Seventh Circuit Keeps The Door Open After Asset Sale And Limits The Scope of Section 363(m)

Section 363 of the Bankruptcy Code provides a debtor with the power to sell its assets during the bankruptcy case free and clear of all interests.  This permits the debtor to maximize the value of its assets and hence the recovery for creditors.  But that is not always the end of the story.  In Trinity 83 Development, LLC v. ColFin Midwest Funding, LLC, the Seventh Circuit Court of Appeals faced the issue of whether a debtor can attempt to claw back the proceeds from a section 363 sale even though the sale had already been consummated.  In its March 1, 2019, opinion, the Seventh Circuit held that the debtor’s appeal presented live issues and that section 363(m) of the Bankruptcy Code did not bar the debtor’s claims.

In 2011, ColFin Midwest Funding purchased from Midland Loan Services a note and mortgage issued by Trinity 83 Development.  ColFin relied on Midland to collect the payments from Trinity, but in 2013, Midland inadvertently recorded a “satisfaction” document stating that Trinity’s loan was repaid and that the mortgage was thereby released.  In 2015, ColFin realized Midland’s mistake and recorded a document cancelling the “satisfaction.”  Soon thereafter, Trinity stopped paying and ColFin filed a foreclosure action in state court.  Trinity then filed bankruptcy and subsequently filed an adversary action against ColFin related to the foreclosure action.

Trinity contended in the adversary proceeding that Midland’s 2013 release extinguished ColFin’s security interest, but the bankruptcy court disagreed, instead holding that because the release was a unilateral error and no other entity recorded a security interest in the interim, ColFin retained its original lien rights.  The district court affirmed and Trinity appealed to the Seventh Circuit.  Before the appellate court heard the case, the property was sold to a third party under the bankruptcy court’s auspices.

The cards were stacked against Trinity before its appellate argument.  Not only had Trinity lost at both the bankruptcy court and district court level, but now Trinity’s property had been sold with the proceeds distributed to ColFin.  And from a legal basis, following the property sale, Bankruptcy Code section 363(m) seemingly rendered Trinity’s appeal moot.  Specifically, section 363(m) provides that a court-authorized bankruptcy sale or lease that is later reversed or modified on appeal is still valid so long as the purchaser or lessee took the property in good faith, regardless if the party was aware of the pending appeal.

ColFin argued just this – that the appeal was now moot under section 363(m) because no stay had been issued and that there was no actual controversy for the court to consider.  To many people’s surprise, the Seventh Circuit rejected this argument.  Speaking plainly, the court insisted that real relief could still be granted, notwithstanding the sale, because “one side [Trinity] wants money from the other [ColFin].”  The court opined that a party’s claim is not rendered moot simply because the opposing party has a statutory defense (here, section 363(m)) since the defense relates to the merits of the party’s claim, not whether there is any triable issue present for the court to decide.  The court analogized the situation to the Norris-LaGuardia Act, which prohibits using injunctions in some labor disputes, noting that the Act’s defenses can provide a substantive basis for dismissal of a suit, but do not make the suit moot.  Furthermore, cutting straight to the point, the court noted that despite an earlier Seventh Circuit opinion, In re River West Plaza—Chicago, LLC, 664 F.3d 668 (7th Cir. 2011), since 1994 the Seventh Circuit had repeatedly held that section 363(m) does not make any dispute moot.  Thus, the court made it clear that even if there is a statute that provides “an ironclad defense” to the claim being asserted, there is still a real case or controversy within the scope of Article III.

After sternly batting away ColFin’s mootness assertions, the court faced a second intra-circuit conflict related to whether the scope of section 363(m) prohibits a party from recovering only the purchased property or also the proceeds from the sale.  The court noted with interest that section 363(m) does not mention “one word about the disposition of the proceeds of a sale or lease.”  Indeed, the appeal was now a dispute about who was entitled to the proceeds, not the property itself.  After once again refusing to support River West where the court held that section 363(m) prohibits the possibility of a recipient of sale proceeds being ordered to turn the proceeds over to the bankruptcy estate, the court held that in accordance with Seventh Circuit precedent, it is up to the bankruptcy court to decide what is done with the proceeds of a sale or lease.

