Anti-Deprivation Principle and Contractual Indemnity

In the recent decision by the High Court the Anti-Deprivation Principle has been reconsidered. The principle first discussed in British Eagle International Airlines Limited v Compagnie Air France [1975] states: -

"… a common law rule of public policy that the property of an insolvent person must be administered for the benefit of his creditors in accordance with the provisions of what is now the Insolvency Act 1986. Consistently with and as part of this rule, the individual bankrupt or insolvent company may not contract at any time, either before or after the making of the bankruptcy or winding-up order, for its property subsisting at that date to be disposed of or dealt with otherwise than in accordance with the statute. Put another way, it is not possible to contract out of the Act."

The principle has also been considered this year in the case of Perpetual Trustee Company Limited v BNY Corporate Trustee Services Limited where Lord Neuberger stated: -

"44. In British Eagle, reversing Templeman J and a unanimous Court of Appeal, the House of Lords, by a bare majority, decided that a clearing house arrangement between a large number of airline companies relating to debts arising as between them was ineffective as against the liquidator of one of the companies, British Eagle, which had gone into liquidation. As explained by Lord Cross of Chelsea (with whom Lord Diplock and Lord Edmund-Davies agreed), this conclusion was reached on the ground that, insofar as the arrangement purported to apply to debts which existed when the members of the company passed the resolution to go into creditors' voluntary liquidation, it would have amounted to contracting out of the statutory requirement that the assets owned by the company at the date of its liquidation should be available to its liquidator, who should use them to meet the company's unsecured liabilities pari passu, under s.302 of the Companies Act 1948 (now effectively re-enacted as s.107 of the Insolvency Act 1986)."

The effect of this principle is to deny the contractor with the company the right in most cases to provide a clause that denies liability if the company enters an insolvency event. - for those drafting contracts this must be considered so as to ensure that attention is drawn to the risks of using such a clause.

Transfer of undertaking - Exemption for Pre-Packaged Sale

In previous blogs the impact of Oakland -v- Wellwood has been considered. It was approved that where a pre-packaged sale takes place with an anticipation that there would be a subsequent creditors voluntary liquidation Regulation 8(7) of TUPE applied. However whilst the Employment Tribunal applied Oakland in a recent case of Coombs and Another -v- RedWeb Security and others it stated that there were strong grounds for thinking that both tribunals in Oakland were wrong in their approach to Regulation 8.

The vagueness of the impact of Regulation 8 to the Administrator and the onward purchasers continues to concern practitioners.

If this or any other issue is of interest to you contact the author at brendan.obrien@breezeandwyles.co.uk

The Employer's Traps and Other Tips

1. Part-Time Workers

Apparently, as a result of the recession, an increasing number of people are now working part-time. You may be aware that part-time workers are protected in law from discrimination under the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000. As an employer, you should be familiar with these and if not, take advice.

2. TUPE Transfers

Remember that particular care needs to be taken in a transfer situation to avoid claims for breach of the Regulations and/or constructive or automatic unfair dismissal. The TUPE Regulations remain a minefield, so it is always best to take advice.

3. Retirement Age

Although the default retirement age will be phased out, at the moment the statutory procedures for employees approaching retirement still apply and it is very important that these are followed to avoid a claim of unfair dismissal.

What's in the Pipeline?

1. Default Retirement Age to be phased out

The Government has announced details of how it will remove the default retirement age of 65 which is permitted by the Employment Equality (Age) Regulations 2006. It proposes to begin phasing out the DRA from April 2011. The proposals are subject to a consultation, which will run until 21st October 2010. The key proposals are:

· Retirements under the DRA will cease completely on 1st October 2011 and no new notices of intended retirement may be issued after 6th April 2011

· Retirement dismissals will still be permissible after 1st October 2011 but only if objectively justified.

· Transitional arrangements will apply to retirements that have been notified before 6th April 2011 to take effect before 1st October 2011.

Watch this space for up-dates.

2. National minimum wage increase

From 1st October 2010 the following changes to the national minimum wage will take place:
· The age from which the principle rate becomes payable falls from 22 to 21;

· For workers aged below 18 who have ceased to be of compulsory school age, the rate increases from £3.57 to £3.64 per hour.

· For workers aged 18 to 20 the rate will rise from £4.83 to £4.92;

· The principle rate (ie. for those aged 21 and over) increases from £5.80 to £5.93 per hour.

There will also be a national minimum wage at the rate of £2.50 per hour for apprentices who are employed under a contract of apprenticeship or who are engaged under certain government arrangements in England, Scotland, Northern Ireland and Wales.
Accommodation rate: the amount permitted to be taken into account where accommodation is provided to the employee rises from £4.51 to £4.61 per day.

