). This is, at the end Just three weeks later, UB and his sister VA signed, of the day, exactly the aforementioned rather before a French notary, an acknowledgment of simple question. a debt of over €500.000 which UB owed to VA, In its answer, the CJEU refers primarily to the and UB undertook to repay by 22 August 2017, Advocat General’s Opinion. There it is stated that subsequently securing a mortgage in favour of a parallel reading of artt. 3, 6 and 7 EIR evidences VA on those French real estates. One and a half that jurisdictional competence and applicable law years later, in March 2010, UB sold the properties should be paralleled to the degree possible (para. to Tiger, a company that was founded just a few 30); but it should also be noted that the scope of weeks before and whose shares were held by VA art. 7 EIR is broader than that of art. 6 EIR (para. to 90%. 33). And since a payment claim like the one in In May 2011, UB went to the Croydon County question here is, irrespective of the plaintiff Court to file a voluntary petition and was declared being an insolvency official, not derived directly bankrupt. That Court appointed WZ as UB’s from and closely connected to an insolvency trustee in bankruptcy and later authorized WZ to proceeding (para. 31, 36) it follows that the law bring an action before the French courts to have suit is not covered by the European Insolvency the sale of the French properties nullified on the Regulation. In other words, the rules of the basis of the English claw-back rules. Brussels Ia-Regulation are to be applied. WZ did so and commenced the proceedings It is hard to predict what the CJEU would have referred to above. The successful first instance done with the Advocate General’s (Michal judgment was rendered on the very day on which Bobek) arguments regarding the last four (and UB’s bankruptcy case was closed by the English unanswered) questions. The Advocate General’s court. After WZ’s further success before the Court Opinion is certainly not binding but might serve of Appeal, it was finally the French Supreme Court anyway as a guidance for future cases. It deals which paid attention to UB’s allegation that the with the uncertain interpretation of art. 4 par. Euroland 61

French courts might not have jurisdiction for an action the purpose of which is to set aside a pre-bankruptcy transaction. Can an administrator pursue an Although not mentioned in the reported facts, it is to be assumed that the CJEU decision in Wiemer avoidance claim when and if it is & Trachte (C-296/17) had not yet been rendered or published when the Cour de Cassation referred clear from the outset that a home- its questions to the CJEU. The first two questions considered by CJEU concern whether or not the judgment will not be recognised in the jurisdiction granted to the opening jurisdiction in the Seagon case (C-339/07) and which is now defendant’s jurisdiction? codified in art. 6 European Insolvency Regulation is an exclusive one or not. This was the outcome of the Wiemer & Trachte case so that the court’s confirmation of its previous ruling appears from an ex post-perspective foreseeable.

Therefore, just two minor issues shall be reported here. Firstly, the CJEU sees no reason and basis for an exception of the exclusivity with regard to immovable property issues. Secondly, it accepts the French nullification action as a variant of the avoidance actions which are addressed in art. 7 par. 2(m) EIR. The latter is certainly correct, given the explicit mentioning of “voidness” in art. 7 par. 2(m). The former, though, can be doubted with a view to art. 11 EIR: after all, the contracts mentioned there are to be governed “solely” by the law of the member state in which the premise is situated. The CJEU ignores this stumbling block and confines its argument (par. 34) to the necessary speed and efficiency of any insolvency proceeding. This is a rather weak argument given the special treatment that immovable property enjoys in many jurisdictions. Moreover, since respective transactions are often governed by the local law it is to be feared that objections will regularly be raised with regard to art. 16. It is, thus, questionable whether efficiency is really served by this decision.

The third question raised by the Cour de Cassation refers to the possibility to change the jurisdictional competence through a decision of the originally competent court. This is based on WZ’s explicit authorisation by the Croydon County Court to sue for recovery in France. WZ argued that this is a decision which had to be recognized pursuant to art. 25(1) EIR 1346/2000 (now art. 32 EIR 2015/848). However, the CJEU rejected this assumption. It is hard to see in par. 37 – 40 of the judgment more of an argument than just that the exclusivity is immune against any modifications – or, as the German writer Morgenstern phrased it: It can’t be, since it shouldn’t be. This reasoning is weak, however, since can an administrator pursue an avoidance claim when and if it is clear from the outset that a home-judgment will not be recognised in the defendant’s jurisdiction? This is likely to happen quite often after the CJEU’s decision in the Hertel case (C-328/12).  SOUTH SQUARE DIGEST March 2020 www.southsquare.com