Trinity 83 Development makes clear that, at least within the Seventh Circuit, section 363(m) may not offer secured creditors with the broad protections that they would typically expect.  The Seventh Circuit held that section 363(m) does not prevent proceeds from the sale of estate property from being reconveyed back to the bankruptcy estate.  Moreover, the court restricted the ability of a secured creditor to assert that a challenge to the sale is moot, holding instead that while section 363(m) provides a defense to a post-sale claim, it does not operate to deprive the court of jurisdiction to consider the claim.  Secured creditors should learn from the Seventh Circuit’s holding.  In any sale in which secured creditors will receive the sale proceeds, the secured creditors should confirm that the bankruptcy court’s sale order contains explicit language providing that such proceeds are the secured creditor’s exclusive property and will not become part of the bankruptcy estate.  While such language may not serve as a bar to the claim, it will provide a further defense in any post-sale litigation.

High Court finds administrator breached his duty- to the tune of £750,000

It was a painful outcome for the administrator of ARY Digital UK Limited (“ARY”) when he was found in breach of duty and liable to pay £743,750.

The case of Brewer and another (as joint liquidators of ARY Digital UK Ltd) v Iqbal [2019] EWHC 182 (Ch) reminds office holders of the importance of understanding what assets they are selling, ensuring that correct marketing processes are employed and obtaining proper valuations.

It also highlights the importance of administrators exercising their own judgment and independence and of the duty to act in the best interest of creditors.  Whilst this might sound obvious to an experienced office holder; the case does highlight the financial consequences of failing do this.  Simply going through the motions with a marketing and sales process without proper consideration of the nature of the asset being sold, could have serious monetary consequences, as the administrator of ARY discovered.

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Landlord’s Rights: Enforcement options in insolvency

When dealing with a debtor or a tenant that has fallen behind with its payment obligations, one of the most cost effective ways of a creditor/landlord reducing its exposure against that entity will be to take advantage of a “self-help” remedy, such as taking possession of the entity’s assets and selling them in repayment of the sums owed.

However, when the entity is the subject of insolvency proceedings, the availability of the various self-help remedies varies depending on:

  1. Which enforcement method the creditor intends to take;
  2. Which specific insolvency procedure the debtor is in; and
  3. At what point during that insolvency process the creditor seeks to take that step.

We have prepared a table summarising each of the variables identified above, which can be accessed here.

Depending on the type of “self help” remedy exercised and when it is exercised will determine whether the landlord can retain the benefit of it.  For example, monies received following the sale of goods may have to be paid over to the insolvent estate for the benefit or all creditors if the sale occurs post insolvency.

In most cases, the earlier the decision to take advantage of and exercise the “self help” remedy the better the outcome for the landlord.

HMRC versus Company Rescue: HMRC issues consultation paper on the proposed return of Crown Preference

Crown prerogative dates back to the Magna Carta entitling the monarch to absolute priority for revenue related debt. Come 6 April 2020 will we really be heading back to feudal times and 1215?

The proposal to reinstate Crown preference was announced as part of the Autumn Budget last year and came as a surprise to many.   The expected consultation paper published by HMRC this week seeks the views of individuals, shareholders, directors, lenders, companies and insolvency practitioners on the proposal to reinstate Crown preference in part.

However whilst this is a consultation, one might conclude from the language of the paper that the decision to introduce this change is a foregone conclusion. The paper glosses over several important considerations: the impact on funders, the culture of business rescue and the impact on unsecured creditors which we consider further below.

What is proposed?

Presently, when a company enters into an insolvency process, HMRC’s claim for unpaid taxes is an unsecured claim meaning HMRC stand alongside other unsecured creditors and its claim is dealt with on an equal footing.   In simple terms, unsecured creditor claims rank behind fixed charge holders, insolvency practitioner fees and expenses, other preferential creditors and floating charge holders. The order of payment is prescribed by statute.

It is proposed that the statutory order of payments will be altered so that HMRC’s claim will rank ahead of floating charge holders in respect of tax payments due to it for VAT, PAYE, NIC (employee contributions) and CIS being taxes paid by third parties to the insolvent company. In respect of the tax liabilities of the company (income tax, CGT, corporation tax and employer NIC) those unpaid taxes will still rank and be dealt with as unsecured claims.

Therefore, HMRC will become a preferred creditor, although only in part.   The preferred element of HMRC’s claim will however include any penalties and interest due and include historic debt “irrespective of how old” that might be.