3. Consultation on right to request time off to train

Since 6th April 2010, workers in businesses with more 250 employees have had the legal right to request time off to carry out relevant training. This right is now being reviewed as part of the Government’s aim of reducing the regulatory burden on businesses. Consultation will be carried out on this, closing on 15th September 2010. As part of this process employees, businesses and other interested parties will be asked for their opinions on the right to request time off to train.

Constructive Dismissal and TUPE Transfer

Employees employed by a building society who transferred under TUPE to the Nationwide Building Society resigned and brought claims of constructive unfair dismissal. They cited various fundamental breaches of contract and other detriments as reasons for their resignations, and also breach of the implied term of mutual trust and confidence. They argued they had been constructively and unfairly dismissed for reasons related to a transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006. The EAT upheld the Tribunal’s decision that the employees were dismissed constructively and by operation of Regulation 4(9) of the TUPE Regulations. (Nationwide Building Society v Benn and Others)

No joy on retirement for partners in law firm

Another partner in a law firm has had a go at challenging the Employment Equality (Age) Regulations 2006 which not only provides a default retirement age for employees of 65 but also prohibits unjustified age discrimination in partnership (where the members are generally self-employed). However, the crux of the issue lies in the word “unjustified”. The Court of Appeal in this case has upheld the decision of the Employment Appeal Tribunal (EAT) that the compulsory retirement of 65 for partners was potentially justifiable by reference to the partnership’s workforce planning aims. The firm’s defence was that of objective justification, arguing that the firm had legitimate aims: ensuring that senior solicitors were given the opportunity of partnership; facilitating partnership and workforce planning; creating a congenial and supportive firm culture by limiting the need to expel partners by way of performance management.

Although the EAT considered that this last aim was discriminatory because it was based on a discriminatory stereotype that partners’ performance tends to drop at 65, the two remaining aims were legitimate and the EAT remitted the case to the same tribunal to consider the question of justification by reference to legitimate aims. The partner, Mr Seldon, appealed to the Court of Appeal on various grounds. This was rejected. (N.B. – please see the What’s in the pipeline section). (Seldon v Clarkson, Wright and Jakes)

Multi-millionaire divorce sparks law change branded a cheat’s charter

Divorcing couples will no longer be able to use illegally obtained evidence of their former spouse’s assets, following a controversial Court of Appeal decision, which has already been branded a cheat’s charter.

The ruling follows a divorce case surrounding the multi-millionaire owner of Del Monte foods and overturns the longstanding practice in the Family Courts, known as the Hildebrand Rules, which said that a spouse could obtain and use documents belonging to the other spouse without their consent, provided no force was used and that possession was disclosed within certain time limits.

But following the latest case, Imerman v Tchenguiz, the Court of Appeal has stated decisively that obtaining information in this way consists of a breach of confidence and is therefore illegal. They concluded that the Hildebrand Rules were bad law and in future any such information cannot be accepted by the courts.

Lisa Tchenguiz was the Iranian-born wife of South African millionaire Vivian Imerman, who made a fortune as the owner of Del Monte foods and the Whyte and Mackay whiskey brand.

When their marriage broke down, Ms Tchenguiz’s brothers, with whom Mr Imerman shared offices and an IT system, barred him from the office building and downloaded a large number of his computer files relating to finances and assets. They handed these files to their solicitor, who in turn handed them to Ms Tchenguiz’s solicitors.

Mr Imerman went to court to ask for an order that the information contained in the files should not be used in the divorce proceedings, because it had been obtained in breach of confidence.

The judges in the Court of Appeal recognised that “lack of candour on the part of spouses determined to conceal the true value of their assets from the courts was a very real problem” but said that the remedy was not in illegal self help, but through the powers of the court to grant orders for search, seizure, freezing, coupled with the fact that the court would take a severe view where a spouse would not give full and frank disclosure. But this approach has been condemned by divorce specialists.

Said family law specialist Olive McCarthy of Breeze and Wyles Solicitors in Hertford: “This judgment has been very badly received by many family law practitioners, and already been described as a charter for cheats. The Court of Appeal admits that dishonesty is a real problem in the family courts, yet they are suggesting remedies that have evolved in the commercial courts and would be impossibly expensive for ordinary people.

“Whilst the high value cases will be able to afford to pursue disclosure through the courts, it is likely to make it much harder for people in everyday divorce cases to get a fair result. These everyday cases are not about ex-spouses seeking millions in settlement, they’re often about a single parent trying to secure support for their children from an unwilling ex-partner.”


Content note:
This is not legal advice; it is intended to provide information of general interest about current legal matters.

Unfair double taxation is under the EU spotlight

EU Commission launches consultation on ways to tackle cross border inheritance tax obstacles within the EU.

