Insolvency

Question 1

What act came into force this year as an emergency measure in response to the COVID-19

Answer 1

The Corporate Insolvency and Governance Act 2020 (CIGA 2020) came into force on 26 June 2020

Question 2

Overview of The Corporate Insolvency and Governance Act 2020 - Three permanent measures

Answer 2

A new free standing moratorium for distressed but viable companies introduced by the Act can be used to support a rescue of a company as a going concern

A restructuring plan process (largely modelled on schemes of arrangement but with the addition of a cross-class cram-down);

Restrictions on termination of contracts for the supply of goods and services because the customer has entered a relevant restructuring or insolvency process.

Question 3

Overview of The Corporate Insolvency and Governance Act 2020 - Three temp measures

Answer 3

Restrictions on using winding-up processes - a creditor cannot present a winding-up petition, unless it has reasonable grounds to believe that either coronavirus has not had a financial effect on the debtor company, or that the company was unable to pay its debts regardless of the financial effect of coronavirus

Temporary changes to wrongful trading rules limiting personal liability on directors trading through the coronavirus pandemic.

Relaxation of meetings and filing requirements to give companies greater flexibility.

Question 4

The Taking Control of Goods (Amendment) (Coronavirus) Regulations 2020 (SI 2020/1002) come into force on 29 September 2020.

Answer 4

These regulations further increase the minimum amount of net unpaid rent that must be outstanding before CRAR may take place. From 29 September 2020, the minimum net amounts are 276 days’ rent (from 29 September 2020 until 24 December 2020 inclusive), then 366 days’ rent (from 25 December 2020)

Question 5

Coronavirus Act 2020 (CVA 2020)

Answer 5

The Section 82 of the CVA 2020 contains protections for business tenancies that restrict the landlord’s ability to forfeit a lease during the relevant period for non-payment of rent - extended period 31 December 2020

Question 6

What is a pre pack sale

Answer 6

Pre-pack is where the sale of the business has been arranged prior to the administration which is then entered into for the administrator to effect the sale.

Question 7

What are the advantages of a pre pack sale

Answer 7

A good way of preserving value for a business and its creditors.

Question 8

What are the disadvantages of a pre pack sale

Answer 8

Highly criticised from creditors and public due to lack of transparency and insufficent marketing.

Question 9

What is meant by administration

Answer 9

Administration is a more rescue-oriented insolvency process.

Administration can used to

To achieve a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration)

To realise company property to enable a distribution to one or more preferential or secured creditors - Such as WIP

Question 10

What are the disadvantages of administration.

Answer 10

Expensive as administrators are liable for operating costs rent, wages throughout this period so has to be worth while.

Question 11

What is a Creditors’ Voluntary Liquidation (CVL)

Answer 11

Voluntary liquidation is the process which occurs after the directors or shareholders of a company agree that the company should be wound up. It is not necessary that the company be insolvent before petitioning for voluntary liquidation.

Question 12

What is a Compulsory Liquidation (WUC)

Answer 12

Compulsory liquidation is the process which occurs after the court makes an order to have a company wound up. This occurs after a creditor petitions the insolvency court with an unpaid debt of £750 or more because the company is unable to pay its debts or is balance sheet insolvent and the court makes an order to have a company wound-up.

Question 13

What is a Members’ Voluntary Liquidation (MVL)

Answer 13

A members’ voluntary liquidation occurs if the company is able to pays its debts within 12 months (solvent) and the directors swear a statutory declaration of solvency declaring that.

Question 14

What is a Bankruptcy

Answer 14

Bankruptcy is a form of insolvency and is normally only suitable if you can’t pay back your debts in a reasonable time. All debts are written off.

Question 15

What is an IVA

Answer 15

An individual voluntary arrangement (IVA) is a legally binding agreement between you and your creditors that helps you pay off your debts at an affordable rate. You make payments managed by an insolvency practitioner.

Question 16

What is a fixed charge

Answer 16

A fixed charge is security taken by a creditor for a particular debt. If your business borrows money from the bank, the bank may say it wants to take a fixed charge over a particular asset of your business, for example, your business’s premises.

Question 17

What is a floating charge

Answer 17

A floating charge is a security interest or lien over a group of non-constant assets, that change in quantity and value.