HMRC’s primary justification for this change is loss of revenue, but the impact on the Exchequer’s pocket was a consideration when Crown preference was abolished. The conclusion reached then was that the benefit to creditors and business rescue outweighed that loss of revenue. So what has changed?

When will the law change?

The change will apply to insolvencies commencing after 6 April 2020 HMRC.

Why was Crown preference abolished in the first place?

Crown preference was abolished in 2003 following the Enterprise Act because it was considered unfair to other creditors. Abolition was widely welcomed by industry: insolvency professionals, funders, professional organisations, creditors – the list goes on.

The change, driven by a desire to encourage enterprise and business rescue, came alongside other changes to the insolvency process including the introduction of an out of court process to appoint administrators and the introduction of the prescribed part with the intention that the package of measures would help support the rescue of viable businesses.

What is the impact of the proposal to reinstate Crown preference?

Lenders and business rescue

At the same time as HMRC’s preferential status was abolished, the prescribed part was introduced. This was to avoid floating charge holders receiving a windfall payment and ring fenced a pot of money for unsecured creditors out of floating charge realisations. The ring-fenced amount currently stands at a maximum sum of £600,000 with proposals to increase this to £800,000 at some point this year.

If HMRC return to preferential status, floating charge holders face a double whammy. Not only will they rank behind HMRC as preferred creditor, the balance of floating charge assets is further reduced by the increase in the prescribed part.

HMRC seem to discount the effect of preferential status on lenders commenting in the paper that the government does not expect this to have “a material impact”.  It cites the fact that the loss to lenders will be a very small fraction of total lending compared to the financial benefits to HMRC.   This is a very narrow view and ignores why Crown preference was abolished in the first instance and the wider impact that this would have on businesses in general.

To address additional losses,  financiers are already considering whether they ought to make increased provision.  If they do, this could have the effect of increasing lending costs, reducing finance options and making it more difficult and costly for businesses to leverage funds on floating charge assets to fund working capital.   The abolition of Crown preference was premised on encouraging enterprise, its return is likely to have the opposite effect.

Unsecured creditors

It has been a hard fight over the past few years to overcome creditor apathy.

Changes have been made to address this with the Insolvency Rules 2016 (making it easier for unsecured creditors to engage in the insolvency process and for clearer lines of communication), the introduction of the pre-pack pool (to dispel concerns about the pre-pack process and provide greater transparency) and the introduction of the prescribed part (to enable a return to unsecured creditors).

If Crown preference is reintroduced whilst any return to unsecured creditors may currently only be small (the consultation quotes that unsecured creditors recover on average 4% of their debt), reducing that recovery in many cases to nil removes any interest that unsecured creditors have in the process – why would they then engage at all?

Is there justification for the change?

HMRC say that this change is necessary because since 2003 losses to the Exchequer have increased and taxes paid to businesses (by third parties) should, instead of paying creditors of the insolvent business, be paid to HMRC to fund public services.   Whilst that may be true and additional spending on public services is always welcome how much difference would this actually make? We come back to the point we made earlier that this was considered at the time of abolition and the benefits of enterprise and business rescue were thought to outweigh this.  Why should HMRC be placed back in a better position than other unsecured creditors now?

Monies paid to a business are paid into the company’s bank account and are available to the company without restriction.   It is not uncommon to find that monies representing VAT payments or PAYE are used to fund the day to day trading of the company and providing HMRC receives a payment equivalent to the tax received and taxes are paid, then surely it is up to the company to decide how monies it receives are applied.  We don’t think anyone would argue with this provided all creditors are paid.

With an intervening insolvency the landscape changes, but it changes for all: lenders, creditors, shareholders, everyone. Most lose out because it is rare that unsecured creditors are paid in full, but the pari passu principle ensures all unsecured creditors are treated fairly. Secured creditors are only treated differently because they hold security for monies lent to the company.

HMRC is not a secured creditor and yes, the business may have received a payment from a customer representing tax due to HMRC i.e VAT, but that payment is not impressed with a trust in favour of HMRC nor does HMRC have any proprietary right to that money.

There are many other third parties who are in a similar position where a payment made in “good faith” to the now insolvent business would ordinarily have flowed down the supply chain to them, for example sub-contractors. HMRC may argue that it is an involuntary creditor, but other creditors are effectively in the same position when they have no control over credit control processes and no real say in when they are actually paid.  Should HMRC be able to jump the queue and put itself in a better position by changing legislation when other unsecured creditors cannot exercise the same parliamentary clout?


