Welcome back - we hope you enjoyed the festive season with family and friends. In Issue 2 of Insolvency Matters we look back at some of the key decisions and developments in insolvency law and practice from the second half of 2024. London Capital & Finance Plc (in administration) and others v Michael Andrew Thomson and others [2024] EWHC 2894 (Ch): The High Court handed down judgment in favour of the joint administrators of London Capital & Finance plc (LCF) and London Oil & Gas Limited in their claim against the former CEO of LCF and various other defendants. In his judgment, Mr Justice Miles held that the defendants (i) knowingly participated in fraudulent conduct (ii) misappropriated significant sums from LCF and (iii) operated a Ponzi scheme. The Judge also found that a number of the defendants entered into a series of artificial transactions whose purpose was to conceal the misappropriation of funds from LCF. The claimants succeeded in all of their claims, including claims for fraudulent trading under section 246ZA of the Insolvency Act 1986, breach of fiduciary duty, dishonest assistance, knowing receipt, and proprietary tracing claims. Mishcon de Reya LLP acted for the successful claimants. For more information, see our summary here. Wright & Rowley v Chappell and others [2024] EWHC 2166: In Issue 1 of Insolvency Matters, we covered the high-profile judgment holding the BHS directors liable for "misfeasant trading". In a second judgment handed down in August, the court held that, as with wrongful trading, the correct basis for calculating compensation for misfeasant trading is the increase in net asset deficiency between: the date when the directors breached their duty to the creditors by failing to cease to trade; and the date when the company actually entered an insolvency process. In this case the deficiency was c. £110 million. However, in a departure from the approach taken to wrongful trading, the judge declined to apportion the liability for these damages between the defendants. Instead, the judge held that they were jointly and severally liable for the full amount. Nick Payne's summary of both BHS decisions is here. We understand that an appeal is under way. Webb and Hussein v Eversholt Rail Ltd and another [2024] EWHC 2217: An application by liquidators seeking to compel the hand-over of documents under s.234 and s.236 of the Insolvency Act 1986 failed. The application was refused because: the request for documents was very wide; the respondents were prepared to co-operate with specific requests (and had done so); and the liquidators hadn't sufficiently explained why they reasonably needed the additional documents they had requested. Two points came up in this case that were of particular interest: first, the company in liquidation was a special purpose vehicle which had no employees, and the Respondent held all of the company's records. The court held that this did not entitle the liquidators to a copy of all of the records held by the Respondent. Secondly, the fact that the company had a contractual right to obtain its records from the Respondent was of no assistance to the liquidators because they had framed their request solely under s.236. This case emphasises the need to explain why any documents sought under s.234 or s. 236 are needed, especially if the request is likely to be burdensome to comply with. It is also a reminder to consider if any contractual right(s) to documents can be relied upon more effectively than the statutory powers. Little & Anor v Olympian Homes Limited [2024] EWHC 1766: The court held that statutory demands for unpaid interest under a loan should be set aside. The court concluded that there were genuine and substantial arguments that the lenders had indicated that they would waive the interest, giving rise to an "estoppel". For further information on this case, see the article by Radford Goodman and Nick Payne here first published in Corporate Recovery and Insolvency. Bland & Mayo v Keegan [2024] EWCA Civ 934: The Court of Appeal held that written resolutions passed on the basis of a company's register of members are valid, even in cases of disputed or forged share transfers. The court emphasised that the shareholder register is definitive proof of shareholdings in the company, even if it is alleged that they have been wrongly recorded. If a party wishes to challenge the register, they must do so with Companies House using the prescribed procedures. Our video on this case can be watched here. Re WealthTek [2024] EWHC 2520 (Ch) and [2024] EWHC 3050 (Ch): In the first of two decisions the court approved a distribution plan under the Investment Bank Special Administration Regulations 2011 (the IBSA Regulations). In the second decision, the court refused to allow the administrators to retain a portion of funds to pursue claims because the Financial Services Compensation Scheme Ltd (FSCS), which would be paying compensation to WealthTek's customers, would take on those customers' claims via subrogation and would be under a statutory duty to pursue any suitable claims on their behalf