Insolvency Valuations

the speaker
Grant Jones LLM.
Chartered Accountant, Solicitor, New York Attorney, Licensed Insolvency
Practitioner & Special Professor of Laws, Nottingham University .
LinkedIn - (To download the
slides, please go to the dropbox account on my LinkedIn page & to the SSBV
seminars folder & download slides available on this page).
Acknowledgements - (a) Charles Pugh of Bristows (who helped with the
slides) (b) Maureen Kelly of Keystone Law re BBC Worldwide comment
the slides
The two abbreviations I will
use are Intellectual property
Rights (IPR) and Insolvency
Practitioner (IP).
I will not cover know-how, but
perhaps it is the most
interesting IPR.
Intellectual property: introduction
Relevance of intellectual property rights.
 Realisations no longer based primarily on tangible
 Licenses and how to protect your rights.
 Analysis of options and risks.
 Importance of strategy on cross-border basis.
 Importance of licences.
Intellectual property: IPR 4 IPs (& their valuers).
 Software licenses are key to most technology
 Licensor and licensee position compared.
 Risk/opportunity on insolvency.
 Need to consider options and strategies to protect
Insolvency outcomes
Consequences of insolvency: administration.
Moratorium: creditors rights severely
circumscribed by Schedule B1 sections 83-86
Insolvency Act 1986 (as amended), more
• No steps to enforce security unless administrator
or court consents.
• No repossession of goods including retention of
• No right of re-entry.
• No legal proceedings commenced or pursued
unless administrator or court consents.
Importance of the 'pre-pack‘.
Consequences of insolvency: liquidation.
•Secure debtors can enforce their security.
•Proceedings against the liquidated company
cannot be commenced, nor continued without
court leave.
•Right to disclaim.
•Liquidator able to review past transactions.
•Certain transactions are void, i.e. disposition of
company property, transfer of company shares,
Consequences of insolvency: Company voluntary arrangement (CVA).
 Possibility of interim moratorium.
 The CVA represents a binding
statutory contract between the
company and it's creditors.
 Highly flexible tool.
Licenses in insolvency.
No automatic right of termination:
subject terms of the original contract.
Ability of insolvency practitioner to
enforce contract against licensee/licensor.
Risk of insolvency practitioner allowing
registered rights to lapse.
Disclaimer and revisions of licences.
Rights of disclaimer -- section 178 insolvency act 1986 -"unprofitable contract" as "onerous property":
Does this include intellectual property licenses?
Even if it does, does this right prevent use of right? (See
section 178 (4) (b))
Applications are caught using section 181 Insolvency
Act 1986 for transfer of IPR.
What about licenses from government bodies -- change in
the nature or characteristics and content -- Phoenix -- revision
of licence?
Steps in anticipation of insolvency.
 Termination provisions.
 Automatic right of assignment or suspended
 Step-in rights: (a) payment of fees & renewals; (b)
enforcement of infringement of rights.
 Options: (a) to purchase or match terms of
assignment; (b) waiver certain provisions; (c) to take
 Confidential information/source code into escrow.
 Registration of licences notice.
 Security -- guarantees and other protection the risk
of preference.
 Hive down.
Co-ownership rights.
 Assignment.
 Step-in rights. "[t]he right of the customer,
where the supplier defaults, to intervene in one
or more of the supplier's areas of responsibility"
 Option to waive provisions/take control. BBC
• Risk of breach of anti-deprivation rules.
Co-ownership rights.
 Assignment.
 Step-in rights. "[t]he right of the customer, where
the supplier defaults, to intervene in one or more
of the supplier's areas of responsibility"
 Option to waive provisions/take control.
 BBC Worldwide.
• Risk of breach of anti-deprivation rules.
"Termination on insolvency – good news for licensors.
The current economic climate has lead to an increased focus on
insolvency provisions in licences.
An intellectual property licence well drafted in favour of the
licensor will usually contain a provision enabling the licensor to
terminate the licence in the event that the licensee becomes
insolvent. These provisions are particularly important in the case
of exclusive licences where the licensee is the only source of
income from the technology for the licensor.
There has, until recently, been some doubt as to whether such a
provision would be enforceable.
"Termination on insolvency – good news for licensors.
The concern was that it might be “trumped” by insolvency laws
which exist to ensure that creditors are paid off fairly in the event of
A recent Court of Appeal decision has confirmed that a provision
enabling an intellectual property licensor (or any
licensor) to terminate a licence in the event of a licensee’s insolvency
is enforceable and does not breach insolvency laws.
The Court of Appeal decision in question arose out of the highly
publicised collapse of Woolworths.
"Termination on insolvency – good news for licensors.
Woolworth’s subsidiary (called Media) was party to a joint venture
with BBC Worldwide. BBC Worldwide licensed some intellectual
property rights to a subsidiary of the
joint venture company. The licence contained the following
"If [Media] or any parent undertaking of [Media] or (if [Media] is a
member of [the Woolworths group]) [Group], suffers an Insolvency
Event and [BBCW] serve notice in
accordance with the provisions of clause 26.7.1 of the Joint Venture
Agreement (and become unconditionally bound to buy V Shares)
this Agreement shall immediately terminate…“.
"Termination on insolvency – good news for licensors.
The administrators of Woolworths argued that the termination of
the licence under this provision was in breach of the common law
“anti-deprivation rule”.
The Court of Appeal held that the anti-deprivation rule means that
one: “...cannot contract out of provisions of insolvency legislation
which govern the way assets are dealt with in
liquidation.” It found that the termination of the licence based on
the insolvency of the licensee: “does not involve what has been the
property of the insolvent party becoming vested in a third party”,
rather a “limited interest being brought to an end in accordance with
its terms.”
Co-ownership rights.
"Termination on
insolvency – good news for
This is a welcome
clarification for licensors that
a termination provision
triggered by the licensee’s
insolvency will normally be
Acquiring IP from insolvent companies.
• Assets at an undervalue: customer lists and
other intangible assets; Western Intelligence v
KDO [1998] BCC 472
• Valuation of IPR.
• Breakup rights: ‘spin out of restaurant website
to make orders’.
• Analysis of ownership and lack of warranties.
International aspects of IPR upon insolvency.
•Licence provisions:
•Termination provisions: early triggers but beware!
•Step-in rights.
•Willingness to fight for rights; no obligation of fairness
between creditors.
•In short title to IPR assets acquired from the IP.
•Jurisdiction and law of choice.
thank you, as...
save for ........

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