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
