Insolvency News And Legal Updates - October 2018

Wonga no longer

Following a wave of compensation claims, the pay day lender, Wonga, went into administration on 30 August 2018. The lender was well known for its excessively high interest rates on short term loans. Chris Laverty, Daniel Smith and Andrew Charters at Grant Thornton were appointed as joint administrators. Wonga received a £10million cash injection from investors at the beginning of August, but this was ultimately not enough to save the pay day lender as it entered administration just a few weeks later.

Wonga is still owed more than £400million in outstanding short term loans and borrowers are being advised to continue making repayments in the usual way.

Before the government introduced a cap on interest rates, Wonga was demanding repayments from customers with an interest rate of 5,853%. In 2014 the pay day lender had also been ordered to pay more than £2.6million in compensation to customers after sending fake legal letters pressuring customers into making repayments they could not afford, with the Financial Conduct Authority finding that Wonga's debt collection practices were "unfair".

The Church of England originally participated in talks to buy Wonga's loan books in an attempt to rescue the payday lender, but pulled out of the deal on 21 September. The Archbishop of Canterbury had previously admitted in 2013 that the church's investment fund had invested in Wonga, albeit indirectly.

Ashfords' Take: The collapse of the controversial pay day lender has generated a lot of attention, but other pay day lenders remain, with names such as QuickQuid and Sunny Loans still very active in the market. Complaints about pay day loan companies to the Financial Ombudsman are increasing dramatically, with an increase of 251% in the first quarter of 2018 compared with the first quarter of 2017.

Insolvency Clampdowns Demanded

The government is proposing dramatic new changes to the insolvency regime, including granting extensive new powers to the Insolvency Service to "clamp down" on rogue directors.

The government cited directors who deliberately dissolve companies to avoid paying debts, wages and pensions as the targets of the new reforms, and also singled out the practice of "phoenixing" companies for particular scrutiny.

The government is proposing that directors who indulge in such practices be subjected to harsher punishments, which the Insolvency Service will have the power to enforce. Amongst such powers will be the ability for the Insolvency Service to fine and disqualify delinquent directors, as well as the power to demand that directors prove the company has sufficient funds to meet salaries and pension contributions before they pay dividends to shareholders.

Ashfords' Take: With high profile insolvencies and high street collapses seemingly never out of the business pages, it was only a matter of time before the government demanded reform. Although concrete legislation is still in its drafting phase, this could prove to be one of the most seismic events the insolvency regime has seen in many years.

Harriet Lock -v- Aylesbury Vale District Council [2018] EWHC 2015 (Ch)

The Facts

Following a statutory demand for unpaid council tax in the sum of £8,067, a bankruptcy petition was presented against Ms Harriet Lock. The council provided Ms Lock with evidence of the council tax liability orders confirming the debt. Ms Lock provided evidence in response, which explained that she was living in social housing and was financially dependent on her daughter. At a first hearing, the court adjourned and ordered that Ms Lock provide a skeleton argument to explain why a bankruptcy order should not be made.

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SHB Realisations Limited (in Liquidation [2018] EWHC 402 (Ch)

The Facts

In what was ultimately a doomed attempt to rescue its ailing business, in March 2016, BHS Limited entered into a CVA with its creditors. Integral to the CVA was a restructuring of BHS' rental commitments on some of its weaker sites. Various premises were identified which, at the time, BHS believed would be viable if the rents were reduced. Under the CVA, the landlords of these sites agreed to various restrictions and reductions to the rent they received under their leases for an agreed period. BHS entered Administration shortly afterwards - in April 2016 - but this did not trigger the termination of the CVA and it continued to run simultaneously.

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