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Annual Conference 2014 - an intellectually stimulating and varied programme

09/04/14

Two members of the Court of Appeal, one Chancery judge, an IMF economist and a strong international presence amongst our speakers were bound to make this year's annual conference, held amidst the dreaming spires of Oxford, both intellectually stimulating and wide-reaching.

Lady Justice Gloster set the scene with a scintillating introduction into what was in store for delegates during the course of the day, highlighting the varied nature and topical programme which promised to educate all. 

Narayan Suryakumar of the IMF opened the technical programme with a talk on the risks and challenges on the path to stability across the US, the Eurozone, emerging markets and Japan.   Rendering macro-economic concepts understandable to an audience of lawyers, Narayan's presentation ranged from the continued heavy dependence on Federal Reserve liquidity, the significant increase in leverage in the high yield sector, via the significance of the shadow banking system in China and continued fragmentation in the banking sector across the Eurozone, to the outcome of inflationary stimulus by the Japanese Central Bank.   

William Trower QC and Barry Isaacs QC then took delegates back to the more familiar world of insolvency - or was it ? They spoke about the recent challenges presented by the Lehman waterfall decision and issues that have arisen in circumstances where the administrators have found themselves in an unusual and unexpected situation of dealing with an unlimited liability company  with a surplus    The Right Hon Mr Justice David Richards had delivered his judgment just a week before and  was also present at the conference to hear what they had to say after having spoken at the Academic Forum on the subject of schemes of arrangement on Friday.  It was noted that no other previous case had addressed such a broad range of difficult and important insolvency and company law issues.  Of the no fewer than 21 issues in the agreed statement of facts in the case, the speakers took delegates through currency conversion claims, whether subordinated debts rank behind non-provable debts and statutory interest, post-administration contractual interest and the application of the contributory rule to administrations.

Colin Blessley of our Sponsors, Menzies business recovery and mr3 turnaround, took us through a case study of Menzies' successful turnaround of a South American soft drinks bottling group.  In a true grass roots exercise, Colin personally visited numerous bars in Colombia to assess the products' retail profile and the competition. Colin's talk emphasised that it is sometimes the most obvious issues which are missed or overlooked by management, which professional turnaround specialists can identify and resolve. In the case in point, this included identifying loss-making products, reducing previously overpaid employee social security contributions, changing the bottles to ensure that they remained fresh and attractive to the consumer through numerous recyclings, and rationalising logistics at all stages of the supply chain.

The next session, "Rat Pack or Brat Pack", saw the audience serenaded by Mark Phillips QC to the tune of "Come fly with me" and Mike Jervis of PWC and Peter Cranston of Eversheds photo-shopped next to Tom Cruise.  There was a serious point to all this, as, at a time of renewed focus on  pre-packs, the panel, with the benefit of their wide experience gained over many years, gave us their personal thoughts on, and advanced convincing arguments for, pre-packs. Whilst the few "rotten apples" should properly be subject to review and censure, pre-packs can be, and the panel supported the view that in the vast majority are, a valuable way to preserve value and jobs, and do as a result contribute to the wider economy. There continues to be a confusion with phoenixism, and the benefit of potential political aspirations to give a louder voice to unsecured creditors who would be out of the money on any scenario and imposing increasing burdens on practitioners must be questioned.   

