Chapter 18 - Corporate Rescue

Question 1

What are the three main avenues of corporate rescue?

Answer 1

CVA
Small company moratorium
Administration

Question 2

What is a CVA?

Answer 2

A company voluntary arrangement, by which a company may put in place a scheme of arrangement that binds all unsecured creditors even though not all agree to its terms.

Question 3

Is a preferential or secured creditor bound by a CVA?

Answer 3

No, unless they agree to it.

Question 4

Who may bring about a CVA?

Answer 4

The directors, or administrator (s1 IA)

Question 5

If the company is not in administration or liquidation, what must the nominee or supervisory send to the court within 28 days of receiving notice of the terms of a proposed CVA?

Answer 5

A report stating:

• whether the CVA has reasonable prospect of succeeding
• whether the proposal should be considered by meeting of the members and creditors
• the date, time and place at which the nominee proposes a meeting to be held.

Question 6

How have the SBEEA 2015 and the IR 2016 altered to procedure for approving a CVA?

Answer 6

A physical meeting of the creditors is no longer necessary.

Question 7

What is the effect of a CVA?

Answer 7

A CVA binds every person entitled to vote on it as if they were a party to it.

Question 8

When may the CVA come to an end?

Answer 8

If the company defaults on the payments agreed in the CVA

Question 9

What is a small company moratorium?

Answer 9

A procedure allowing small companies to delay enforcement of its debts to allow it time to put a CVA in place.

Question 10

Where is the small company moratorium procedure set out?

Answer 10

IA 1986 Schedule A1

Question 11

Explain why a small company moratorium may be considered necessary.

Answer 11

To allow small companies time to arrange a CVA.

Question 12

Which companies qualify for a small company moratorium?

Answer 12

Those with two of:

• turnover under £10.2 m
• balance sheet total not mare than £5.1 m
• less than 50 employees.

Question 13

When does the moratorium come into force?

Answer 13

When the relevant documents are filed at court.

Question 14

How does a small company moratorium usually end?

Answer 14

Usually with the CVA being approved, or after 28 days.

Question 15

What are 5 consequences of a small company moratorium being in effect?

Answer 15

• no legal proceedings may commence
• no winding up petition may be presented
• no administrator may be appointed
• no security may be enforced against the company’s property
• no meetings will be held without the consent of the nominee.

Question 16

Where are the rules governing administration found?

Answer 16

IA 1986 Sch B1

Question 17

What are the three objectives of administration in priority order?

Answer 17

1 Rescue the company as a going concern
2 Achieve a better result for creditors as a whole than would otherwise be likely on a winding up
3 Make a distribution to one or more secured or preferential creditors

Question 18

Who may appoint an administrator?

Answer 18

The company, the company’s directors, or the holder of a qualifying fixed charge.

Question 19

Identify two routes by which an administrator may be appointed.

Answer 19

1) Out of court

2) Appointment by the court

Question 20

Who is a qualifying floating charge holder for the purposes of appointing an administrator?

Answer 20

A floating charge qualifies if it:

• states that para 14 of Sch B1 applies to the floating charge
• purports to empower the holder to appoint an administrator or reciever
• relates to whole or substantially the whole of the company’s property

Question 21

When may the courts make an administration order?

Answer 21

• if the company is unlikely to be able to pay its debts

- the administration order is reasonably likely to achieve the purpose of administration

Question 22

What is the effect of appointment of an administrator on a winding up petition?

Answer 22

A pending winding up petition will be dismissed.

Question 23

How does administration affect the employees and contracts of the company?

Answer 23

There is no automatic redundancy, but the administration will review employment contracts and decide whether to terminate them.

Question 24

What is meant by the term ‘super-priority’?

Answer 24

Super-priority refers to the preferential treatment given to employee over the wages and expenses of the administrator.

Question 25

When does administration end?

Answer 25

• automatically after 1 year
• on order of the courts (e.g. if the administrator petitions that the purpose cannot be achieved.
• on achieving the objective
• ## public interest winding up