Chapter 10 - Insolvency law Flashcards
Purpose of Administration
There are three key purposes of administration in the order set below:
(1) To rescue the company as a going concern.
(2) If this is not reasonably practicable, to achieve a better result for the company’s creditors as a whole than would be likely with a winding-up.
(3) If neither is reasonably practicable, and provided the administrator does not unnecessarily harm the interests of the creditors as a whole, then to realise the company’s assets to make a distribution to one or more preferential or secured creditors.
Effect of administration
There is a moratorium for the company to resolve financial difficulties. If this cannot be achieved the administrator will arrange for the company to be placed into creditors’ voluntary liquidation.
Who may appoint an administrator?
(1) The company acting by ordinary resolution
(2) The directors acting by a majority
(3) One or more creditors
(4) Qualifying floating charge holders
What should the administrator have done within 7 days of being appointed?
File notice of his appointment with the Registrar of Companies
Require any of the company’s officers and employees to provide a statement of affairs (who have 11 days to comply with any such request)
What should the administrator have done within 8 weeks of being appointed?
Submit a statement of his proposals for achieving the aim of administration to:
* The Registrar
* The company’s creditors
* The company’s members
The administrator should seek creditor acceptance of their proposals by deemed consent procedures.
The administrator is also required to invite creditors to form a creditor’s committee and to ask for nominations to such a committee.
What should the administrator have done 1 year after being appointed?
The administrator’s appointment is terminated unless extended by the court or (once only) by a prescribed majority of the creditors.
What are the powers of an administrator?
Remove or appoint a director
Call a meeting of members or creditors
Apply to court for directions
regarding the carrying out of his functions
Make payments to secured or preferential creditors
Make payments to unsecured creditors, if the administrator feels that to pay the unsecured creditor will assist the achievement of the administration and otherwise with the permission of the court
Present or defend a petition for the winding up of the company
Administrative receiver
An ‘administrative receiver’ is appointed by a floating charge holder and is essentially a manager with control over the whole, or substantial part, of the company’s property and wide powers over its business.
Fixed receiver
May be appointed by the holder of a fixed charge over land in the event of the borrower’s default.
His role is to collect rent and/or sell the property.
He does not need to be a qualified insolvency practitioner and, in practice, will often be a surveyor or other property specialist.
Company Voluntary Arrangement
When a company and its creditors make an agreement as to how its debts are to be paid and in what proportions. Possible options include;
Composition of debts e.g. 60 p in the £, or
Time period of payment (usually 3-5 years),
Equity swop,
The key benefit of a CVA is that the company continues trading.
Companies can apply for a moratorium whilst they prepare a plan for creditors. This is initially 28 days but can be extended with agreement of the creditors.
Procedures of a CVA
A nominee is appointed (either by a solvent company or the administrator/ liquidator).
The nominee reports to court on likelihood of success.
Creditor approval is required. Physical creditor meetings are not required unless the creditors specifically request one.
Binds all unsecured creditors (not fixed charge holders).
Any creditor can appeal to court within 28 days if unfairly prejudiced or if there has been a procedural irregularity.
Liquidation
Liquidation is when a company is officially wound up following the steps outlined in the Companies Act.
Declaration of solvency
This is a statutory declaration that the directors have made full enquiry into the affairs of the company and are of the opinion that it will be able to pay its debts in full, together with interest, within a specified period not exceeding 12 months. It is a criminal offence punishable by fine or imprisonment for a director to make a declaration of solvency without having reasonable grounds for it.
What must the declaration of solvency contain?
The declaration must
Be made by all the directors or, if there are more than two, by a majority of them
Include a statement of the company’s assets and liabilities as at the latest practicable date before the declaration is made
Made not more than five weeks before the resolution to wind up is passed and
Delivered to the registrar within 15 days after the meeting.
