17 - Corporate Rescue - barely comes up! Flashcards
5 effects of company’s financial collapse (on stakeholders)
- Shareholders lose value
- Employees lose jobs
- Creditors may go unpaid
- Suppliers’ lose business
- Local or national economy might even be affected
4 types of rescue mechanisms
- Administration
- CVA (company voluntary arrangement)
- Pt 26A restructuring plan
- Moratorium
Very briefly, what is an ‘administrator’ appointed to do?
Manage the company’s affairs, business and property
Objectives of an administrator - known as ‘purpose of administration’
(1) - Rescue company as a going concern;
(2) - Achieve a better result for company’s creditors than otherwise; or
(3) - Realising property in order to make distribution to secured/preferential creditors
What is the most common outcome of administration? (out of 3 objectives)
Objective (2) - achieving a better result for the company’s creditors then otherwise
Three limitations on appointment as administrator
- Administrator must be a qualified insolvency practitioner
- Cannot be appointed administrator if company already in administration
- Cannot be appointed administrator if company already in liquidation
Three ways by which administrator can be appointed
- By company (ordinary resolution) or its directors
- By qualifying floating chargeholder
- By court order
Requirement for floating charge to qualify chargeholder to appoint administrator (2)
- Charge instrument states that chargeholder can appoint administrator; and
- Charge (or charges) cover the whole of the company’s property
Administration order can only be made by the court if an application is made by specified persons, being: (6)
- Company, directors, or creditors
- Supervisor of a CVA
- Liquidator
- FCA
Court will only make administration order if which 2 conditions are met?
- Company unlikely to be able to pay its debts
- Administration order is reasonably likely to achieve purpose of administration
7 effects of entering administration
- Dismissal of winding up petitions
- Dismissal of receivers
- Moratorium on insolvency proceedings
- Moratorium on other legal proceedings
- Interim moratorium
- Suspension of managerial powers of directors (unless consent of directors obtained)
- Publicity
What must administrator do within 8 weeks?
Make a statement setting out proposals for achieving the purpose of administration
What must administrator do within 10 weeks?
Seek a decision from the company’s creditors as to whether they approve the proposals
Administrator need not seek decision of creditors after 10 weeks if: (3)
- Co has sufficient property to pay each creditor in full;
- Company has insufficient property to enable distribution to be made to unsecured creditors; or
- First two purposes of administration cannot be achieved
2 methods which can be used to determine whether creditors approve administrator’s proposals
- Qualifying decision procedure, details of which to be decided by administrator; or
- ‘Deemed consent procedure’, under which proposal is approved unless 10% of creditors in value object
What is the consequence of administrator’s proposals being objected to by ‘deemed consent procedure’?
Decision must be sought by qualifying decision procedure if sought again
Extremely broad powers given to administrator
Being able to ‘do anything necessary or expedient for the management of the affairs, business and property of the company’
5 of the many specific powers of administrators
- Sell or otherwise dispose of property
- Appoint and dismiss employees
- Carry on the business of the company
- Appoint or remove a director
- Call a meeting of the company’s members
What is a ‘pre-pack’?
A pre-packaged administration - Sale of all or part of a company’s business or assets is negotiated with purchaser prior to appointment of an administrator, with sale being effected immediately on or shortly after appointment
Key concern with pre-packs
Creditors have not had chance to approve the sale
3 remedies for fact that pre-packs are not approved by creditors
- Courts state pre-pack only implemented if in interests of creditors
- Justifications must be made to creditors in ‘SIP 16 statement’
- Sale of assets to connected persons more strictly regulated
After how long will administrators appointment cease?
1 year
Two ways in which administrator appointment can be extended
- Administrator applies to court for extension
- Consent provided by each creditor of the company
6 instances where administration will cease
- Administrator applies to court to cease administration
- Administrator thinks purpose has been achieved
- Creditor shows motive for appointing was improper
- Court decides to cease appointment following winding up petition in public interest
- Amounts due to creditors paid or set aside, conversion to creditors’ voluntary winding up
- Company has no property to distribute, company will be dissolved
3 instances where administrator will apply to cease appointment
- Purpose cannot be achieved
- Company should not have entered administration
- Creditors have made application under Schedule B1, para 79
What is a CVA
An insolvency procedure, where a company enters into a binding agreement with its creditors to try to rescue the business
Who can propose a CVA?
- Directors (if not in admin or liquidation)
- Administrator
- Liquidator
What does a ‘nominee’ do in a CVA?
Supervises the CVA
Who is usually the ‘nominee’ of a CVA?
Administrator or liquidator
What must the nominee do initially? (CVA)
Seek a meeting of the company’s creditors, and a decision as to whether they approve the proposal
2 methods which can be used to determine whether creditors approve CVA
- Qualifying decision procedure, details of which to be decided by administrator; or
- ‘Deemed consent procedure’, under which proposal is approved unless 10% of creditors in value object
Other than creditors, who may have to approve CVA, why?
Company’s members (by majority in value), if the nominee states consideration of company is required
Application to challenge CVA can be made if within what time frame?
28 days of report of meeting being given to the court
2 grounds on which CVA can be challenged
- CVA unfairly prejudices interests of creditor, member or contributory of company
- Material irregularity at or in relation to meeting of the company, or the decision procedure
Why is a CVA considered rather fragile in comparison to administration?
CVA does not come with statutory moratorium, and can therefore be frustrated by appointment of receiver or winding up order
When was a free-standing moratorium implemented?
By the CIGA 2020
Who is appointed when a company obtains a moratorium?
A person known as the ‘monitor’
What is the purpose of the ‘monitor’?
Monitor company’s affairs for the purpose of forming a view as to whether it remains likely that the moratorium will result in the rescue of the company as a going concern
How is a moratorium obtained?
Filing relevant documents with the court (UK registered and not subject to winding-up petition), otherwise by making application to court
How long does the moratorium last?
20 business days (unless extended or terminated early)
Most significant of number of activities prohibited during moratorium
Insolvency proceedings generally cannot be brought against the company
