Corporate Rescue Flashcards
What are the 2 formal mechanisms to rescue struggling companies?
Administration and the company voluntary arrangement (CVA)
What are the 2 reforms in the UK’s rescue culture?
- A Preliminary Moratorium
2. A Flexible Restructuring Plan
What is a moratorium? When will the government provide a moratorium? Who cannot obtain one? Who will it be supervised by? How long does it last?
Moratorium = a period where a winding-up petition cannot be brought and the creditors cannot enforce their security
• Advantage of administration = provides the company with a moratorium
- Government will provide a moratorium to any company with a legitimate reason (On the balance of probabilities the rescue should be more likely to succeed than not)
- Already insolvent companies cannot obtain a moratorium
- Moratorium will be supervised by an insolvency practitioner = monitor
- Initially lasts for 28 days but can be extended for a further 28 days
What is a flexible restructuring plan?
Who is it available to?
Who determines the terms?
What is the process to enter the plan?
- A flexible restructuring plan can bind all creditors - secured and unsecured (binds all the parties)
- Plan available to both solvent and insolvent companies
- Company determines the terms of the plan
- Process to enter the plan is similar to that for a scheme of arrangement (Involves a three-stage process and two court applications)
- Requires approval of at least 75% in value of the company’s creditors within each class
What is the purpose of administration?
Which objective should the administrator aim for?
• Schedule B1, para 3 IA1986 = purpose of administration = the administrator must perform functions with objective of:
- Rescuing the company as a going concern;
- Achieving a better result for creditors as a whole than they would receive on a winding up; or
- Realising property to make a distribution to secured or preferential creditors
- Administrators should perform their functions to achieve objective (1) unless it is not reasonably achievable or objective (2) would achieve a better result
- Should only perform functions to achieve object (3) if objectives (1) and (2) are not reasonably achievable and they don’t unnecessarily harm the interests of the creditors as a whole
When does the company enter administration?
What are the 3 limitations on who can be appointed and when?
- Schedule B1, para 1(2)(b) IA1986 = company enters administration when the appointment of an administrator takes effect i.e. when relevant notices have been filed
- 3 limitations on who can be appointed as an administrator:
- Must be a qualified insolvency practitioner
- A person cannot generally be appointed to a company that is already in administration
- A person cannot generally be appointed to a company that is in liquidation
What are the 3 ways to appoint an administrator?
- Appointment by a company or its directors
- Appointment by a qualifying floating chargeholder
- Appointment by court order
How does the company or its directors appoint an administrator? What is the procedure for both?
- Company pass an ordinary resolution or articles provide the board may appoint on behalf of company; or
- Majority of directors agree to appoint
• Procedure for both:
- Provide 5 days’ notice of intention to appoint to any person who could appoint (including by virtue)
- Notice and specified documents are filed with the court
- Person appointing the administrator files a notice of appointment to the court
- Appointment takes effect after relevant notices have been filed
How does a qualifying floating chargeholder appoint an administrator?
When does a floating charge qualify? (3)
• Procedure:
○ Must give 2 days’ written notice to any prior holder of a qualifying floating charge
○ Must file a notice of appointment with the court
○ Appointment takes effect after notice has been filed
• Floating charge qualifies if:
○ Instrument states paragraph 14 IA1986 applies to the charge
○ Instrument states the chargeholder can appoint
○ The charge covers the company’s whole property
Who can apply to the court for an administrator to be appointed? (6)
When will the court grant the order (2 conditions)?
When does the order take effect?
- The company, directors, creditors, supervisor of a CVA, liquidator, or FCA can apply for an administration order
- Court will grant if 2 conditions are satisfied:
- Company is unlikely to pay its debts
- Administration order is reasonably likely to achieve the purpose of administration
- Order takes affect at the time stated in the order
- If no time stated = effect = when the order is made
What is the role of the administrator?
Within 8 weeks of their appointment, what must they do?
Within 10 weeks what must happen? What are the 2 methods to decide?
What happens if approved?
What 5 things may the courts do if not approved?