Question 18

Insolvency Act 1986

Answer 18

Provides the legal platform to deal with issues arising out of personal and corporate insolvency.

Points of interest include:

Insolvency Act 1986 made voidable any transaction at undervalue made for the purposes of defrauding creditors.

Insolvency Act 1986 for the first time criminalises the conduct of any person who was knowingly party to the carrying on of business with the intent to defraud a creditor.

Question 19

Commercial Rent Arrears Recovery (CRAR)

Answer 19

The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 prevented landlords from using CRAR unless an amount of at least 90 days’ rent was due (it had previously been seven days or more). This has now been increased to at least 276 days’ rent from 29 September, and will increase again to 366 days’ rent from 25 December. It was previously increased to at least 189 days’ rent from 24 June. This restriction also now applies until 31 December 2020 or such later date as may be specified in regulations.

Question 20

Section 82 Coronavirus Act 2020 - Forfeiture of commercial leases

Answer 20

prevents any forfeiture between 26 March and 31 December 2020 (extended by regulations from 30 September, having previously been extended from 30 June) or such later date as may be specified in any further regulations, whether by proceedings or peaceable re-entry, of the vast majority of commercial leases for non-payment of any sums due under the lease . Those sums remain due and only an express waiver will waive the right to forfeit when the restricted period ends;

Question 21

What is ROT

Answer 21

A “retention of title” clause is a clause that allows the supplier to retain ownership over the goods supplied until such time as certain conditions are met

Question 22

What are the clauses in an ROT claim

Answer 22

All monies - this allows the supplier to claim back all goods ever supplied up to the value they are owed whether they have been paid for or not.

Simple clause - Allows the supplier to claim back goods on the invoices owed only.

Question 23

Important factors of an ROT clause

Answer 23

Type of clause
Are they able to specifically identify their products
Have they ever had a nil balance
Do other suppliers supply that product

Question 24

(Curtain, Blind & Fabric Manufacturing Facility – St Helens) - What was the time frame/sales strategy

Answer 24

The time frame was 3 months where we anticpated to have 3 different auction - machinery sale, finished stock and raw stock.

I considered which sale may benefit may require from a longer marketing period.

Question 25

(Curtain, Blind & Fabric Manufacturing Facility – St Helens) How did you provide updates to the client

Answer 25

Either by telephone or email, if telephone I always backed it up with a email as a way of creating a file note.

Question 26

(Property Developers, North Wales) How did you work with other advisor.

Answer 26

I understood we both had the same objective of maximising realisations but I explained to him complications from my side so he could understand and vice versa so we could come up with a plan.

Question 27

(Property Developers, North Wales) what assets did you deem uneconomical to remove

Answer 27

A number of 40ft office cabins all in poor repair and located in a rural location.. relocation and storage costs made them uneconomical to remove and sale on site was also uneconomical.

Question 28

(Outdoor Adventure Equipment Retailer, Cheshire) - Any advice given

Answer 28

One claimaint had indentified stock that was more value than his claim.

Question 29

(Fleet of Tractor Units & Tipping Trailers, North East) - how did you provide advice to the client in relation to possible consolidation?

Answer 29

I provided our valuation figures as part of a table which analysed the equity position of each agreement and the equity position overall for each finance company.

Question 30

(Fleet of Tractor Units & Tipping Trailers, North East) How did you identify assets on finance?

Answer 30

They were vehicles so they identified through HPI checks but also the Directors had advised us.

Question 31

(Fleet of Tractor Units & Tipping Trailers, North East) - Things to consider

Answer 31

Settlement agreement constantly changing

Expiry dates on the settlement agreements

Question 32

What is SIP 13

Answer 32

DISPOSAL OF ASSETS TO CONNECTED PARTIES IN AN INSOLVENCY PROCESS

Includes key points on transparaency and being able to justify decisions

Question 33

What is SIP 16

Answer 33

PRE-PACKAGED SALES IN ADMINISTRATIONS

This is a statement prepared by the insolvency practitioner, detailing how the decision to opt for a pre packaged sale was arrived at, and the other alternatives that were considered.

Marketing should be carried out but it’s detrimental value should be considered.