www.bifa.org


Policy & Compliance


no provision for a secured creditor to seek permission from the ‘monitor’ (see above) to enforce its security. The only formal recourse available is to seek permission from the court. Often parties will be reluctant to incur the time and cost associated with a court application where the sums at stake may be relatively modest. However, we expect that applications will be made and it will be interesting to see whether the courts’ approach is consistent with the past or whether the balance is tipped more in favour of the struggling company when seeking to reconcile the interests of secured creditors and debtors. Finally, it is worth noting that if the customer consents to the


lien being exercised, it is difficult to see that the court would intervene, but the Act does not expressly set this out as an option to the parties.


Practical advice Until further clarification is provided by parliament or the courts in terms of how the Act is intended to apply to liens and other forms of security, it will remain uncertain as to whether the rights of lien holders will be upheld where a moratorium is in place. In the meantime, our practical advice is: • If a customer defaults on payment and the carrier has a right of lien, the carrier should give notice that it is exercising a lien as soon as the payment becomes overdue. It should not wait.


• If a carrier exercises a lien before a moratorium takes effect, this may assist when later seeking permission from the court to continue to exercise (enforce) the lien.


• However, as discussed above, provided the right of lien pre-existed the moratorium (as it does under BIFA STC), the courts in the past have generally supported the lien holder’s rights and given permission for a lien to be exercised.


• Neither carrier nor customer will want to incur costs disputing the validity of a lien, so they


BIFAlink


remain a useful tool when a carrier has possession of goods, albeit that a lienholder’s rights under the Act remain, for the time being, uncertain.


Termination of contracts Another effect of the Act is that carriers will no longer be entitled to terminate a contract for the supply of services due to a customer’s insolvency, pursuant to the type of contractual provision that previously would have allowed them to do so. The moratorium procedure set out above will be included among the circumstances where termination of a contract is not allowed. Note, however, that a carrier will still be able to terminate a


contract for reasons other than the onset of insolvency proceedings, if provided for in the contract. Contracts can also be terminated with the company’s consent (or that of the administrator or liquidator in formal insolvency proceedings). Finally, a carrier will be entitled to apply to court for permission


to terminate the contract if the continued supply of services will cause it hardship.


Practical advice • Where contracts take the form of one-off bookings, the effect of this change in the law should not be too drastic. The carrier may have to complete the journey and deliver the goods but will then be under no duty to enter into further contracts with the customer.


• If there is a longer-term contract in place for the supply of services, with doubts in respect of the customer’s financial viability in the short to medium term, it may be in the interests of the carrier to consider terminating or renegotiating now, before the Act comes into force, if it can. This will need to be considered on a case-by-case basis with a careful review of the relevant contractual terms.


• In relation to future contracts, parties should review the termination provisions to ensure they comply with the law whilst maximising the protection they afford within the restrictions of the new regime.


BIFA notes that the new legislation has been


generally well received by the legal profession, but has specific concerns relative to the exercising of liens for companies who have obtained a moratorium. In addition, there are significant differences between the payment and charging structures for international trade, which we do not think have been sufficiently considered when framing and passing the Act. Members will be kept advised of significant


developments.


BIFA would like to thank Birketts Solicitors for allowing the reproduction of their article.


11


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20