Insolvency

Question 1

Key features of administration:

Answer 1

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

Question 2

Key features of administrative receiver:

Answer 2

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

Question 3

Key features of CVA:

Answer 3

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

Question 4

Key features of litigation:

Answer 4

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

Question 5

What is a qualifying floating charge?

Answer 5

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

Question 6

Yorkshire Woolcombers Association (1903)

Answer 6

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)

Question 7

Order of priority on winding up:

Answer 7

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

Question 8

What comes under 4) Preferential creditors?

Answer 8

Employees - 4 months salary, of a max £800 per employee + benefits, pension etc

Question 9

What comes under 5) Ring fenced fund?

Answer 9

For unsecured creditors

Only QFC which were created on or after 15 sep 2003

Question 10

What comes under 7) unsecured creditors?

Answer 10

Anyone not paid from ring fenced fund or people who didn’t get whole debt discharged above

Question 11

How do you work out how much penny to the pound a certain class of creditors will get?

Answer 11

what is available to that class / what debt is owed to that class * 100 / 1 = X pence

Question 12

2) Fixed charge holders

Answer 12

Are paid in order of registration of the charge. Where more than one - Ls fees for realising will be split between two

Question 13

Fraudulent Trading - S213 IA

Answer 13

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

Question 14

Defence to fraudulent trading?

Answer 14

Defence - if genuinely though things would get better and could trade out

Question 15

Wrongful Trading - S214 IA

Answer 15

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

Question 16

Defence to wrongful trading?

Answer 16

Took every step to avoid

High bar

Question 17

Misfeasance - S212 IA

Answer 17

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

Question 18

Can D behaviour be ratified by SH when co going insolvent?

Answer 18

No because not just harming SH, but focus now on creditors

Question 19

Defence for misfeasance?

Answer 19

If acted reasonably and honestly

Question 20

Voidable transactions - key features

Answer 20

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

Question 21

Re MC Bacon Ltd &

Hill v Spread Trustee Co

Answer 21

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

Question 22

Preferring a creditor - S239 IA

Answer 22

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

Question 23

Avoiding a floating charge - S245 IA

Answer 23

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

Question 24

Transactions Defrauding Creditors - S423 IA

Answer 24

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