In real terms, any additional returns to the Government through these measures are unlikely to be significant when compared to the Exchequers’ total receipts but the impact on business rescue and enterprise could be seriously undermined.

Is the proposal really creating a level playing field as suggested in the consultation paper or are we just taking a step back in time and progress?

To see our earlier article on this click here and to access the consultation paper click here.  Anyone wishing to respond to the consultation has until 27 May 2019 to do so.

The Real Estate Problem of Retail

The retail sky is falling.  At least that is how it appears from recent and unprecedented number of retailers filing for bankruptcy. From iconic stores such as Sears and Toys ‘R’ Us, to department stores such as Bon Ton, to mall stores including Brookstone, The Rockport Company, Nine West, among others.  The reasons given for such filings vary as much as their products but one theme seems to be constant — the inability of retailers to maintain “brick and mortar” operating expenses in the era of online shopping.  Accordingly, it appears that what some retailers actually have is a real estate problem.

Another troubling theme of many retail filings is the use of bankruptcy courts to achieve a quick liquidation of the company, rather than a reorganization.  Chapter 11 filings over the past several years have shown a dramatic shift away from a process originally focused on giving a company a “fresh start” to one where bankruptcy courts are used for business liquidation.  The significant increase in retail Chapter 11 cases and the speed at which assets are sold in such cases is disturbing and provides a cautionary tale for developers and landlords alike.  Indeed, such parties need to be extremely diligent in protecting their rights during initial negotiations as well as when these cases are filed, starting from day one, lest they discover that their rights have been extinguished by the lightning speed of the sale process.

Recent statistics suggest that the average time to complete a bankruptcy sale is only 45 days from the petition date.  Moreover, under the Bankruptcy Code, and arguably, best practices, the sale will close shortly after court approval thereby rendering any appeal likely moot.  This leaves little time for parties to protect their rights.

Bankruptcy Code Section 363(f) permits a debtor to sell property free and clear of interests in the property if certain conditions are met.  Unlike a traditional reorganization, which requires a more engaging process, including a disclosure statement containing “adequate information,” a sale under Section 363 is achieved by mere motion, even though it results in property interests being entirely wiped out.  Not only are property rights altered by motion, rather than by an adversary proceeding or a plan process, but these sale motions are being filed in retail cases as “first day motions” and concluded in as short as a month and half.

Even more alarming is that the notice accompanying such motions can be ambiguous as to how it will impact parties such as developers who have multiple interests in retail/multi-use properties.  Often, the reference to the developer and its property is buried in a 20+ page attachment in 8 point font, listed in an order only the debtor (or its professionals) understands.  If that was not concerning enough, these notices are being served by a third-party agent who may not have access to the most updated contact information necessary to ensure that non-debtors are actually receiving the notices in time to properly protect their rights.  It is not uncommon for these notices to be inaccurately addressed and not be received until after an order is entered; an order which will undoubtedly contain a provision that notice was proper.

Notably, despite Section 363(f)’s reference solely to “interests” (the group of things that an asset may be sold free and clear of), these sales are commonly referred to as sales free and clear of “claims and interests.”  Lacking an actual definition, courts have expansively interpreted “interests” to include “claims.”  Indeed, it is now the norm for bankruptcy courts to enter extensive findings of fact and conclusions of law supporting 363 sales that extinguish every imaginable potential claim (rather than merely “interests”).  While consistent with the overall spirit of the Bankruptcy Code to promote maximization of value through the alienability of property, it comes at the expense of those holding an interest in that property, such as a mall or shopping center developer.

Fortunately, there are certain well-accepted exceptions to the courts’ expansive application of “interest.”  Courts generally limit a debtor’s attempt to use Section 363 to strip off traditional in rem interests that run with the land.  When faced with such attempts, courts routinely constrain the interpretation of the statute to block the sale free and clear of an in rem interest.

The majority of state laws have long treated covenants, easements, and other in rem interests that are said to “run with the land” as property interests.  Although clearly falling within the common definition of “interests,” courts routinely hold them not to be strippable interests for purposes of a Section 363(f), as being so ingrained in the property itself that they cannot be severed from it, or, alternatively, that the in rem interests are not included in Section 363(f)’s use of the term “interests.”