LEGAL EYE: Online justice

MADELEINE JONES Legal Eye 63

In 2016, Lord Justice Briggs (as he then was) The automated triage system envisaged for Stage 1. https://www.judiciary. uk/wp-content/ produced two reports on the structure of the civil 1 is surely technically possible (Beijing’s Internet uploads/2016/01/CCSR- courts.1 The reports contain a radical proposal: Court offers “pleading automatic generation” interim-report-dec-15- final-31.pdf, https://ww the introduction of an “Online Solutions Court” based on structured questions, along with a w.judiciary.uk/wp-conte “which will enable civil disputes of modest value host of other technically impressive features, nt/uploads/2016/ 07/civil-courts- and complexity to be justly resolved without the including AI litigation risk assessment), but it is structure-review-final- incurring of the disproportionate cost of legal not clear how close HM Courts are to obtaining report-jul-16-final-1.pdf representation” (Interim Report, 6.1). any such technology. In that connection, more 2. Sir E. Ryder, ‘The than one commentator has pointedly remarked Modernisation of Access Online dispute resolution is not a new idea. to Justice in Times of upon the poor quality of the wifi connection in Austerity’ (2016)

News in brief The Wolf of Wall Street Sues for Fraud

Richard Fisher QC

South Square is delighted to announce that Richard Fisher has been appointed one of her Majesty’s Counsel. His appointment was announced in January this year, and the ceremony will be held on Monday 16 March 2020.

Jordan Belfort, the former stockbroker is currently under arrest in Malaysia whose story inspired the hit film on money laundering charges, The Wolf of Wall Street, is suing the accused of siphoning $700m from the Becker to remain filmmakers for $300m (£229m) – the government-run 1MDB into his own bankrupt until 2031 amount made at the box office. The personal bank accounts. The Wolf film, released in 2013 and nominated claims he would never have signed up Former tennis champion Boris Becker for 5 Oscars, was based on Belfort’s to the film if he had known about the has been handed a 12-year extended book of the same title, and described true source of the film’s funding. bankruptcy restriction after the Official his rise as a young New York broker Receiver investigated undisclosed Matthew Schwartz, lawyer for Red in the late 1980s, and his subsequent transactions occurring before and after Granite, said in a statement: “Jordan fall, through a haze of drugs, women, his bankruptcy totalling over £4.5m. Belfort’s lawsuit is nothing more than corruption and fraud. Bankruptcy restrictions are usually a desperate and supremely ironic lifted after 1 year but the Insolvency Belfort claims Red Granite, the attempt to get out from under an Service has said that ‘owing to the production company who put up agreement that for the first time in nature of Becker’s actions, the Official the film’s $100m budget, lied about his life made him rich and famous Receiver pursued extended restrictions being “legitimately funded” when through lawful and legitimate means.” to prevent him causing further harm to he sold them the rights to his story. his creditors’. Red Granite’s co-founder, Riza Aziz, Becker offered a Bankruptcy Restrictions Undertaking, which was accepted and will last until 16 October Barrister to the Rescue 2031. Becker was originally made bankrupt on 21 June 2017 following an Hero barrister Oliver Glasgow QC, who the gallery and one man clambered application by Arbuthnot Latham Bank practices criminal law from 2 Hare over the railing of the gallery to rush in relation to a £3m loan. Court chambers, leapt into action at at the police officer. Glasgow, who had the Old Bailey on 27 January 2020 to been prosecuting the gang, grabbed protect a female police officer as a and restrained the intruder as an brawl broke out in the courtroom. The umbrella and a seat from the dock were judge had just passed sentence of a hurled across the court. collective 116 years imprisonment on a Mr Glasgow, who apparently remained gang of violent drill rappers convicted clad in his wig and gown throughout of killing a rival with swords. Enraged the fracas, is an accomplished athlete, by the sentence, supporters of the gang competing for GB in the duathlon world began shouting abuse, fighting broke championships in Hungary in 2007. out between members of the public in News in Brief 65