at its own cost. Accordingly, the judge considered that reserving a portion of the customers' funds to allow the administrators to pursue these claims instead was not justifiable. Re VTB Capital PLC (in administration) [2024] EWHC 2612: The court granted the administrators' application for a five-year extension of the administration until 5 December 2029, finding it to be in the best interests of creditors as a whole in circumstances where: the realisation of the business' assets had been significantly delayed due, in large part, to the imposition of sanctions; there was a realistic prospect of the administration ultimately resulting in a surplus; and it was in any event likely that continuing the administration would result in a better outcome than moving to liquidation. The court also granted an order under the Credit Institutions (Reorganisation and Winding Up) Regulations 2004, directing that progress reports to creditors be made pursuant to the Insolvency Rules 2016. Nardelli v Richardson [2024] EWHC 2740: The administrators have a duty to perform their functions in the interests of creditors as a whole. Where there is a likely return to shareholders as well as creditors, the administrators must also have regard to the interests of the members of the company as a whole and avoid causing them unfair harm. Where the interests of creditors and shareholders conflict, the administrators should give primacy to the interests of creditors. In this case, the administrators did not breach their duties or cause unfair harm to the shareholders in their conduct of the administration: their decisions were supported by commercial justification, rational analysis, and legal advice, and were not made in bad faith or with improper bias. Kendall v Ball [2024] EWHC 746 : Directors used company money to purchase, in their own name, a small piece of land which was needed by their company as part of a development. The court held that the directors had acted in breach of their fiduciary duties and held the land on constructive trust for the company, notwithstanding that the land had not been pre-existing corporate property. An article on this case by Radford Goodman was first published in the Autumn 2024 edition of Recovery. Re KRF Services (UK) Ltd [2024] EWHC 2978: The court considered the impact of the UK sanctions regime in relation to an application to put an English company into administration. In this case the English company was not the subject of sanctions. However, its ultimate beneficial owner, and the source of its funds, was an individual who had been made subject to sanctions. As a result, the effects of the sanctions regime had rendered the company unable to operate. The remaining director (the others having resigned) applied to put the company into administration on the basis that the insolvency practitioners would be able to obtain a license to use the company's assets to repay creditors and wind down the company. The judge held that the company should go into administration subject to the administrators giving certain undertakings. In addition, the judge applied the principle, from Re Active Wear Ltd. [2023] BCC 14, that the Model Articles permit a sole director to resolve to wind up a company, and expanded upon it by holding that this was the case irrespective of whether the company had previously had more than one director. Restructuring plans Part 26A Restructuring Plans continue to be tested before the courts. Of particular note is the decision in Re Cineworld Cinemas [2024] EWHC 2475. Two dissenting landlords submitted that they should be excluded from a proposed Restructuring Plan on the grounds that their leases had already been compromised under contractual agreements which stipulated that they would not be included within any future restructuring. They applied for a mandatory injunction to enforce that undertaking. Their arguments were rejected by the court, which held that the undertakings themselves were contractual promises capable of being compromised by the Restructuring Plan. Moreover, the court concluded that enforcing these contractual undertakings would offend the pari passu principle by treating the applicant landlords differently to other creditors. In Re Sino-Ocean Group Holding Ltd [2024] EWHC 2851, meanwhile, the English courts concluded that a Hong Kong listed company could utilise the Part 26A regime as part of parallel Hong Kong and English insolvency proceedings and in Re Chaptre Finance Plc [2024] EWHC 2908 (Ch), the court held that expert evidence relied upon in Part 26A sanction proceedings must comply with the regime for expert evidence under Part 35 of the Civil Procedure Rules. Cross-border On 27 June 2024 the UK ratified the Hague Convention 2019. This convention governs the recognition and enforcement of foreign judgments in civil or commercial matters between signatory states (including all EU Member States except Denmark). The convention will now come into force in the UK on 1 July 2025. The Convention will only apply to English judgments in proceedings commenced after 1 July 2025. Kireeva