The protection afforded to in rem interests should provide forward-thinking transactional attorneys with a valuable opportunity to insulate many rights and remedies for their developer clients.  A hypothetical real estate transaction is illustrative — consider a transaction in which a developer sells two parcels to a large retailer as part of a retail/mixed use shopping center and takes back a long-term ground lease for one of the parcels. There are a number of methods available to document this deal: a sale-leaseback agreement; a separate contract to convey in the future secured by a lien; entry into a partnership, joint venture, or similar agreement. When analyzed with respect to the risk of a potential retailer bankruptcy, these mechanisms are inferior to the use of a reciprocal easement agreement (“REA”) or similar devise that creates an in rem property interest that runs with the land in favor of the developer.

If traditional contractual methods are used, the documents run the risk of being construed as executory contracts in the retailer’s subsequent bankruptcy case, subject to rejection, leaving the developer with only a prepetition claim.  A lien in favor of the developer would only marginally improve its position, as any lien will likely be subordinated to the retailer’s development financing and therefore of little value.  But, based on the current state of the law, a non-severable REA or similar document recorded against the retailer’s property will not be stripped off the property absent consent or a bona fide dispute. Thus, rights incorporated into a properly drafted and recorded REA provide the developer with a level of “bankruptcy-proofing” against a potential future retailer bankruptcy. Further, as REAs in mixed-use developments are the norm in the industry, they are likely to be accepted, if not embraced, by the retailer’s construction lender, making their adoption that much more likely.

The lesson is be forward thinking and be diligent.

Brexit proof your holiday

For those already making European holiday plans for summer 2019, or for those hesitantly waiting to see the results of ‘B’ day on 29 March there are still questions about what might happen to travel plans after this date. The Association of British Travel Agents (ABTA) has issued practical guidance to reassure travellers at this time of uncertainty.

If a Brexit deal is agreed, the UK will enter a transition period meaning travel laws and regulations will stay largely the same until 2020. However, deal or no deal we have been assured that flights will still operate between the UK and EU and a visa should not be required.

ABTA has identified actions that travellers may wish to take in advance to help avoid unnecessary future disruption in the event of no-deal: The advice also features practical guidance on the expiry of passports, recognition of driving licences, EHIC’s and data roaming charges should there be a hard Brexit.

Despite this, there is a lot speculation about the effect on travel in a no deal scenario because if flights will still operate and a visa is not required then what actually is the problem? The concern for consumers is that in order to avoid severe disruption in a no deal scenario, the EU has proposed a regulation that proposes to cap flight numbers between the UK and EU at 2018 levels.

The Airports Council International reported to The Financial Times that the cap could lead to the loss of 140,000 flights affecting nearly 20 million passengers travelling between the UK and EU. For the consumer this could mean flight cancellations and disruption to travel plans.

Customers who book a package holiday will have the most comprehensive protection, as their holiday will be protected under the Package Travel and Linked Travel Arrangements Regulations 2018. This means that it is the travel provider’s responsibility to offer an alternative holiday / refund if a package holiday can no longer go ahead.   Travel insurance may also help but it is important to check the policy at the time of booking to see if it covers travel disruption, cancellations and also any consequential loss.

Despite this guidance and these reassurances, the uncertainty and lack of confidence stemming from Brexit is causing difficulties in the market for travel providers with Director General Alexandre de Juniac of The International Air Transport Association reporting that ‘airlines still do not know exactly what kind of Brexit they should be planning for’.   Flybmi is an example of this, announcing at the weekend that it has ceased trading and intended to file for administration.

A press release published on the airline’s website confirmed: “Current trading and future prospects have also been seriously affected by the uncertainty created by the Brexit process, which has led to our inability to secure valuable flying contracts in European and lack of confidence around bmi’s ability to continue flying between destinations in Europe”. For further discussion on airline collapse and insolvency please see our previous blog: Lets Fly away…..

As detailed in this blog there are a number of ways to protect holiday bookings including through purchasing ‘package’ deals and arranging travel insurance down to how you pay for your holiday. For instance if a holiday is booked on a credit card in the UK usually the card company is jointly liable for the provision of services.

ABTA’s guidance should help to provide some confidence to consumers and with the right protection in place from the time of booking there should be no need to wait until after B day to book.

