Europe: the harmonisation of insolvency law

INSOL Europe recently published a report titled Harmonisation of Insolvency Law at EU Law Level: see here (pdf). The report outlines differences between national insolvency laws which create difficulties for companies having cross-border activities or ownership within the EU and identifies areas where harmonisation would be desirable. The report also considers the extent to which the harmonisation of insolvency law could facilitate further harmonisation of company law.

The report contains surveys of the insolvency regimes in the UK, Poland, France, Germany, Spain, Italy and Sweden. References are also made to the law in Belgium and the Netherlands.

UK: England and Wales: wrongful trading and risk taking in the film industry

Judgment was given in Singla v Hedman [2010] EWHC 902 (Ch) at the end of last month. The trial judge found the sole director of a company guilty of wrongful trading under Section 214 of the Insolvency Act (1986), where the director caused the company to enter into an agreement for producing a film where the company had insufficient funds to meet its obligations under the agreement.

One interesting aspect of the case was the director's suggestion (in a witness statement) that his actions were not unusual and that because film-making was risky it was inevitable that creditors would be owed money when film companies failed. This received short shrift from the trial judge, who observed that the director's statement suggested "a remarkably low standard of corporate responsibility in the film industry as being normal. There is however in my view no special low standard for people in the film industry" (para. [105]).

UK: Scotland: winding-up unregistered companies

Lord Hodge, sitting in the Court of Session (Outer House) has ordered the winding-up, under Section 221 of the Insolvency Act (1986), of eleven companies registered overseas but with their principal place of business in Scotland: see HSBC Bank Plc, Re An Order To Wind Up Kirkbride Investments Ltd [2009] CSOH 147. With regard to the exercise of the court's discretion, Lord Hodge observed that the approach adopted by the English courts was appropriate in Scotland. He stated (para. [11]):

There is no recent Scots case law on this issue but I am satisfied that the approach of the English courts is appropriate and I recall that our courts have adopted that approach in applications which have not resulted in written opinions. In similar circumstances Lord Grieve in Inland Revenue Commissioners v Highland Engineering Limited 1975 SLT 203 relied on English case law in his interpretation of the provisions of the Companies Act 1948 in relation to the winding up of unregistered companies and observed that it was desirable that the courts in each jurisdiction should interpret a United Kingdom statute, such as the Companies Act, in the same way. In Marshall, Petitioner (1895) 22 R 697 the First Division used English authority to inform their interpretation of section 199 of the Companies Act 1862".

Australia: Treasury consultations - shareholder claims against insolvent companies + insolvent trading

In Sons of Gwalia Ltd v Margaretic [2007] HCA 1 the Australian High Court held that a shareholder's claim in respect of a loss caused by a company's misrepresentation or defective market disclosure which induced the purchase of shares ranked alongside the claims of unsecured creditors. This proved controversial because it was widely believed that such a claim would rank below the unsecured creditors because it was a claim by the shareholder as a member of the company (in accordance with Section 563A of the Corporations Act 2001).

In December 2008 the Corporations and Markets Advisory Committee (CAMAC) published a report - available here (pdf) - in which it considered the implications of the Australian High Court decision and recommended that it should not be reversed. The Government has, however, taken a different view: in a consultation paper published last week - available here (pdf) - the Treasury announced that it would "amend the law so that it substantially corresponds to how it was generally perceived to be prior to the High Court's decision".

The Treasury has also published a consultation paper setting out a proposal to reform the law on insolvent trading: see here (pdf).