HMRC increases winding up petitions

HMRC asked the courts to liquidate more businesses, a total of 4,308, in the 12 months to the end of September 2019 than at any other time over the past four years. The taxman can file a winding-up petition if a company has overdue bills of £750 or more, allowing HMRC to liquidate the business and begin the process of paying off its creditors. It is thought that the global economic slowdown, combined with Brexit uncertainty, has resulted in a rise in the numbers of businesses struggling to pay VAT, corporation tax and PAYE on time. As reported in the last issue of the Digest, from April this year HMRC will regain its status as a preferential creditor in an insolvency which may increase winding-up petitions yet further. Law Society goes up in flames The roof of the historic Law Society The roof of the six-storey building and headquarters in London has been a staircase from the third to the fifth destroyed after a fire broke out during floor was destroyed by the fire and BBC invites the wrong man to an annual dinner for junior lawyers there was also damage to the third talk law with Lord Sumption on 1 February 2020. Twenty-five and fourth floors. Presenter of the Radio 4 PM fire engines and 150 firefighters were 113 Chancery Lane was built in show, Evan Davis, had wanted called to the blaze in Chancery Lane 1832, seven years after the creation a discussion between two legal in Holborn at 10.40pm, and fought of The Law Society itself, and is heavyweights over plans to through the night to bring the blaze Grade II listed. televise sentencing in Crown successfully under control on the Courts: former Supreme Court Sunday morning. Justice, Lord Sumption, and Robert Shapiro, lawyer for OJ Simpson whose televised trial in QC Appointments builds up the US is surely one of the most massive surplus famous in history. Amidst the celebrations in the Inns soundings’ was widely considered to The mix up began to dawn during of Court in early January as the new inhibit diversity. However, under the Davis’ introduction of Mr Shapiro, round of Silks were announced, it new system the cost of applying for describing him as OJ Simpson’s has emerged that the not-for-profit and taking silk has risen dramatically, “main man”. The response came company that runs the appointments itself possibly damaging diversity back: “First of all, let me say it’s an process has built up a surplus of particularly for those applicants honour to be on with Lord Sumption. £1.35m. The company is wholly owned in less lucrative practice areas. Second let me say that I am Robert by the Bar Council and the Law Society. Traditionally, no application fee was Shapiro, an adviser to Democratic charged, though a modest sum was Presidents, not the lawyer. You’ve The current system for appointing Silks payable on appointment for the letter called the wrong Robert Shapiro”. began in June 2006 with the aim of patent. Currently, the fee payable to QC increasing diversity within the rank of Fortunately, the wrong Shapiro had Appointments is £1,800 to apply, and a silk, as the old method of ‘confidential plenty to say on the issue at hand. further £3,000 on success. SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Flybe keeps its wings In 2019 alone 23 carriers worldwide went out of business, including the UK’s Thomas Cook, Flybmi and WOW Air. However, in January of this year the government bailed out Flybe, agreeing to delay the payment of the airline’s outstanding £106m air passenger duty bill until the spring of this year to allow it to weather a cashflow crisis. Flybe is also understood to be in negotiations with the government over a loan, which the airline insists would not be a bailout as it would be taken on commercial terms. The move has angered rivals such as IAG and Ryanair over concerns that this breaches state air rules.

How to defraud a Dragon

David Shipley, a Conservative Party and claim he received £540,000 in uncovered by Spitfire, who fired Shipley activist and one of the leading voices commissions. In reality, Shipley had for gross misconduct and reported his behind ‘Brexit: The Movie’, has been only earned £19,928 in commission actions to the police. jailed for defrauding the Dragons’ Den between 2011 and 2014 and was Shipley admitted one count of fraud entrepreneur James Caan’s business out described as an ‘underachiever’ who by false representation and was jailed of a £519,000 investment. had left his previous employer in for three years and nine months and disgrace after lying about his father’s Shipley had approached Mr Caan’s disqualified from being a director for death: a lie uncovered when the business, Resourcing Capital Ventures, seven years. company phoned Shipley’s house to with a Dragons’ Den-style pitch express their condolences and the Judge Martin Griffith told Shipley: requesting the loan for his firm, phone was answered by the father, very “Your possible political career has gone, Spitfire Capital Advisors. To support much alive. that’s what happens when you commit his pitch Shipley had photoshopped an offence of dishonesty . . . Good.” bank statements and a P60 to inflate Mr Caan’s business made the loan to his salary from £60k to £377k, Shipley’s company before the fraud was

The Twinning Project

Chambers is proud to support The The inaugural fund-raising event is at Twinning Project, a charity which the London Palladium on 27 April 2020 twins professional football teams when Arsène Wenger, David Dein MBE with their local prison. Launched in and a host of Special Guests will be October 2019 under the guidance of the taking to the stage for a one-off event then prisons minister Rory Stewart to reveal the secrets of their, and the and now supported by the present Invincibles’, success. In addition, an prisons minister, former Member of array of prizes will be auctioned on South Square Lucy Frazer QC MP, Mark the night, including the chance to have Phillips QC is on the board of trustees. dinner with Wenger or Ian Wright and a dance lesson with Alex Scott MBE. The charity offers 12-week courses to groups of 16 prisoners, For further information and to book coaching them from their first football tickets please visit lwtheatres.co.uk/ coaching badge through to learning wenger-dein or call 020 7087 7755 how to be a steward. It now operates in 46 prisons countrywide, aiding prisoner rehabilitation. News in Brief 67