v Bedzhamov [2024] UKSC 39: A Russian bankruptcy trustee applied for the assistance of the English court to enable her to recover London properties owned by the bankrupt. Under Russian law, these properties formed part of the Bankrupt's estate and the Trustee was entitled (and obliged) to take possession of them. However, the Supreme Court refused to grant assistance to the Trustee. The Supreme Court held that the "immovables rule" applied to the properties and that there is no exception to this rule under insolvency law other than under statute (namely, the Cross-Border Insolvency Regulations 2006 and s.426 of the Insolvency Act 1986, neither of which applied in this case). The "immovables rule" provides that "questions as regards rights to and interests in land and other immovable property are governed by the law of the country in which the property is situated (the lex situs) and that jurisdiction to decide those questions belongs to the courts of that country". The Supreme Court concluded that any exceptions to this rule must be established by statute, not the courts. Jones v Aston Risk Management Ltd [2024] EWHC 2553: The court held that, when determining jurisdiction to commence bankruptcy proceedings, the question of whether a debtor had "carried on business in England and Wales" was one of mixed fact and law. Carrying on business through, or being a director of or shareholder in, a company does not, in itself, amount to the carrying on of business as an individual and on one's own account. Where a director or shareholder of a company has been conducting a separate business of their own in addition to their involvement in the company, the question of when that business ceased to be carried on will depend on when any debts and obligations in respect of that separate business were discharged. The fact that the company owes the director money under loans, for example, does not mean that the director themselves is carrying on business in the jurisdiction. Litigation funding Following the decision in PACCAR that certain forms of litigation funding arrangements were invalid unless they complied with the Damages Based Agreement Regulations, rendering many forms of funding arrangement unenforceable, in March of 2024 the Conservative Government published a short Bill intended to reverse the effects of this decision. However, the Labour Government has decided not to adopt the Bill but, rather, to undertake a more detailed and wide ranging review of litigation funding. The Civil Justice Council has now launched its review of litigation funding, alongside an interim report on the sector. The review will examine various issues, such as whether litigation funding should be regulated, if there should be limits on funders' returns, the role of the courts in controlling the conduct of funded litigation, and the effects of the availability of funding on litigation generally. Court activity We understand that the High Court is currently listing Winding Up Petitions five to six weeks ahead, Bankruptcy Petitions six weeks ahead, directions hearings of up to fifteen minutes over two months ahead, and hearings with a time estimate of a day six months ahead. Solomonic's Half-Year Review 2024 reported: "Insolvency activity has been on the rise since 2021 and overall levels remain high, reflecting the austere economic conditions as well as the end of Covid-era Government support. New insolvency applications in the first half of 2024 soared by over 200% compared to the same period in 2021, rising from 2,135 to 6,451. May 2024 marked the busiest recorded month in recent years. However, unlike in 2023, H1 2024 marks the first half-year that insolvency claim volumes did not grow; instead, they fell marginally, indicating a welcome plateauing in activity." In the Insolvency Service Company Insolvency Statistics published in November 2024 the Insolvency Service noted that "the number of company insolvencies remained much higher than those seen both during the COVID-19 pandemic and between 2014 and 2019". However, there has been a drop in the number of insolvencies since the peaks in the first half of 2024. ADR Readers will recall that in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416, the Court of Appeal held that the court can lawfully stay existing proceedings for the parties to engage in a non-court based dispute resolution process (such as mediation or early neutral evaluation), and it can order the parties to do so. The court declined to lay down fixed principles as to when the court should exercise this discretion, and it will depend on the circumstances of the case. Following this decision, on 1 October 2024, the Civil Procedure Rules were amended to include greater emphasis on encouraging ADR, including granting the court express powers to order parties to participate in ADR. For more information, see the note prepared by Nick Payne, Leah Alpren-Waterman and Richard Leedham here. Please look out for Issue 3 of Insolvency Matters in August. Best wishes for a successful 2025 from all in the insolvency team at Mishcon de Reya.