CH10 Insolvency Law Flashcards
- Identify the nature and function of: - company voluntary arrangements -administration orders -receivership -compulsory and voluntary liquidation (including relevance of secured debt) - Identify the main implications of insolvency law, including: -the principal means of termination of companies or other business entities -the priorities on a
Who may appoint an administrator?
- The COMPANY - ordinary resolution - >50%
- DIRECTORS as a majority
- One or more CREDITORS
- QUALIFYING FLOATING CHARGE HOLDERS who can show:
- Amounts to a charge over the whole/almost the whole of the company’s property
- Floating charge must contain power to appoint an administrator
- QFCH may apply even if company in liquidation
- Must notify any other QFCH
Can appointment of an administrator be made out of court if the company is in liquidation or administration?
NO
Can creditors make an appointment out of court?
No
If it is the company/directors applying for administration via appointment out of court, how many days’ notice must they give any floating charge holder?
5 days
If it is a qualifying floating charge holder (QFCH) applying for administration via appointment out of court, how many days’ notice must they give any other QFCH?
2 days
What must you file in court if you are applying for for administration via appointment out of court?
- Notice of appointment
- Statutory declaration as to lawfulness of appointment and enforceability of charge
- Statement by administrator that purpose of administration is likely to be achieved and that they consent to the appointment
Can any party try to appoint an administrator via the court route?
Yes
What rules apply when the company seeks an administration order?
In terms of ability to pay debts?
Purpose?
Notice?
- Company is/likely to be unable to pay debts
- Administration order reasonably likely to achieve purpose
- Must give notice of application to QFCH who may intervene
Duties of the administrator: within how many days must they file notice of their appointment?
Within 7 days
Duties of the administrator: what do they have to ask the directors to provide and how long do they have to provide it?
Statement of affairs
11 days
How many weeks does the administrator have to submit their proposal for achieving the aim of administration?
Within 8 weeks
Who must the proposal for achieving the aims of administration be submitted to?
- Registrar
- Creditors
- Members
Should the administrator seek creditor acceptance of their proposal?
Yes
How should the administrator seek creditor acceptance of their proposal?
Deemed consent procedures (give notice to all. If <10% object, you can go ahead)
At what time after appointment is it assumed that everything will be done n terms of administration?
One year
One year after appointment of an administrator, what happens? Extension?
Appointment is terminated.
Extended by court or (once only) by a prescribed majority of creditors
Does the administrator take over the powers of the directors?
Yes
What are the powers of the administrator?
Directors
Meetings
Court
Payments
Wind up
- Remove/appoint directors
- Call meeting of members/creditors
- Apply to court for advice
- Make payments to secured, preferential or unsecured creditors
- Present/defend petition in court for winding up
What action can ANY creditor or member take against the administrator?
Apply to the court
What does moratorium involve in terms of administration?
- Cannot wind up
- Cannot enforce any fixed charges/other security
- Cannot recover any property on lease
- No other legal proceedings
What can the administrator do with any assets subject to a floating charge?
DO they need to get the chargee’s consent?
Sell the property
No
Can an administrator sell assets on HP/subject to a fixed charge? Need what? What must proceeds be used for?
Yes, with approval from the court
Pay off owner or chargee
Are employees automatically dismissed in administration?
No
Can transactions at an undervalue and precedence be avoided during administration?
Yes
Who will appoint an administrative receiver?
A floating charge holder
What does an administrative receiver take control over?
The assets the charge is over
What is a company voluntary arrangement (CVA) in simple terms?
A payment plan
How long can a moratorium last in a CVA?
28 days, longer if have creditors agreement
What is the procedure for a CVA?
Appointment
Report to
Approval
Binds
Appeal
- Appoint nominee (by a solvent company or administrator/liquidator)
- Nominee reports to court on likelihood of success
- Creditor approval required - 75% on value
- Binds all unsecured creditors (not fixed charge holders)
- Any creditor can appeal to court within 28 days if unfairly prejudiced/procedural irregularity
Do the directors keep control in a CVA?
Yes
What are the two types of liquidation?
Voluntary and compulsory
Who orders compulsory liquidation?
The courts
Who triggers voluntary liquidation?
The company
What are the two types of voluntary liquidation?
- Members (solvent)
- Creditors (insolvent)
How can a members voluntary liquidation be commenced?
Special resolution 75%
What must the directors give if they want a members voluntary liquidation to go ahead? What happens if they cannot give this?
Declaration of solvency (if they cannot give this, automatically goes to a creditors liquidation)
Where does notice of a members voluntary liquidation have to be posted? Within how many days of what?
The London Gazette
Within 14 days of the resolution
The company will then appoint a liquidator by what?
Ordinary resolution >50%
With a creditors voluntary liquidation, who passes the resolution to wind up the company?
The shareholders
With a creditors voluntary liquidation, who NOMINATES the liquidators under the deemed consent procedure?
The directors
With a creditors voluntary liquidation, the directors will then call a creditors’ meeting within how many days of what? Giving how many days notice?
14 days of the proposed resolution
7 days
With a creditors voluntary liquidation, the directors will call a creditors’ meeting. What must they do at the meeting?
Director’s present what?
Creditors may APPOINT what?
Members and creditors form what?
Statement of company’s affairs
A liquidator
Liquidation committee to assist liquidator
If the directors make a false declaration of solvency, what might be the consequence?
Fine or imprisonment
Who must a declaration of solvency be made by? How many of them?