Forestry ponzi operators ordered to pay

On 18 February Mr Justice Kramer Secretary of State for Business, Energy of the settlement to the SFO before ordered two men charged in connection and Industrial strategy. the mens’ arrest. They claimed the with an alleged forestry investment agreement was covered by litigation Initially Bowers and Skeene paid scam to pay over £8.6 million under privilege, an argument the judge £1.45 million but by August 2019, a deal previous reached in 2018 to rejected. The judge also found that after both had been arrested by the resolve civil proceeding brought by the decision by the SFO to charge the Serious Fraud Office (SFO) which had liquidators for the companies they defendants occurred before the copy become interested in the civil claim allegedly defrauded. of the settlement agreement was allegations, they had ceased to make handed over. Junie Omari Bowers and Andrew Skeene further payments. were the directors of Global Forestry Bowers and Skeene also argued that the In July of that year the SFO announced Investments, which alleged to offer civil proceedings related to the request it had charged Bowers and Skene ethical investment in Brazilian teak for the £8.6 million judgement should with conspiracy to defraud and other plantations, promising returns of up be stayed in order not to prejudice charges relating to alleged investment to 20%. It was estimated that more the criminal case, which is scheduled schemes between August 2010 and than £20 million was received by for trial in Spring 2021. The judge December 2015. While some money Global Forestry Investments (GFI) rejected this application, stating that was received by investors in GFI – and from the Belem Sky scheme, and a the civil proceedings were not focused was believed to have come from funds further £3 million plus from another on the alleged fraud claims but on the from other investors in a typical ponzi scheme called the Para Sky Project. settlement default. scenario, and from a currency trading Liquidators, companies and their fraud also operated by Bowers and bankruptcy trustees filed a civil suit Skeene - an investigation also found against the pair and Bowers’ wife that around £13 million from plot sales in late 2017, seeking more than £10 was paid into bank accounts held by million. The claims were settled out the directors. of court by a civil settlement In issuing his ruling, Kramer J agreement, requiring Bowers and rejected arguments from Bowers and Skeene to pay £6 million or, if the pair Skeene, who represented themselves, defaulted on the repayments, the full that the settlement agreement had £10 million would be due. In January been breached by the companies and 2018, both Skeene and Bowers gave liquidators by handing over a copy disqualification undertakings to the

Cayman Islands ‘blacklisted’ by EU It is understood that Cayman Islands’ Premier, Alden McLaughlin, has already Mere weeks after the UK left the contacted the EU about the process of European Union, Brussels has included being removed from the blacklist, as the UK overseas territory of the the jurisdiction has approved many Cayman Islands in its tax havens reforms sought by the EU. blacklist, along with further additions of Panama, Palau and the Seychelles, The blacklist of ‘non-cooperative tax taking the jurisdictions on the list to a jurisdictions’ was adopted by the EU total of 12. in 2017 as a response to tax avoidance in the EU, and screens 92 countries. Cayman was previously on a so-called The screening processes does not ‘grey list’, along with Turkey, which include any members of the EU, Brussels implemented in order to give despite the 2019 vote of the European the jurisdiction time to introduce Parliament to overwhelmingly accept new laws to bring it into line with EU a report that likened Luxembourg, regulations. However, as of 18 February Malta, Ireland, the Netherlands and 2020 the Islands have not been deemed Cyprus to tax havens. to have ‘appropriate measures’ in place to prevent tax abuse, allowing firms to register there despite having minimal presence in the territory. SOUTH SQUARE DIGEST March 2020 www.southsquare.com

Diary dates

South Square members will be attending, speaking and/or chairing the following events

Upcoming conferences

15-18 March 2020 14-16 June 2020 1-4 October 2020 INSOL Cape Town III Annual Conference INSOL Europe Annual Congress  Cape Town International  New York Convention Centre  Sorrento, Italy

