Corporate insolvency - rescue procedures

Question 1

Administration

Answer 1

A procedure whereby a company may be rescued or reorganised or its assets realised under the protection of a statutory moratorium

Question 2

CVA

Answer 2

An arrangement whereby the company and its creditors come to an agreement which is then implemented and supervised by an IP under Part 1 IA 1986

Question 3

Macplant Services Ltd v Contract Lifting Services (Scotland) Ltd 2008

Answer 3

A petitioner can rely on the change of circumstances which it had brought about by presenting the WUP as grounds for the winding up of the company by the court

Question 4

In what circumstances the court will most likely dismiss a WUP?

Answer 4

Where there is a genuine dispute between the debtor and the petitioning creditor about whether the debt is due

Question 5

Statutory purposes of administration

Answer 5

• the rescue of the company
• the achievement of a better result for the company’s creditors as a whole than would be likely if the company were wound up
• the realisation of some or all of the company’s property to make a distribution to one or more secured or preferential creditors

Question 6

Who can use the court route of administration?

Answer 6

Unsecured creditors, the company, its directors or a combination of these persons

Question 7

Effects of administration (7)

Answer 7

• any pending petition to wind up the company is dismissed (court) or suspended for the duration (any other case)
• any administrative receiver of the company automatically vacates office
• no resolution may be passed to wind up the company and no order to such an effect may be made
• no step may be taken to enforce any security over the company’s property without the consent of the administrator or the permission of the court
• no step may be taken to repossess goods in the company’s possession under a hire purchase agreement without consent
• a landlord cannot exercise any right of forfeiture or reentry without consent
• no legal process, including proceedings, execution or distress may be instituted or continued

Question 8

What does the administrator have to do as regards creditors after appointment?

Answer 8

Put his statement of proposals to them and seek their decision as to whether they approve the proposals (not necessary if he believes that the company has sufficient assets to pay all creditors in full)

Question 9

What is the primary function of the administrator?

Answer 9

To achieve the objectives of the administration

Question 10

Pre-pack sale

Answer 10

A process through which a company is put into administration and its business or assets are immediately sold under a sale which was arranged before the administrator was appointed

Question 11

Ways of ending administration (3)

Answer 11

• automatically one year after commencement (can be extended by either consent or application)
• administrator deciding that the purpose of administration has been achieved and filing a notice to that effect with Coho
• on the application of the administrator to the court for an order to such an effect

Question 12

Who is the receiver appointed by?

Answer 12

A secured lender to enforce a charge which is a fixed and floating charge over the assets and business of the borrower company

Question 13

Function of the receiver

Answer 13

To realise for the secured lender the assets of the business as quickly as possible but with due regard to the rights of other creditors, employees and shareholders

Question 14

Does appointing a receiver automatically put a company into liquidation?

Answer 14

No

Question 15

Can a company be in administrative receivership and liquidation at the same time?

Answer 15

Yes

Question 16

A CVA does not affect the rights of secured or preferential creditors unless…

Answer 16

They agree to the proposals

Question 17

The CVA proposal must be approved by…

Answer 17

At least 75% (by value) of the company’s creditors unless more than 50% (by value) of any creditors who vote are unconnected with the company

Question 18

What does the CVA proposal need to allow for?

Answer 18

The payment of any preferential debts in priority to other unsecured creditors and the proposal cannot affect the right of a secured creditor to enforce its security except with its consent

Question 19

When does the approved CVA take effect from?

Answer 19

The date of the creditors’ meeting that approves it

Question 20

Who is the moratorium procedure available to?

Answer 20

Small companies as per s382 CA

Question 21

When does the moratorium come into force and end?

Answer 21

When the directors file the requisite documents with the court and after 28 days

Question 22

The creditors bound by the CVA have no further…

Answer 22

Claim against the company in respect of the debts and liabilities covered by the arrangement