LexisNexis Corporate Rescue and Insolvency: Case Alerter – January 2025

At-a-glance case summaries provided by the Gatehouse Chambers’ Insolvency Team, featuring:

• Re Speciality Steel UK Ltd [2024] EWHC 3355 (Ch)
• Re Farfetch Limited (in liquidation) [2024] EWHC 3340 (Ch)
• Flohr v Frontiers Capital I Ltd Partnership (acting by Frontiers Capital General Partner Ltd) [2024] EWCA Civ 1385

Read the latest CRI Cases Alerter authored by Amanda Eilledge, Jaysen Sharpe and Emily Husain below.

Re Speciality Steel UK Ltd [2024] EWHC 3355 (Ch)

This was the adjourned hearing of an application by Specialty Steel UK Limited (the Company) for an order to convene six meetings of classes of creditor (the Plan Creditors) to consider a proposed restructuring plan (the Plan) under Pt 26A of the Companies Act 2006.

The application was adjourned to enable the Company to address concerns raised on behalf of a group of Plan Creditors (the Greensill Creditors). Their Counsel submitted that the Plan was fundamentally flawed, principally because its effect was to write off the debts owed to Greensill Creditors, dissolve all their security (including first-ranking security), and reallocate the resulting free assets to the shareholders now freed of any charge, for no consideration.

There had then been negotiations between the Company and the Greensill Creditors resulting in suggested modifications to the Plan to address their concerns. Accordingly, at the adjourned hearing, the Greensill Creditors’ did not oppose the convening order, albeit they did not yet approve the Plan and their support was critical to the Plan’s success.

HELD

Hildyard J granted a convening order, even though there was “a possibility, if not an expectation, that further amendments will have to be made to the [Plan]”.

He made a number of observations of general application.

• Granting a convening order when the proposed plan may be amended should be confined to exceptional cases. One of the factors in this case was the concern of all that if the convening order was not made now but awaited the final proposal, the perception amongst those dealing with the Company may be that the Plan was unlikely to succeed; that could foreclose any chance of a Plan at all if interested parties, including critical creditors, decided not to deal with the Company.
• Whilst a court could review changes to a plan occurring between the convening hearing and the meetings, in most cases it would be impossible for the court to sanction changes to a plan that had occurred after the meetings had taken place.
• A proponent of a plan, even in urgent circumstances, should prioritise engagement with its creditors, and especially those with substantial interests likely or provisionally proposed to be adversely affected. It was regrettable that the Company had not engaged with the Greensill Creditors from the outset.

Re Farfetch Limited (in liquidation) [2024] EWHC 3340 (Ch)

THE FACTS

Farfetch, a Cayman Islands company was wound up on 9 February 2024 by the Grand Court of the Cayman Islands and the liquidation was recognised by the English High Court on 20 May 2024.

The Joint Official Liquidators (JOLs) sought relief under Art 21 of the UNCITRAL Model Law on Cross-Border Insolvency owing to their concern that Farfetch may have been seriously mismanaged by senior management prior to the sale of all the company’s assets to Surpique LP.

The liquidation resulted in $1bn of intercompany loans owed to Farfetch being “effectively written off”. The JOLs sought to investigate the circumstances behind the sale, why such a rapid deterioration in Farfetch’s finances occurred, what attempts were made to market the business or part of it before the sale to Surprique, and to question individual officers of the company.

The respondents objected, alleging that they were willing to provide substantive written responses of written requests but would not do so without the agreement of or imposition by the court of confidentially restrictions. The basis for this objection was a suspicion that information obtained by the JOLs would be provided to loan note creditors, some of whom were represented on the Liquidation Committee. The JOLs argued this was unnecessary as Cayman law provided for confidentiality and restricted its use to the purposes of the liquidation, and that they could not agree to anything which might contrate their duties.

HELD

In considering whether to grant relief, the court needed to be satisfied that the interests of the creditors and other interested persons, including if appropriate the debtor, are adequately protected. The court also had regard to the principles on which the court will exercise its powers under ss 236 and 366 of the Insolvency Act 1986.

The court held that although “not strictly necessary”, there was “a benefit, and no real difficulty” in ordering the JOLs and the Liquidation Committee to acknowledge the confidentially obligations. On the basis that no good reason had yet been provided by the JOLs for oral examination as opposed to written responses, the court held it was premature to order an oral examination and there was “no good reason to balance against the potential for oppression”. If the responses were inadequate, “a time may come when the JOLs may be able to demonstrate that an oral examination is appropriate”.

The court remarked that, in particular “it would be most unfair” to order oral examination where the JOLs suspected mismanagement and wrongdoing “without being able to provide to them what documentary evidence the JOLs may be able to acquire”. One respondent challenged the application on the basis that he was resident outside of jurisdiction in Brazil, this aspect of the hearing was adjourned.

Flohr v Frontiers Capital I Ltd Partnership (acting by Frontiers Capital General Partner Ltd) [2024] EWCA Civ 1385

SUMMARY

This was an appeal against the decision of Master Brightwell that the respondent limited partnership could bring a claim against the appellant acting by its general partner. The Court of Appeal determined that a general partner of a limited partnership governed by the Limited Partnerships Act 1907 (LPA 1907) had standing to bring proceedings against a third party on behalf of the partnership, even after the dissolution of the partnership and even where the cause of action arose before the dissolution.

While this case concerned a limited partnership governed by the LPA 1907, it is of wider relevance to partnership law generally because s 7 of the LPA 1907 provides that the Partnership Act 1980 (PA 1980) as well as the rules of equity and common law apply to limited partnerships.

JUDGMENT

The Court of Appeal confirmed that whether s 38 PA 1980 will permit a partner of a dissolved partnership to pursue claims post dissolution “is, inevitably, fact-sensitive”.

The court affirmed Master Brightwell’s judgment that:

• a cause of action against a third party which accrued to the partnership before dissolution, which is not pursued or realised or dealt with by assignment, remains a partnership asset after dissolution; and
• that realising such an asset remains one of the affairs of the partnership even if the person carrying out the winding up mistakenly believes that the winding up has been completed.

The court explained that the question of what is “necessary” to wind up the affairs of the partnership is fact-sensitive and gave some helpful guidance on factors to which it would have regard in deciding this. While the relevant considerations are not circumscribed, the court held that specific examples given of relevant considerations would include having regard to the prospects of success and cost-effectiveness of proceedings: launching litigation with very dim prospects, for example, is unlikely to be considered necessary to a winding-up.

The court held that in the circumstances, these proceedings were necessary to wind up the partnership affairs within the statutory provision, because pursuit of the pre-dissolution cause of action was “reasonably required” to fully wind up the partnership’s affairs. “Necessary” should be straightforwardly interpreted to mean what is reasonably required in the circumstances, rather than as imposing any higher burden.