17 June 2020 3 April 2020 INSOL Channel Islands 17 November 2020 Insolvency Lawyers One Day Seminar South Square | Association Annual RISA Conference (ILA) Conference  Radisson Blue Waterfront Hotel, St Heiler, Jersey  Ritz Carlton, Grand Cayman  II Cavendish Square, London

25 June 2020 10-13 May 2020 South Square | South Square also runs a programme R3 Annual Conference RISA Conference of in-house talks and seminars – both in Chambers and on-site at our client premises – covering important recent  Beaumont Estate, Windsor  BVI Arbitration Centre, Tortola decisions in our specialist areas of practice, as well as topics specifically requested by clients. 1 June 2020 7-11 September 2020 ChBA Summer Conference London International For more information contact [email protected], or visit Disputes Week our website www.southsquare.com  Royal College of Physicians, London

 Central Hall, Westminster, London

11 June 2020 Banking and Regulation Forum

 Mayfair Hotel, London

The content of the Digest is provided to you for information purposes only, and not for the purpose of providing legal advice. If you have a legal issue, you should consult a suitably-qualified lawyer. The content of the Digest represents the views of the authors, and may not represent the views of other Members of Chambers. Members of Chambers practice as individuals and are not in partnership with one another. Practice Areas 69

Practice areas

Insolvency & Banking & Offshore Restructuring Finance Litigation

Commercial Litigation Company Civil & Arbitration Law Fraud

Sport Insurance Trusts & Property

Mediation Members of Chambers have frequent experience of mediation and other forms of alternative dispute resolution, and a number have been trained as mediators and accept appointments.

Sectors

• Financial Services • Insurance • Sport • Banking • Manufacturing • Aviation • Energy • Professional Services • Technology & Communication • Government/ • Retail Regulation • Shipping

 +44 (0)20 7696 9900 | [email protected] | www.southsquare.com SOUTH SQUARE DIGEST March 2020 www.southsquare.com

SOUTH SQUARE CHALLENGE SET BY David Alexander QC

01 02 03

04 05 06

07 08 09 South Square Challenge 71

Enter our March 2020 competition and you could win a magnum of champagne and a much-coveted South Square umbrella!

This time around, all you need to do is correctly identify each of the individuals in the images to the left and work out the connection between them all.

Please send your answers to Kirsten, either by e-mail to [email protected] or to the address on the back cover, by 1 June 2020. The winner, drawn from the wig tin if we have more than one correct answer, will receive a magnum of champagne and a South Square umbrella. Best of luck!

NOVEMBER CHALLENGE ANSWERS

(A) Thomas Cook Group Plc, Re [2019] (E) Granada UK Rental & Retail Ltd & The link between all of the answers EWHC 2626 (Ch) Ors v The Pensions Regulator [2019] is that they are matters in relation to EWCA Civ 1032 (Box Clever) which members of South Square have (B) Discovery (Northampton) Ltd v advised during 2019. Debenhams Retail Ltd [2019] EWHC (F) Steinhoff International Holdings 2441 (Ch) NV restructuring The winner, drawn from the wig tin, is Owen Hallam, as Associate at (C) Lehman Brothers International (G) Primeo Fund (in Official Slaughter & May. Owen wins not only (Europe) (In Administration) v Liquidation) v Bank of Bermuda a magnum of champagne and a South Exotix Partners LLP [2019] EWHC (Cayman) and HSBC Securities Square umbrella, but also a Samsung 2380 (Ch) Services (Luxembourg) S.A. CICA Galaxy Tab A. (CIVIL) Appeal No. 21 of 2017 (D) UBS AG New York v Fairfield Sentry Ltd [2019] UKPC 20 South Square "continues to dictate the standard to which others must pitch." LEGAL 500

Michael Crystal QC Tom Smith QC Charlotte Cooke Christopher Brougham QC Daniel Bayfield QC Alexander Riddiford Richard Hacker QC John Briggs Matthew Abraham Mark Phillips QC Adam Goodison Toby Brown Robin Dicker QC Hilary Stonefrost Robert Amey Martin Pascoe QC Lloyd Tamlyn Andrew Shaw Fidelis Oditah QC Richard Fisher Ryan Perkins David Alexander QC Stephen Robins Riz Mokal Glen Davis QC Marcus Haywood Madeleine Jones Barry Isaacs QC Hannah Thornley Edoardo Lupi Felicity Toube QC William Willson Roseanna Darcy Mark Arnold QC Georgina Peters Stefanie Wilkins Jeremy Goldring QC Adam Al-Attar Lottie Pyper David Allison QC Henry Phillips Daniel Judd

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