Although a reassuring message, it seems consumers are still lacking in confidence and tour operators understandably remain faced with a tough market. In addition to the collapse of Flybmi at the weekend it was announced last week that Thomas Cook are conducting a ‘strategic review’ of its airline and would consider ‘all options’ including a sale. Ryanair posted a net loss of £17.2 million last week and shares in TUI sank 20%, it seems there is a repeated blame on too many airlines and too fewer passengers coupled with last year’s extraordinary hot summer making consumers reluctant to part with their (weak) pound for European holidays.

Pensions versus Insolvency: changes to The Pension Regulator’s powers

There has always been a tension between protecting the interests of defined benefit pension schemes and insolvency given on the one hand The Pensions Regulator (TPR) seeks to protect the interests of pension scheme members and the Pension Protection Fund and on the other, the insolvency regime seeks to protect the interests of creditors as a whole.

We published an article in July 2018 reporting on a consultation paper issued by The Department for Work and Pensions.  In that, we highlighted our concerns about proposed changes to the notifiable events framework and the impact that increasing TPR’s powers might have on the insolvency profession and the rescue of companies with defined benefit pension schemes.

The Government has now published its response to that consultation which we consider below.

To read our previous article click here.

Notification of pre-insolvency advice

Last year’s consultation paper sought views on introducing a new “notifiable event” whereby employers (those sponsoring a defined benefit pension scheme) would be required to notify TPR in circumstances where it took pre-insolvency or restructuring advice.  We reported our concerns about the effect that this might have on company rescue particularly given the ambiguity over what might constitute advice and the consequences of failing to notify.

The Government thankfully confirms in its response that:

(a) it will not be introducing a requirement to notify TPR when taking pre-insolvency or restructuring advice; and

(b) the existing notifiable event of “wrongful trading” will be removed from the list of notifiable events.

The Government recognised concerns raised by respondents to the paper (including our own) that the proposed changes might be difficult to operate in practice and might stifle legitimate business activity or in the case of insolvency, business rescue.   This confirmation is a welcome relief!

Declarations of intent

The consultation also sought views on introducing a requirement for sponsoring employers to provide a declaration of intent confirming that they had considered the implications of how a transaction (for example, a proposed sale of the business and assets) would impact on the pension scheme.  The declaration would also be required to confirm that the trustees had been consulted and set out how any detriment to the scheme would be mitigated.  It would then be shared with TPR who, if it thought appropriate, could take action.

Whilst early engagement with trustees and TPR should be encouraged, this is already something which happens in practice when corporates seek restructuring advice. 

Our concern about this proposal was the additional costs and delay this would incur (with no material benefit to the pension scheme) at a time when the business is already under pressure and a sale may need to happen quickly in order to preserve the value of the underlying business. 

The Government provided reassurance in its response that involvement of TPR will not result in time critical delay and confirms that in assessing the impact of this proposal it will consider time and costs implications.   Whilst we hope that this will include consideration of the cost and time implications when dealing with a distressed sale, it remains our view that an impact statement is unlikely to make any material difference to the effect of such a sale on the pension scheme and is therefore unnecessarily burdensome. 

It also raises further concern (at least for directors of the relevant company) that failure to comply will this requirement may give rise to the possibility of a fine of up to £1,000,000!

Earlier notification of the sale of the business or assets

The consultation paper also sought views on moving the timing of notification forward suggesting, in the case of a proposed business or assets sale, that TPR be notified when heads of terms are agreed.  

Whilst the Government will implement this proposal, it has indicated that it will work with industry to identify when that earlier point will be, recognising that notification at the point heads of terms are agreed does not work in all cases.  

In the context of a sale negotiated in an insolvency process, we were unable to see how earlier notification would result in a material benefit to TPR whereas imposing additional requirements in a distressed situation do not always assist.   We hope that the Government will take concerns on board about timing when the earlier point is agreed.  

New targets and penalties

Whilst there will be no requirement to notify when taking pre-insolvency or restructuring advice there will be a requirement to (a) notify a sale of the business or assets; and (b) provide a declaration of intent and failure to do either could result in a fine.   

This is of larger concern to sponsoring employees/directors given the new civil penalties.  

The new penalties include fines of up to £1 million; which in the case of failure to notify of a sale could be levied against the sponsoring employers and in the case of failure to provide a declaration of intent could be levied against sponsoring employees and others associated or connected (i.e directors).  Whilst directors appear to avoid fines in the context of failure to notify of a sale, this was alluded to in the consultation paper.

