Insolvency Flashcards
Different types of insolvency?
- Administration
- Liquidation
- Receivership
- CVA
What is administration?
- Administration occurs when a business can no longer meet its debt obligations.
- A licensed insolvency practitioner is appointed to either restructure the business and come to an arrangement with creditors or to sell off assets, pay off creditors and liquidate the business.
- Administrator deals with the assets of a company over an agreed timescale (known as the Moratorium)
- The directors of the Company remain in office but they have no power
- If the company in admin continues to pay rent it can be claimed as a cost of the administration
What is re-pack administration?
- Allows the directors of a company to buy out and retain elements of the business which are trading well and placing the remainder in administration
What is Company Voluntary Arrangement?
Contract between company and its creditors for when a company is insolvent but the directors believe it has a viable future
→ Creates an agreement to pay back debt over period of time
→ Must be approved by at least 75% of creditors in terms of value of debt
What is liquidation?
Company is brought to an end. The process of selling off assets and using the proceeds to pay off creditors and shareholders.
- Compulsory liquidation takes place where a company is wound up by a court order;
- Creditor’s voluntary liquidation- this is where the company’s members pass a resolution to wind up the company; and
- Members’ voluntary liquidation- here, the directors of a company make a statutory declaration of solvency and then wind the company up following a members’ resolution to do so. This is sometimes referred to as a “solvent liquidation”.
What is receivership?
The law of property Act Receiver is appointed to sell off the assets of the business to pay off the debts.
If a tenant becomes insolvent what is the usual procedure?
- Notify client & Check the lease
- Is there a rent deposit?
- Is there a guarantor?
- Contact the administrator and register a claim for the arrears
- Notify insurers
- You cannot accept the keys back as this will constitute a surrender of the lease
- You can take the keys back for health and safety/ insurance purposes subject to this being in writing usually via a key holding letter, which states ‘this is for the purposes of security and does not constitute as a surrender of the lease’
What are implications for Landlord when tenant goes into administration?
- The administration process initiates a moratorium period (landlords are prohibited from taking legal action against the tenant in administration, including termination of the lease, CRAR, Forfeiture).
- Tenant may consider a surrender if approached but are under no obligation
- If rent being paid, equivalent amount can be claimed from administrator
- Administrator may seek LL consent to assign lease
- If administrators cease paying rent, it nevertheless continues to be contractually payable under the lease. However, the landlord will be an unsecured creditor in respect of these arrears and may be unlikely to see much of these when the administrators’ final distributions are made.
What are implications for Landlord when tenant goes into liquidation?
- A liquidator may agree to disclaim the Lease; If landlords require certainty as to whether the lease will be disclaimed, they can to serve a “notice to elect” on the liquidator, which will give the liquidator 28 days to decide whether to disclaim the lease. If they do not elect to do so in this time, the liquidator will lose their right to disclaim the lease.
- When a tenant’s company is liquidated and owes you money, the landlord essentially becomes an unsecured creditor.
- Landlord can deduct funds from rent deposit
- Landlord can seek to forfeit the lease
- Landlord can consent to assignment of lease to new tenant
What is a TORT notice?
- Legal document alerting the owner of items that have been abandoned/left on private land or property
What are the two tests for corporate insolvency?
- Cash flow insolvency test
- Balance Sheet insolvency test
