17. Corporate rescue Flashcards
What are the 2 rescue mechanisms?
- Company Voluntary Arrangement
- Administration
Should strike a balance between desire to rescue company and rights of creditors.
What is the purpose of administration?
Insolvency Act, Schedule B1, para 3(1) provides that the administrator of a company must perform their functions with the objective of:
- rescuing the company as a going concern; or
- achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration); or
- realising property in order to make a distribution to one or more secured or preferential creditors.
These three objectives are collectively referred to as “the purpose of administration”
What are the three methods of appointing the administrator?
- Administrator can be appointed in three ways:
- by the company or directors
- by a qualifying floating chargeholder
- by court order
What are the effects of administration?
- Depending on the method of appointment, any pending winding up petition will be dismissed or suspended;
- Any administrative receivers will vacate office
- There is a moratorium on insolvency proceeding and certain other legal processes;
- Directors’ powers are suspended;
- The business documents and websites must state it is in administration
What is a pre-pack?
Statement of INSOLVENCY Practice, paragraph 1 defines pre-pack as “arrangement under which the sale of all or part of co’s business is negotiated with a purchaser prior to the appointment of an administrator and the administrator effects the sale immediately on, or shortly after, appointment
When will be company cease to be in administration?
The company ceases to be in administration when the administrator’s appointment ceases which can occur in a number of ways.
What is a CVA?
A company voluntary arrangement (CVA) is an insolvency procedure that allows a company to enter into binding arrangement with its creditors.
Who can propose, and act as nominee for, a CVA?
The process of implementing a CVA begins with a proposed arrangement between the company and its creditors. A proposed CVA comes from:
- Companies’ Directors
- Co’s administrator, if the co is in administration
- Co’s liquidator, if the co is in liquidation.
How is CVA approved?
The proposed CVA needs to be approved by the co and its creditors.
- Re co’s approval: the nominee must invite the co’s members to a meeting to consider the proposed CVA. The members, who must be provided with at least 14 days notice of the meeting will approve the proposal if the majority of them vote in favour of the proposal (IR 2016)
- Creditors will approve the proposal by way of qualifying decision procedure (AI 1986) and the details of the procedure will be determined by the nominee (IA1986). Alternatively, “the deemed consent procedure” can be used, under which the proposal will be approved unless 10% of the creditors in value object to the proposal.
When will a company be eligible for CVA with a moratorium?
A CVA with moratorium is currently available to small companies (gov plans to abolish moratorium)
What are the effects of the moratorium?
While the moratorium is in effect:
- no petition may be presented to wind up the company, no resolution may be passed to wind up the company
- no meeting of the co can be called, except with the consent of the nominee or the leave of court
- no administrator can be appointed by the company, its directors or by qualifying floating chargeholder, nor can an administrative receiver be appointed,
- no other steps may be taken to enforce any security over the co’s property, or to repossess goods in the co’s possession under any hire-purchase agreement, except the leave of the court and subject to such terms as the court may impose