• Role = to attempt to achieve the purpose of administration
- Schedule B1, para 49(1) IA1986 = within 8 weeks of appointment, administrator must make a proposal statement for achieving the purpose of administration
- Within 10 weeks (2 weeks later), creditors must decide whether to approve the proposal
• 2 methods to decide: Administrator can choose whether to use the:
- Qualifying decision procedure = details of the procedure decided by the administrator
- Deemed consent procedure = proposal will be approved unless 10% of the creditors in value object
• If creditors approve proposal = administrator must manage the company in accordance with those proposals
• If the creditors do not approve = the court may:
1. terminate the administrator’s appointment;
2. adjourn the hearing conditionally or unconditionally;
3. make an interim order;
4. make an order on a petition for winding up; or
5. make any other order that it thinks appropriate
What are the powers of the administrator?
What are 5 examples of their powers under Schedule 1 IA1986?
What are the 3 powers under Schedule B1 IA1986?
Is the administrator an officer and/or agent of the company?
Schedule B1, para 59(1) IA1986 = able to do anything necessary or expedient for the management of the company’s affairs, business and property
• Schedule 1 IA1986 = list of 23 more specific powers, including the power to:
- sell or dispose of company’s property
- raise or borrow money and grant security over the company’s property;
- bring or defend any legal proceedings in the name and on behalf of the company;
- appoint agents and appoint and dismiss employees; and
- present or defend a petition for the winding up of the company.
• Schedule B1, paras 61–63 IA1986 = the power to:
- appoint or remove a director;
- call a meeting of the company’s members or seek a decision from the company’s creditors; and
- apply to the court for directions in connection with his functions.
Schedule B1, para 5 and 69 IA1986 = empowered to engage in certain acts on behalf of the company by virtue of his status as an officer and agent of the company
What is a pre-pack administration?
What do the courts say about pre-packs?
What must the administrator provide to the creditors?
- Paragraph 1 of Statement of Insolvency Practice 16 = an arrangement for the sale of the company’s business or assets is negotiated prior to the appointment of an administrator, and the administrator effects the sale immediately on appointment
- The courts strongly state a pre-pack should only be implemented if it is in the interests of the company’s creditors
- Statement of Insolvency Practice 16 = the administrator must provide the creditors with a ‘SIP 16 statement’
- Sets out how the administrator has acted with due regard for the creditors’ interests and justifies why the pre-pack was entered into
What are the 7 effects of entering administration?
- Dismissal of Winding Up Petitions
• Petitions to wind up the company will be:
• Dismissed if an administration order is made
• Suspended if a qualifiying floating chargeholder appoints an administrator
• Unless petition is made on public interest grounds - Dismissal of Receivers
• Schedule B1, para 41(1) IA1986 = administrative receivers will vacate office - Moratorium on Insolvency Proceedings
• Schedule B1, para 42 IA1986 = no winding up resolution may be
passed and no winding up order may be made - Moratorium on Other Legal Processes
• Schedule B1, para 43 IA1986 =:
a. No step can be taken to enforce security over company’s property
b. No step can be taken to repossess goods under a hire-purchase agreement
c. Landlords cannot exercise right of forfeiture by re-entry
d. No legal proceedings may commence or continue against the company or its property - Interim Moratorium
• Applies where :
• Administration application has been made but not yet granted or taken effect; or
• In the time between a qualifying floating chargeholder filing a notice of appointment until the date of the appointment taking effect or 5 says after the filing and no administrator has been appointment
• Has the same effects as a standard moratorium - Exercise of Managerial Powers by The Directors
• Schedule B1, para 64(1)) IA1986 = directors cannot exercise a management power without the consent of the administrator - Publicity
Schedule B1, para 45(1) IA1986 = every business document and the company’s website(s), must state that the company is in administration and the name of the administrator
When will the administration end?
How long does it originally last?
- Schedule B1, para 1(2)(c) IA1986 = company ceases to be in administration when the administrator’s appointment ceases
- Schedule B1, para 4 IA1986 = administrators must perform their functions as quickly and efficiently as is reasonably practicable
• Schedule B1, para 76(1) IA1986 = an administrator’s appointment will cease one year after it takes effect
• Can extend in 2 ways:
1. Administrator applies to the court for an extension
2. Creditors consent to extend the appointment for up to another year