European property owners are amongst those now waiting to hear the outcome of a consultation by the European Commission that aims to tackle unfair cross-border inheritance taxes levied by member states which can leave families paying taxes twice.
The solicitors in the Private Client Department at Breeze & Wyles Solicitors believe that an EU wide protocol should simplify matters and cut costs. This has been a growing problem as the EU expanded and we hope that this review will finally pin down where the main inheritance liability arises and allow tax paid in other EU states to be set against this primary liability. But even if the final outcome of the consultation is that no tax is saved, greater simplicity will reduce costs for the ordinary citizen.
The Commission has called for the review to tackle three main concerns, with a view to establishing an EU wide protocol to determine what tax is paid by whom in each state.
Firstly, the inheritance tax rules applied by member states often impose higher levels of tax on the estates of citizens who lived in other member states or who owned assets in other countries. This runs counter to the EU rules on free movement of capital and a number of inheritance tax disputes have been successfully referred to the European Court of Justice since 2003 on these grounds.
Secondly, there can be instances of multiple taxation when a person dies, because some states tax the estate of the deceased, as happens in the UK, but other states tax the beneficiary. Although double taxation can be avoided when there is an agreement between states, currently there are only 33 double taxation agreements between EU states out of a possible 351.
Thirdly, the Commission is concerned that these problems are discouraging EU citizens from exercising fully their right to move, and own property, freely within the EU.

Web site content note:
This is not legal advice; it is intended to provide information of general interest about current legal issues.

Breeze & Wyles Solicitors LLP supports Hertfordshire County Council in its bid to create LEP

Breeze & Wyles Solicitors LLP is pleased to confirm its support along with other businesses within Hertfordshire for the proposal presented by Hertfordshire County Council to the Department for Business Innovation and Skills and the Department for Communities and Local Government to create a Local Enterprise Partnership.

Should Directors Control Appointment of Liquidators?

There has been some debate on various forums about the need or not for Directors to be involved in the appointment of a liquidator in respect of the insolvency of their company. By referring to insolvency this article excludes members voluntary liquidations where the company remains solvent and able to pay its debts up to the date of closure. In those circumstances, it is accepted that no party with an interest in the outcome is likely to be prejudiced by the liquidation and as a result the appointee should be appointed by the Directors to ensure a stable and seamless wind down of the company's business at a cost efficient price. In these cases it is invariably the case that price is the determining feature of the appointment. Where a member has a problem with this they have added protection by way of a derivative action.

On the other hand, an insolvent liquidation should provide the parties who interests are diminished with sufficient protection but more inportantly a right to ensure that the pre-liquidation management of the Company did not prejudice their interests.

The provisions in rule 4.70 of the Insolvency Rules 1986 are clear and indeed are restated by the court in Power -v- Petrus Estates Limited [2008] All ER (D) 319 (Oct).

"A liquidator should not be a person, nor be the choice of a person, who had a duty or purpose which conflicted with the duties of the liquidator. More specifically, the liquidator should not be the nominee of a person against whom the company had hostile or conflicting claims or whose conduct in relation to the affairs of the company was under investigation. The facts of the instant case, even if PEL’s vote was eliminated entirely, the outcome of the meeting would not have been affected. That was a strong reason for not summoning a new meeting. The applicant’s assertion that if PEL’s vote had been disallowed, the decision of the meeting would have been different was manifestly wrong. It followed that the basis on which the applicant had supported his application was manifestly without foundation. Further, the applicant’s purpose in seeking to persuade creditors to appoint a liquidator of his own choice went against the principles that governed the choice of a liquidator and conflicted with the duties of the liquidator, which were to minimise both his own liabilities for the debts of the company, and to defend his own conduct vis-a-vis the company. The applicant was a person against whom the company had hostile claims, and a person whose conduct in relation to the affairs of the company was under investigation. In those circumstances, it would be wrong if the liquidator was to be a person chosen by the applicant. Accordingly, there was no real prospect of the court ordering a new meeting to be summoned.judge had been entitled to strike out the application as serving no useful purpose, and as having no real prospect of success."

We think that there is no further addition to the debate. The courts interpretation in this matter is exceedingly clear and sees to protect the interests of those parties whose interests in the business (Company) have been diminished by the Liquidation.

Where next for respossession levels?

On thursday of last week the Council of Mortgage Lenders reported that the number of properties taken into possession by first-charge mortgage lenders fell to 9,400 in Q2 2010, down from 9,800 in the first quarter this year and 11,800 in Q2 2009.

CML director general, Michael Coogan, said: "Mortgage difficulties have so far been contained at lower levels than we expected at the start of the year, and by comparison to the 1990s recession."

