Insolvency Flashcards
Key features of administration:
can be initiated by both court and out of court procedures
court - mostly unsecured creditors will use
Have duty to court and act in interests of all creditors
Immediate moratorium
Purpose - to either rescue or get best results on realisation
QFCH can over-ride SH’s or D’s choice of administrator
Administrator cannot sue Ds i.e. wrongful trading
Key features of administrative receiver:
realise property to pay only person who appointed
powers under terms of debenture
holder of floating charge created pre 15 sep 2003
Duty owed to shareholder who appointed
Key features of CVA:
To rescue company / better realise
Directors appoint IP who supervises, helps draw up proposals and draft CVA
Ds continue to run under IP’s supervision
Possible moratorium for small cos
Key features of litigation:
Too late to rescue - realist assets and give to creditors
Can be either compulsory (court) or voluntary (SH)
Is agent of company
No moratorium although all proceedings stayed
What is a qualifying floating charge?
Debenture & qualifying floating charge
Debenture will usually include clause that debenture holder has right to appoint administrator on default
Must be qualifying charge over all / substantially all of company’s assets
Yorkshire Woolcombers Association (1903)
A floating charge is:
1) charge over class of assets (incl. all assets)
2) assets change from time to time in ordinary course of business
3) company is free to carry on using those assets until crystallisation (i.e. default, winding up)
Order of priority on winding up:
1) L’s fees to realise fixed assets
2) Fixed charge holders
3) Other L costs / expenses
4) Preferential creditors
5) Ring fenced fund
6) Floating charge holders
7) Unsecured creditors
8) Interest for preferential creditors (since winding up)
9) Shareholders
What comes under 4) Preferential creditors?
Employees - 4 months salary, of a max £800 per employee + benefits, pension etc
What comes under 5) Ring fenced fund?
For unsecured creditors
Only QFC which were created on or after 15 sep 2003
What comes under 7) unsecured creditors?
Anyone not paid from ring fenced fund or people who didn’t get whole debt discharged above
How do you work out how much penny to the pound a certain class of creditors will get?
what is available to that class / what debt is owed to that class * 100 / 1 = X pence
2) Fixed charge holders
Are paid in order of registration of the charge. Where more than one - Ls fees for realising will be split between two
Fraudulent Trading - S213 IA
Must be intent to defraud
This section civil but also criminal penalty under S993 CA
Must prove actually dishonesty - high bar
Dishonesty is subjective test - what knew or believed
Likely to be disqualified - max 15 years
Defence to fraudulent trading?
Defence - if genuinely though things would get better and could trade out
Wrongful Trading - S214 IA
When Ds know co is going insolvent, have duty to minimise losses to creditors
No intent or dishonesty requirement
Reasonably diligent person test - subjective and objective
Cannot be relieved by court under S1157 CA
Likely to be disqualified - max 15 years
Defence to wrongful trading?
Took every step to avoid
High bar
Misfeasance - S212 IA
Any breach of duty broken
Can bring claim against D but also other manages & liquidator and administrator
I.e. misapply money/assets
Can have relief under S1157 but only where wrong done to company, not creditors
Can D behaviour be ratified by SH when co going insolvent?
No because not just harming SH, but focus now on creditors
Defence for misfeasance?
If acted reasonably and honestly
Voidable transactions - key features
Bring claim against person who benefited from the transaction, not D who agreed it
Also agreeing to an avoidable transaction is a factor when court looking at disqualifying a D
Liquidator must obtain creditor consent before bringing action
Less relevant time where is connected person
BOP may shift when connected person
Re MC Bacon Ltd &
Hill v Spread Trustee Co
Providing security does not count as transaction at undervalue as it does not itself deplete the assets of the company
But may be void when security given for no consideration
Preferring a creditor - S239 IA
Desire to prefer is subjective
Re MC Bacon - must have wanted to put the party in a better position. Here was not desire to prefer but desire to continue trading (bank was creditor)
Defence - absence of desire
Avoiding a floating charge - S245 IA
Prevents creditor from getting new security for no extra consideration
Re Yeovil - based on rule from Claytons Case - payments into bank discharge older overdraft first
Overtime company draws on overdraft - new money is advanced
Can also be a claim under preference provisions
Transactions Defrauding Creditors - S423 IA
claims here do not necessarily relate to insolvency
Same as transaction for an undervalue but here also have to show that was intent to put assets beyond creditors reach
Subjective test
No relevant time period
> more recent, more easier to show intent
