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Insolvency - News and Legal Updates, February 2022

In this bulletin, we focus on duties of directors and claims against them. Karolina Lewandowska considers directors' duties generally and when an individual will own the goodwill in a company’s name following the recent decision in Reynolds v StanburyCathryn Butler reflects further on that decision from the point of view of how to avoid potential pitfalls when pursuing directors; and Olivia Reader considers a director’s unsuccessful attempt to reclassify the nature of payments made to herself after the event in Bass v Buchanan. Separately, Ruby Holland provides an update on claims against directors for misuse of bounce back loans, shares our latest pricing information and reflects on the latest developments with the proposed rent recovery arbitration scheme. 

Failed claims against a director: whose goodwill is it anyway? - Reynolds v Stanbury

In the recent decision of Mark Reynolds (Liquidator of CSB 123 Limited) v Caroline Stanbury [2021 EWHC 2506 (Ch)] the High Court provided helpful guidance on the ownership of personal goodwill and directors' duties in the context of a transfer of business. The decision also highlights the importance of directors seeking professional advice, which can prove crucial when defending claims brought by office-holders.

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Avoiding potential pitfalls when pursuing directors - lessons from Reynolds v Stanbury

In the recent decision of Mark Reynolds (Liquidator of CSB 123 Limited) v Caroline Stanbury [2021 EWHC 2506 (Ch)] , the Court considered a range of issues in respect of the liquidator’s actions in intimating claims against a director. From the perspective of an office-holder contemplating claims against directors, the decision highlights the importance of conducting thorough investigations before issue and of obtaining high quality independent expert reports. The Court also addressed issues of delay and the recollection of events, highlighting the importance of obtaining and preserving adequate books and records and contemporaneous documentation.

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Overdrawn director’s loan account cannot be reclassified as remuneration when it suits - Bass v Buchanan considered

In the case of Bass & Ors v Buchanan [2021] EWHC 2740 (Ch) sole director Bronia Buchanan was ordered to repay her director’s loan account balance of £286,421.45 which she had retrospectively sought to re-characterise as remuneration. The case serves as a useful reminder that a director cannot escape a misfeasance claim by seeking to reclassify the nature of payments made to them after the event.

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Updates

Bounce back loans turn 1 - Claims against directors for misuse of BBLs

With the first anniversary of the Bounce Back Loan (BBL) scheme either approaching or having passed for many businesses, repayment instalments are becoming due. Many companies now facing insolvency have BBL liabilities. While it is envisaged that most loans were used in the way the scheme was intended, office holders are increasingly encountering instances of directors having misused them. Examples include the purchase of personal or household items, funding increases in directors’ salaries or dividends, or transferring money to third parties without justification. The government is facing criticism for its handling of the BBL scheme, with the Conservative Treasury minister and Cabinet Office minister Lord Agnew resigning as a result of his frustrations with the “inadequate” recovery of the loans. The National Audit Office has estimated that £17 billion of BBLs may not be paid back, with a considerable portion of this being due to fraud.

 As noted in our recent pricing initiative mini-series, we have developed a range of fee structures to suit office holders to pursue claims in relation to directors’ misuse of government support - further details here.

 Developments with the proposed rent recovery arbitration scheme

The Commercial Rent (Coronavirus) Bill (the Bill) is at its second reading in the House of Lords and is intended to come into force in March 2022, with the aim of supporting landlords and tenants to resolve disputes relating to rent owed by businesses which were required to close during the COVID-19 pandemic, and preventing a ‘cliff-edge’ where those substantial liabilities become immediately enforceable. The Bill requires arbitration to be used to determine a way forward, commenced by either landlord or tenant within six months of the date when the Bill is passed. Further information on the guidelines as to what constitutes ‘protected rent arrears’ are outlined in Ruby Holland’s article here.

Pricing

As well as our offering for BBL claims, we offer fixed and competitive pricing for discrete instructions for office holders (such as remuneration applications) and for other stakeholders such as directors, debtors and creditors.

For more information on the above contact the Restructuring and Insolvency team.

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