The Commercial List of the
The order, granted on
Legal Innovation
Traditionally, utilizing a reverse vesting order required the existence or creation of a corporation into which the unwanted assets were transferred and related claims were channelled. In a receivership, the ability to create a new corporation and the related governance and ownership considerations are somewhat problematic and certainly would not be easily recognized by a court as being within its accepted discretionary authority. However, a court certainly has the jurisdiction to create a trust by order. Therefore, instead of a new corporation, the motion in Vert sought to create a trust into which the assets and claims would be transferred with the receiver becoming the trustee of the trust.
Decision
In granting the order, the Court issued an endorsement, finding that the transaction was designed in a practical manner using judicial tools available to the Court - specifically, a vesting order, claims channelling and the creation of a common law trust - all for the benefit of Vert's creditors.
Consequences
Reverse vesting orders were previously thought to be possible only in proceedings under the Companies' Creditors Arrangement Act; however, this decision confirms that reverse vesting orders can be obtained in receivership proceedings with the appropriate structure. This decision provides insolvency professionals with additional flexibility in structuring sales and reorganizations with potential purchasers and insolvent businesses, allowing them to monetize previously unmonetizable assets and maintaining potentially valuable attributes of the corporate debtor, which, until now, have been lost in bare asset sales. It also demonstrates a court's willingness to work with counsel to come to creative solutions within insolvency proceedings to the benefit of creditors generally.
Footnote
1. Davies is acting for KSV in its capacity as receiver of Vert.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
M5V 3J7
Tel: 4168630900
Fax: 4168630871
E-mail: info@dwpv.com
URL: www.dwpv.com
© Mondaq Ltd, 2021 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source