ALL directors or, if more than two, by majority
What must a declaration of solvency include in terms of assets/liabilities?
Statement of company’s assets and liabilities as at the last practicable date before declaration made
What is the timeframe for making a declaration of solvency?
Not more than 5 weeks before the resolution to wind up is passed
How soon after the meeting must the declaration of solvency be delivered to the registrar?
Within 15 days after the meeting
On what grounds may a petition for a compulsory winding up be brought?
- Company unable to pay its debts
- Just and equitable
In order for a compulsory wind up to occur, who must make the petition?
A creditor
In order for a compulsory wind up to occur, what must a creditor show?
- Owed more than £750
- Has served a written demand
- Waited >21 days for the company to respond
In order for a compulsory wind up to occur, what must a creditor alternatively show - second option?
They have attempted to enforce a judgement (taken company to court but company has failed to pay)
In order for a compulsory wind up to occur, what must a creditor alternatively show - third option?
Creditor can show company is unable to pay its debts because - liabs > assets
Who normally tries to wind up a company via the courts on just and equitable grounds?
Member who is unsatisfied with how it is being run. Remember Ebrahimi. Must be no other remedy available.
Who else can petition for a compulsory winding up?
BEIS Department for Business, Energy and Industrial Strategy
When might BEIS Department for Business, Energy and Industrial Strategy petition for a company to be wound up?
- Not obtained trading certificate within one year of incorporation
- Following a bad inspection
When is the liquidation deemed to have commenced?
At the time the petition was first presented. I.e. back dated.
Because liquidation is deemed to have commenced at the date when the petition was first presented, what does that mean in terms of transfers of the company’s property/shares after that date?
They are void
Because liquidation is deemed to have commenced at the date when the petition was first presented, what does that mean in terms of legal proceedings?
Halted and non can be commenced
Because liquidation is deemed to have commenced at the date when the petition was first presented, what does that mean in terms of seizure of company’s assets?
Void
Because liquidation is deemed to have commenced at the date when the petition was first presented, what does that mean in terms of employee dismissal and directors being in control?
Automatically dismissed and liquidator takes over from directors
Because liquidation is deemed to have commenced at the date when the petition was first presented, what does that mean in terms of floating charges?
They crystallise
Because liquidation is deemed to have commenced at the date when the petition was first presented, what does that mean in terms of who controls the company’s assets?
They become under the liquidator’s control
Because liquidation is deemed to have commenced at the date when the petition was first presented, what does that mean in terms of the business continuing?
It may continue but only with view to realisation
What are the powers/priorities of a liquidator?
- Get money in 1: settle list of contributories (anyone who owes business money)
- Get money in 2: collect and realise assets
- Pay company’s debts in order
- Redistribute surplus among owners
Voluntary wind up: how many months after the liquidator has presented the members and/or creditors with an account and filed this with the registrar, will the company be deemed to be dissolved?
3 months
Compulsory winding up: what is the final process to dissolve the comp?
- Liquidator goes back to court
- Court makes order dissolving company
- Liquidator files order
- Registrar records on company’s file that it is dissolved.
In terms of avoidance of charges around liquidation, in what two situations can charges be void/voidable?
- Charges not registered within 21 days are void against liquidator and creditors (chargee becomes unsecured creditor)
- Floating charge created within 12 months prior to wind up (or 2 years if given to a connected person) may be void/voidable
In terms of avoidance of charges around liquidation, what is a transaction at an undervalue (2 years before liquidation/administration)? When can it be set aside?
A gift/transaction by which the company gives greater value than it receives.
Unless:
- Company enters in good faith
- For purpose of carrying on its business
- Believing on reasonable grounds that it will benefit comp
In terms of avoidance of charges around liquidation, what are ‘preferences’? How long can they look back to find them? What must it have made with intention of?
Preferences - a transaction which benefits one creditor/guarantor more than another (e.g. paying family member first).
Made with intention of producing that result
6 moths; 2 years if connected
What is the order of payment for fixed and floating charges?
- Legal (fixed) charges rank in order of creation (created first; paid first)
- Equitable (floating) charges also rank in order of creation (created first; paid first)
- If have fixed and floating charge: fixed charge created before floating charge paid first
- Floating charge created before fixed charge will only take priority if the fixed charge holder had NOTICE of the floating charge when it was created.
What is the order of priority of payment on liquidation? 7 things
- The liquidator!
- Preferential debts (EEs)
- Secondary preferential debts to HMRC (PAYE, NI)
- Floating charges (subject to ring fencing)
- Unsecured ordinary creditors (running out of money - share out what’s left pro rata)
- Deferred debts (e.g. dividends declared but not paid)
- Members - any surplus
Ring fencing: some of the money which should be used to pay anyone who has a floating charge, could be ring fenced and used to give something back to the unsecured creditors.
Only relevant where there is a minimum fund for distribution of £10,000.
What is it made up of?
- 50% of the first £10,000 of floating charge realisations
- 20% of the floating charge realisations thereafter (up to a max)
What can secured creditors with fixed charges (and floating charges) do to try and get their money back? What happens in case of shortfall?
Appoint a receiver to sell the charged asset, passing any surplus to the liquidator.
If shortfall: that bit goes into the pot with the other unsecured creditors
Can a floating charge holder who faces a shortfall on their secured debt (which is therefore treated as unsecured) share in the ring fenced part available to unsecured creditors?
No