Our first session of the afternoon was a Q & A session with Lord Justice Briggs. The musical theme continued when Lord Justice Briggs (a choral scholar when at university in Oxford) led delegates in a lyrical homage to our chair Lady Justice Elizabeth Gloster. Our president Philip Hertz restored order by moving on to weightier matters, namely developments in schemes since Rodenstock, the SC's decision in Nortel/Lehman and the CA's judgment in Game. Lord Justice Briggs noted the flexibility with which schemes of arrangement had been used in a restructuring context. In the Game decision,  he commented that it seemed to offer  a very practical solution in its application of the Salvage principle.  Generally speaking on the rules on provable debts,  he noted  the new test developed in Nortel  and its potential application to  other types of statutory liability; however he also remarked that  the danger of liabilities falling down a "black hole" is now less likely.  Lord Justice Briggs also shared his thoughts on last year's Chancery Modernisation Review, which he spoke of at last year's conference, pointing out the pressures on resources, and the need for users of the court to make their voice heard to ensure the maintenance of the UK's top flight case management and judicial system.  He also shared how his thinking in the Modernisation Review had been moulded by his experience as case management judge for 3 years on Lehman, which had made him an enthusiast for robust case management and the benefits of parties providing early identification of issues and position statements.  His wish is for the same process and speed to apply throughout the appeals process.

Matters then moved on to a panel discussion on the harmonisation of insolvency laws across the EU, chaired by Felicity Toube QC. The discussion was particularly topical as the Commission Recommendations on a new approach to business failure and insolvency had been issued just 10 days earlier.  The panel consisted of spokespersons for France (Reinhard Damman of Clifford Chance, Paris), Germany (Prof. Stephan Madaus of the University of Regensburg) and Spain (Beatriz Rua, KPMG), who considered in turn the extent to which the Commission Recommendations are already reflected in their national law, as well as omissions from the Recommendation, including directors' duties and avoidance actions.  The discussion ended with a hustings, with each panel member seeking to persuade delegates that their law (to which they added beer, wine and football) was best, the outcome (which may have been subliminally influenced by one of Felicity's slides) of which was a marginal home team win for the UK (Spain a close second), and a general consensus that harmonisation is a long way off.  Felicity highlighted in particular that German law imposing criminal liabilities on directors who fail to file sufficiently "early" would be unacceptable to the English way.

Richard Snowden QC (on his birthday) and Emily Gillett of Erskine Chambers followed with a presentation examining developments in freezing orders against non-cause of action defendants, and considering  piercing the corporate veil following the Supreme Court decision last year in Prest v Petrodel Resources Ltd. The presentation also highlighted the differing approaches in the Commercial and Chancery courts and the need to consider carefully which is more appropriate for a given application.

"Restructuring Hot Topics" was next on the agenda, presented by Tim Bennett of Clifford Chance, Wendy Braithwaite of Allen & Overy and James Watson of Freshfields.   Tim spoke of the impact which the trend for increasing high yield issuances over leveraged debt is likely to have on restructurings, noting in particular that it will interesting to see how the consultation and enforcement provisions of intercreditor arrangements will play out,  and also the extent to which New York law governed bonds  may influence restructurings in Europe.  James followed with   developments in the "sufficient connection" requirement in cross-border schemes, taking us from Rodenstock to Vietnam Shipbuilding, and more recently in Magyar Telecom and Zlomrex. James noted that it remains to be seen how "sufficient connection" might be achieved in other cases, and what the limits to advisors' creativity might be. Wendy finished the session with a presentation on the recognition of English schemes under Chapter 15 US Bankruptcy Code, highlighting differing recent decisions of the US courts (in Barnet and Bemarmara) regarding the requirement for assets in the jurisdiction as a condition to recognition.

The technical part of the day concluded with a fascinating presentation by Peter Bloxham on his review of the special administration regime for investment banks, summarising the conclusions in both of his reports and particular issues, including the impact of MF Global. Peter also gave his thoughts on the legislative process, stressing how essential it is that insolvency and regulatory legislation be properly joined up.      

Lady Justice Elizabeth Gloster, in her closing remarks from the chair, echoed the general sentiment that delegates had been "highly entertained, efficiently instructed, and intellectually challenged" by all our speakers.

The spirit of high entertainment continued in the formal dinner, held in the unique surroundings of Rhodes House, in the course of which Philip, and all assembled delegates, gave thanks to our out-going President, Rita Lowe, particularly for her determined encouragement in fostering closer ties with the academic community.