Company: Corporate Insolvency Flashcards
Who do corporate insolvency proceedings apply to and what are the options?
To companies and LLPS
Options
- Receivership
- secured creditors to recover what is owed to them - Restructuring plan
- allows companies to restructure debts with sanction of court - Moratorium
- halts most actions by creditors - Administration and CVA
- seeks to rescue company - Liquidation
- assets sold to pay of debts
- company ceases to exist
What is fixed asset receivership?
Creditor with fixed charge
- can appoint receiver if company breaches terms
- receiver takes possession of asset
- receiver sells asset to repay loan
For fixed asset receivership are there requirement as to who can be appointed and if company is insolvent?
No
- receiver need not be insolvency practitioner
- company need be insolvent just breached a term of the loan
What is the function of a Restructuring plan and how is it approved?
Negotiation with one or more classes or creditors
- will require court hearings
- can bind secrued creditors and floating charge holders
Approval
- approval by those with 75% in value of each class of creditor
- court may approve plan even if some creditors/class do not approve (cram down)
What is a moratorium (generally)?
Used to save company as going concern
Can be used independently or in conjunction with:
- CVA
- restructuring plan
- refinancing
When is a moratorium not available?
Companies that have been subject to insolvency proceedings in last year
Banks
Insurance firms
What is a monitor in moratorium and what is their role?
Insolvency practitioner
- oversees companies affairs
- ensures success if likely
- ensures creditors interests
What is the procedure to obtain a moratorium? How long is it?
- Directors and monitor filing certain documents with court; and
- where company is subject to outstanding winding up petition, court order must be made.
- order only made if satisfied that it would achieve better results - monitor notifies CH and creditors
- Lapses in 20 business days (can be extended)
What are the effects of a moratorium?
- prevents the commencement of formal insolvency procedures
- landlord cannot forfeit lease
- floating charge holders cannot crystallise
- payment holiday for debts (other than wages and to staff)
Does not prevent secured creditors
What is the aim of administration? What is involved?
Administrator (insolvency practitioner) given powers to run company to (in order of importance):
- rescue company as going concern
- achieve better result for creditors than a wind up
- realise property to distribute to one or more secured creditors
Moratorium is imposes
How can a company go into administration?
Two ways:
- formal court hearing
- by company, directors, qualifying floating charge holders filling documents at court
When will a court order administration?
If satisfied that:
- company cannot pay its debts; and
- it will achieve a better result for creditors than liquidation
Who can appoint the administrator?
Directors and company
- if no winding up petition has been issued
- must notify qualifying floating charge holder
- they can agree or appoint someone else
What is a qualifying floating charge holder?
holds a charge over the whole or substantially the whole of the companies assets
What powers does an administrator have? Is this limited?
- take control of property and sell it
- bring or defend legal proceedings
- remove/replace directors
- carry out companies business
- investigate previous transactions
- take action against directors for wrongful/fraudulent trading
Limit
- majority in value of creditors must approve proposals
What is the process for Company Voluntary Arrangement?
- Directors to make written proposal to creditors
- Directors nominate insolvency practitioner to oversee
- meeting an vote on agreement
- 75% in value of unsecured creditors
Is a moratorium available for CVA?
Maybe but only for small companies
What are the types of Voluntary Liquidation and requirements?
Members Voluntary Liquidation
- only if solvent
Creditors Volutary Liquidation
- if insolvent and directors want to avoid being personally liable
What is the process for Members Voluntary Liquidation?
- Directors make statutory declaration of solvency
- Special resolution to start liquidation
- Ordinary resolution to appoint liquidator
- appointment of liquidator advertised in London Gazette and CH notified
- liquidator investigates and reports to creditors
- liquidator collects assets and distributes in statutory order
- Final accounts sent to creditors and members
- final return filled at CH
- Company dissolved after 3 months
What is the process for Creditors Voluntary Liquidation?
- directors resolve that company is insolvent
- special resolution to start liquidation
- resolution advertised in London Gazetted
- Within 7 days of resolution directors make statement in prescribed form to creditors
- directors seek nomination for liquidator from creditors
- appointment of liquidator advertised in London gazette
- CH notified of appointment
- liquidator investigates and reports to creditors
- Final accounts sent to creditors and members
- final return filled at CH
- Company dissolved after 3 months
Process for compulsory liquidation of company?
Creditors
- must be owed over £750
- if judgment order tried to execute
- otherwise made statutory demand that was not paid in 21 days (3 weeks)
Then
- can petition court
- court need not accept
- company can defend (debt in dispute or they will recover)
- if court agrees with creditor liquidator appointed
What is the order of distribution in liquidation?
- if liquidation within 12 weeks of end of moratorium pre- moratorium priority debts and certain other debts
- expenses of winding up
- preferential debts (employees and HMRC)
- floating charge (ring fencing)
- unsecured debts
- shareholders
If not enough for one level then done in proposition
What is ring fencing
- set aside part of assets for floating charge holders for unsecured creditors
Amount
- 50% of first £100k
- 20% of amounts above that
- up to max of £800k