"However, the safety net for borrowers is weakened by the prospect of higher interest rates, a possible rise in unemployment, a counter-productive stigma hanging over mortgage payment protection insurance, uncertainty over future debt advice funding, reduced government support for mortgage payments, and mortgage rescue schemes being reviewed as part of the deficit reduction plan."

"While we don't want to cry wolf, it seems obvious that the ongoing prognosis for arrears and possessions is far from a healthy all-clear. We hope the coalition government will not risk undermining the chances of extending the welcome trends this year by removing support mechanisms that work."

On the other hand the eresearch from Porperty Portfolio Research states that the number of distressed homeowners looking to sell their property in Q2 2010 has shot up 12% since last year as the mortgage famine worsens. Nick Hopkinson, director of Property Portfolio Rescue, said:

“The latest Distress Index data highlights a significant shift in market sentiment and is a lead indicator of the mood swing away from positivity within the overall housing market. "

“Our seller enquiries have dramatically increased year-on-year which directly correlates to buyers losing confidence in the market and their own future financial security following the election result, the inevitable cuts and tax rises to come and the ‘austerity Britain’ we are all now getting accustomed to. "

“The mortgage famine is getting worse. Homebuyers need a perfect credit rating, huge deposits and are already being charged more than ever for loans as the lending banks struggle to repair their balance sheets."

PPR has estimated that the number of possessions in 2010 will exceed 45,000, up 6,000 from the CML estimate.

How do Lenders and Home Owners Prepare for the future?

Eric Stoclet, managing director of Crown Mortgage Management, said: "A decline in arrears and possession numbers is positive news, particularly given the current economic climate. However, despite the CML’s decision to revise down its forecasts for borrowers losing their homes in 2010, the outlook beyond 2010 is far from clear."

The market is extremely uncertain and with the unknown impact on inflation by the process of quantative easing, the medium term view on interests rates and the impact that this will have on affordability is equally unclear.

Statutory Demands: What Constitutes a Genuine Dispute requiring Resolution?

It is accepted that the use of Statutory Demands in debt recovery is fraught with traps for the unwary. The Courts have in the past held that there must be no genuine dispute between the parties that would make litigation rather than the nuclear option of insolvency the appropriate course of action. This has been supported in the judgment given in the case of CROSSLEY-COOKE V EUROPANEL (UK) LTD [2010] EWHC 124 (Ch).

The Facts

The appellant in this case, appealed against a decision of a lower court rejecting his application to set aside a statutory demand served on him by the respondent in respect of an alleged debt.
The debt related to a number of unpaid invoices in respect of materials allegedly delivered by the respondent to the appellant in 2008. There was a dispute as to whether the appellant had actually placed the orders and as a result he refused to pay for the goods because, although he had an account with the respondent, another business on the same industrial estate had placed the order and to whom the deliveries had been made. That business had since ceased trading. Copies of the invoices had been sent to the appellant (who raised no objections at the time) and a representative of respondent later attended at the appellants address to seek payment. As a result of that visit the appellant wrote a cheque and handed it to the representative, but with the written qualification on it that it required confirmation before it was paid it into the bank. The cheque was later stopped.

The court was presented with various potential sets of facts as to how that situation might have come about. One possibility was that he may have ordered the materials through his account for use by this other business, or alternatively the materials may have been ordered by the other business using the appellant's account details without 's knowledge. If the former hypothesis was correct he would be liable and would have to look to the other business for reimbursement. If the other hypothesis was correct he would not be liable.

It was held that:

the appeal would be allowed with the statutory demand being set aside.
(1) This was a true appeal and the appellate court should be reluctant to intervene with the lower courts's ruling unless the lower court had applied the law incorrectly or erred in principle. Union Bank (UK) plc v Pathak [2006] EWHC 2614 (Ch) applied.
(2) There was a genuine triable issue here for the purposes of r 6.5(4) of the Insolvency Rules 1986 - the lower court had applied too strict a test in dealing with the appellant's contentions. It was not a question of looking at the balance of probability and it was not appropriate to conduct a mini trial at that stage. There was sufficient uncertainty in the circumstances to raise doubt as to the appellants indebtedness. Without expressing a view as to which of the alternative hypotheses might be more credible, the onus was on the respondent to commence proceedings to have them tested at full trial.

When looking at the facts any number of situations could have given rise to the debt. Even though and objective observer is more likely to favour the creditor, there is still a chance that the debtor's statement if the facts were accurate. Even the fact that a cheque was presented and then stopped was not sufficient to provide the respondent with a strong enough counter argument that there was no genuine dispute.

So in effect, it is only safe to use a Statutory Demand where there is a liquidated sum outstanding and it cannot realistically be denied that the debt is owed.