Insolvency Oracle

Developments in UK insolvency by Michelle Butler

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Anticipated Changes to the Insolvency Regulatory Landscape in 2013 and Beyond

We seem to have avoided major changes in 2012: no new/revised SIPs, no significant changes to legislation… does that mean it is all being stored up for 2013?

Here are a few developments that I’ll be looking out for next year:

• A Ministerial review on IPs’ fees – preliminary report expected in April 2013 with final recommendations in June 2013:

• Changes to the RPBs’ complaints systems, including common sanctions guidance and an Insolvency Service-hosted site for lodging complaints and for publicising sanctions:

• HM Treasury’s review of the Special Administration regime for investment banks – report to the Treasury by the end of January 2013 with a fuller report expected by end of June 2013:

• Changes to collective redundancy legislation… will there be any reference to any insolvency exemptions? Draft regulations expected in the New Year, to come into effect on 6 April 2013:

• Progression of the Enterprise & Regulatory Reform Bill – currently at the House of Lord Committee stage:

• Outcome of the Red Tape Challenge on insolvency – Insolvency Service to set out proposals to be considered by Ministers in early 2013: Dear IP 56 (not yet posted to the Service’s website)

• Revised SIP3 and SIP16 to be issued for consultation (per IPA autumn roadshows)?

• Development of the Scottish Government’s plans for bankruptcy law reform:

• The Charitable Incorporated Organisations (Insolvency and Dissolution) Regulations 2012 come into force on 2 January 2013 (thanks to Jo Harris for pointing these out) – I guess they are what they are, but I would like to see a user-friendly summary of them:

• The Financial Services Act comes into force on 1 April 2013… with what direct impact on IPs? I confess that it is not something that I know a lot about, but I do know that from it is created the Financial Conduct Authority, which (from 1 April 2014) will take on consumer credit regulation from the OFT so it may well affect IPs’ (and RPBs’ group) consumer credit licences:

• And further afield, changes to the EC’s 2000 Insolvency Regulations (although perhaps further away than 2013?):

Have I missed anything, do you think..?

I’ll also take this opportunity to mention that I reproduce my blog posts into pdfs every couple of months or so – I have added these to a new page on this blog, but I email them direct to those who have asked. If you would like to be added to this emailing list, please drop me a line at I have also started on twitter (@mbmoving); I am a complete novice, but I am hoping to use it to make immediate reference to news items on subjects such as those above (but I’ll continue to blog). Finally, I have given my blog a new look for the New Year – a photos from my trip to Patagonia in January 2012.

Have a lovely few days/weeks off, everyone, and I hope I get to meet up with some of you again sometime in the next year, when I emerge finally from all my unpleasant experiences of 2012.

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MF Global: Are Special Administrators analogous to Liquidators?

Heis & Ors (Administrators of MF Global UK Limited) v MF Global Inc [2012] EWHC 3068 (Ch) (1 November 2012)

Decision: In considering the default provisions of a repurchase agreement between the two parties, David Richards J concluded that Special Administrators appointed under the Investment Bank Special Administration Regulations 2011 are not officers analogous to a Liquidator and an application under the Regulations for a Special Administration Order is not analogous to a petition for a winding-up.

The primary consequence of this decision in this case is that, although the appointment of the Special Administrators over MF Global UK Limited (“UK”) occurred before a Trustee was appointed over MF Global Inc (“Inc”), UK has control over establishing the sums due under the agreement.  This makes quite a difference: the Special Administrators provisionally suggested Inc’s claim to be in the region of £37m, whereas with Inc as the non-defaulting party, its claim had been estimated at £287m.

Background: The Special Administrators sought directions regarding the default provisions of a Global Master Repurchase Agreement (“GMRA”) between UK and Inc in order to establish which was the defaulting party, which was necessary in order to establish the sums due under the GMRA.

Special Administrators were appointed over UK approximately three hours before a Trustee was appointed over Inc under the US’ Securities Investor Protection Act 1970.  The GMRA defined default events as including “an Act of Insolvency” where the non-defaulting party serves a default notice.  However, where the Act of Insolvency was “the presentation of a petition for winding-up or any analogous proceeding or the appointment of a liquidator or analogous officer”, no default notice was required.  As no default notice was served when UK was placed into Special Administration, it was crucial to determine whether the Special Administration was analogous to the appointment of a Liquidator.  The parties were agreed that the appointment of a Trustee over Inc was analogous to the appointment of a Liquidator, so if Special Administrators were not analogous to Liquidators, then Inc would be the defaulting party.

David Richards J stated that if the basic characteristics of liquidation – of bringing the business of the company to an end, realising its assets and distributing the proceeds amongst creditors – are not present, “it would in my judgment be impossible to say that the procedure was ‘analogous to’ liquidation as contemplated by the GMRA” (paragraph 33).  He then compared and contrasted the powers and objectives of Special Administrators and Schedule B1 Administrators with those of Liquidators and, not surprisingly, pointed out that “an administration and other insolvency proceedings may result in the realisation of a company’s assets and a distribution of the proceeds among creditors, but the alternative of a rescue of the company as a going concern is at least one of the purposes or objectives of those proceedings. In those cases it is understandable that the non-Defaulting Party under the GMRA would wish to have an opportunity to wait and see how the proceedings develop before deciding whether to exercise its right to serve a notice declaring an event of default and thereby close out all outstanding transactions under the GMRA” (paragraph 52).  David Richards J was not persuaded that Special Administrations were analogous to Liquidation even though, as Inc’s Counsel suggested, it would be very rare, if ever, that an investment bank that had been placed into Special Administration would be rescued – one of the alternatives of Objective 3 of the Special Administration process is to rescue the investment bank as a going concern and thus it is a process which is not analogous to Liquidation.