Whilst it is extremely unlikely that sponsoring employers/directors would receive a fine of £1million if a declaration isn’t made or sale notified in an insolvency process – this level of fine being likely reserved for what TPR refers to as “willful or reckless behaviour” – it is unclear what level of fine might be imposed. There is a big gap between £0 and £1 million!


Whilst not part of the consultation the Government confirms in its response that TPR will be given power to call any person for interview (which would include insolvency practitioners) regardless of professional obligations/confidentialities.  This comes about partly in response to the difficulties TPR encountered obtaining relevant information surrounding the collapse of BHS .  This is unlikely to be an issue for an IP and at least provides clarity on their obligations in the future.


Our initial fears, about the impact of the proposals on business rescue and culture, are somewhat relieved by the Government confirming that notification of taking pre-insolvency or restructuring advice will not become a notifiable event.  However, the earlier notification of a sale and the new requirement to produce a declaration of intent remains of some concern because it is not yet clear how these might impact on corporate rescue and restructuring.  The biggest concern being additional cost and delay where, as we noted in our initial article, there is no obvious benefit to TPR, and of course, concern for directors of corporates who could face a hefty fine if these steps are not met.

To review the Government’s full response click here.

To read our pension colleagues’ comments on the response click here.


Trade Talks: the UK’s trade relationship with its key international partners post-Brexit

Over the last 12 months Squire Patton Boggs have been involved in video interviews and roundtable meetings with experts from our global network of business leaders, to enable us to provide guidance to our clients on the economic and political issues they are likely to face in trading internationally post Brexit. The key jurisdictions that we have looked at are the USA, China, the EU, India and the Commonwealth generally.

Links to the interviews and a summary of the topics covered are below.

As Brexit uncertainty continues it is vital for businesses to understand how our key international trading partners will see the UK once we exit the EU.

For business, being able to evaluate how the UK is likely to be seen as trading partner will help them to adapt and manage their supply chain as well as manage customer expectations in order for businesses to remain competitive and relevant. Being able to adapt to globalisation and the speed of change are key factors in defining whether a business thrives or simply survives.

Country/Jurisdiction Summary
US – January 2018 Video interview with John Dickerman and Frank Samolis (partner, International Trade).
China – February 2018 Video interview with Guy Dru Drury MBE, CBI Head of China.
EU – March 2018 SPB hosted a client facing roundtable dinner, supplemented by another video interview with Sean McGuire, CBI director for Brussels.
India – April 2018 Interview with Shehla Hasan, CBI head of group – India and South Asia.

We also spoke with a number of trade experts, including Neil Clarke (sales director for convenience food producer Symington’s), Sherad Dewedi (spokesperson for the Yorkshire Asian Business Association), and Biswajit Chatterjee, partner in our India Practice.

Commonwealth/International – November 2018 Interview with Benjamin Digby, CBI director for international trade and investment to discuss the UK’s outlook on international trade and investment for 2019.



Will Bankruptcy Stay Criminal Proceedings For PG&E?

On January 29, 2019, California’s Pacific Gas and Electric, one of the nation’s largest utilities, filed for Chapter 11 bankruptcy protection.  PG&E’s bankruptcy is certain to be one of the largest and most complex restructurings in recent years and will involve state and federal regulators and a myriad number of issues, including the impact of the bankruptcy case on criminal proceedings now pending against PG&E.

In an article recently published in Bankruptcy Law360, restructuring partners Karol Denniston and Stephen Lerner examine the impact of the bankruptcy case on PG&E’s criminal proceedings, and the effect that the bankruptcy case may have on regulatory orders addressing safety policies, procedures and actions.

The Aristophil Scandal: All that glitters…

Open Book

Rastignac? Grandet? Swindler? Arsène Lupin? Ponzi scheme concerning letters and manuscripts? The adventures of Gérard X, formidable businessman, founder and manager of the Aristophil company, were abruptly interrupted in November 2014, with the search of the company premises and its property by the judicial police.

The company was put into receivership on February 16 2015, and on 4 March of the same year Gérard X was indicted for deceptive marketing practices, organised fraud, laundering, breach of trust, and misuse of corporate assets. At that point, the Aristophil saga became a problem, if not a scandal.

The vast majority of 18,000 people who invested (usually through joint ownership) in the letters and manuscripts sold by the company risked losing a large part of the investment, in what might constitute a scam amounting to a loss of 1 billion Euros.

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