Alternatives to Liquidation Flashcards
What are the objectives of administration?
Rescue the company as a going concern
Achieve a better result for creditors than in a liquidation
Realising property for the benefit of secured or preferential creditors.
What is the most common way an administrator is appointed?
Out of court method by floating chargeholder, when a floating charge becomes enforceable.
When can an Administrative Receiver be appointed?
On charges created before 15 September 2003 only. Any charges after can only be an administrator.
How does an administrator create a plan?
They have 8 weeks to propose rescue plans for approval to a creditors meeting, where creditors vote by value of their debt. If not, it goes to the Courts to decide what is best.
Why do they not sell shares of the company?
The buyer would ‘inherit’ the debt in this case. Rather, the administrator sells the assets.
What is the issues of pre-pack administration?
It structures the sale by finding a buyer ready, and then once the company goes in to administration the deal is completed, without sale on the open market. It is usually the same owners but the unsecured debt is now left behind. The process now has to be more transparent.
What is a moratorium?
Where during an administration, legal proceedings are frozen without special permission from the court.
When is an administrator terminated?
After 12 months, unless extended by consent or court approval.
What is a Corporate Voluntary Agreement (CVA)?
It is a proposal to persuade creditors to accept less than their legal entitlement to try and save the company.
It needs to be voted by a majority of members, and 75% of creditors (by value).
How can small companies get a moratorium in a CVA?
Insolvency Act 1986 states they need two out of three:
1 Less than £10.2m turnover
2 Less than £5.1m assets
3 Fewer than 50 employees
They then have 28 days to agree a CVA, at which point it ends.
What is the primary duty of an Administrative Receiver?
Primary duty is to the appointing floating chargeholder. Although the AR acts as agent, he may be personally liable for negligent mis-management. (Medforth v Blake 1999)
What is a receiver appointed under Law of Property Act 1925?
An LPA receiver is appointed under a fixed charge over property.
Their job is to take the property and receive any income on behalf of the lender and then sell at the best time.
Director maintains control during this process.
