INSOLVENCY LAW Flashcards
Administration
PURPOSES IN ORDER:
1. Rescue the company as a going concern.
2. If that is not resonably practicable, attempt to achieve a better result for creditors than winding up would be.
3. If neither is reasonably practicable and proved administrator does not ‘unnessicarily harm’ interests of creditors as a whole then realise the companies assets to make distribution to one or more preferential or secured creditors.
Advantage - gives company breathing space to resolve problems. If administration is successful then creditors should receive better than the benefit of being an ongoing client.
Effect - moratorium (freeze) for company to resolve company difficulties, if can’t be acheived administrator will arange for company to be placed into creditors voluntary administration.
Appointment of an administrator
Who may appoint:
- Company (shareholders) by ORDINARY RESOLUTION.
- Directors acting by majority
- One or more creditors
- Qualifying floating charge holders who show:
1. Amount to charge over who or substantially companies property
2. Floating charge must contain power to appoint an administrator
3. QFCH may apply even if company is in liquidation
4. Must notify any other QFCH.
Appointment of an administrator - out of court
Appointment out of court:
- Can’t be made if company is in administration / liquidation.
- Procedure is different depending on who made it.
Must file in court:
- Notice of appointment
- Declaration to lawfulness of appointment and enforceability of charge.
- Administrator statement that purpose of administration likely to be achieved and they consent to that appointment.
Company / directors:
- 5 days notice to any floating charge holder.
Qualifying floating charge holder:
- 2 DAYS prior notice to any prior QFCH before appointment is made
Appointment of an administrator - in court
Following applies when a company seeks an administration order:
- Company is unlikely or unable to pay debts AND
- Administration is likely to achieve the purpose of administration
- Must give choice of application to QFCH who may intervene.
QFCH may also show floating charge is qualifying and it is enforceable.
Duties of administrator
WITHIN 7 DAYS:
- File notice of appointment with registrar
- Require officers and employees to provide a statement of affairs (have 11 DAYS to comply)
WITHIN 8 WEEKS:
- Submit statement of proposals on how they are planning on achieving administration to
1 Registrar
2 Creditors
3 Members
- Seek creditor approval through deemed consent procedure (less than 10% in value object).
- Invite creditors to a committee to ask for nominations.
ONE YEAR AFTER APPOINTMENT:
- Appointment terminated UNLESS extended by court (once only) by MAJORITY of creditors.
Administator takes on powers of a director ‘may do anything necessarily expedient for management of business affairs and property of company’
Powers of an administrator
- Remove / appoint director
- Call a meeting with members / creditors
- Apply to court for directions of carrying out his functions
- Make payments to secured or preferential creditors
- Make payments to unsecured creditors if it helps achieve administration e.g co has been denied further sales from main supplier unless bill paid, otherwise with permission from court.
- Present or defend a petition for winding up.
ANY CREDITOR OR MEMBER of the company may apply to court if they feel administrator has acted in a way that has harmed or will harm his interest.
Consequences of administration
Moratorium: (except from consent of administrator or court)
- No resolution or court order to wind up company is possible
- No recovery of property which company has HP or enforcement of retention clauses
- No other legal procedures
Assets subject to a floating charge:
- Administrator can sell assets without obtaining chargee consent, proceeds can be used for business.
Assets on HP or subject to a fixed charge:
- Administrator can sell assets with approval of court to pay off owner.
Directors:
- Powers are suspended
- Administrator can appoint / remove directors
Employees:
- Not auto dismissed but administrator can terminate conracts.
Transactions at an undervalue and preferences:
- May be avoided
Receivership - valid on on very old debts
Administrative receiver:
- Appointed by a floating charge holder
- Control over the majority of the company and wider powers.
- Appointment of receiver usually causes charge to crystallise but will still be called floating on winding up.
Fixed charge receiver:
- May be appointed by fixed charge holder
- Role is to collect rent / sell property.
-Doesn’t need to be a qualified insolvency person and could be a surveyor / property specialist. - Realise property for the benefit of the lender.
- Also owes a duty of care to borrower and should act prudently and have regard to his interests (not go to extensive lengths to increase value of property e.g pursing planning applications / renewing leases)
Company voluntary agreement (CVA) - flexiable
Introduced by insolvency act, apply when a company and its creditors make an agreement as to how debts are paid and in what proportions.
Possible options:
- Composition of debts e.g 60p to £
- Time period of payment (usually 2-3 years)
- Equity swap
- Benefit - company continues trading
- Companies can apply for a moratorium whilst they prepare a plan for creditors, initially 28 DAYS but can be extended with creditor agreement.
Procedure:
- Nominee is appointed (by a solvent company or administrator / liquidator)
- Nominee reports to court on likelihood of success
- Creditor approval is required (deemed consent), physical meeting not required unless requested.
- Binds all unsecured creditors (not fixed charge holders)
- Creditor can appeal to court within 28 days if unfairly prejudiced or procedural irregularity.
Liquidation
Liquidation > voluntary > members & creditors
Liquidation > compulsory > court
Voluntary liquidation: MEMBERS
- Only when company is solvent
- SPECIAL RESOLUTION
- Declaration of solvency (it they can’t it auto becomes creditors voluntary liquidation) - checked first
- Notice in London Gazette WITHIN 14 DAYS of resolution
- Company appoints liquidator by ORDINARY RESOLUTION
Voluntary liquidation: CREDITORS
- When directors are unable to make a declaration of solvency
- SPECIAL RESOLUTION to wind up company and directors nominate liquidators through deemed consent.
- Directors call a creditors meeting WITHIN 14 DAYS of resolution giving 7 DAYS notice of meeting to creditors.
- Meeting:
1. Directors present a statement of company affairs
2. Creditors may appoint a liquidator (will take priority over director choice)
3. Members and creditors form a liquidation committee to assist the liquidator
Appointment of the liquidator in creditors voluntary liquidation
Period prior to creditors meeting, directors must nominate a liquidator and give notice to creditors.
Creditors must make a decision AFTER 3 DAYS.
If less than 10% in value object it is approved.
Declaration of solvency
Declaration that directors have made full enquiry into affairs of the company and that they think they will be able to pay their debts in full together with interest (NOT EXCEEDING 12 MONTHS)
FINE OR IMPRISONMENT making a declaration of solvency with no reasonable grounds.
Declaration must:
- Be made by majority of directors
- Assets and liabilities at latest practical date
- Not more than 5 WEEKS before resolution to wind up is passed.
- Filed WITHIN 15 DAYS after the meeting
Compulsory liquidation
May be obliged to wind up by court (more likely) usually by a petition of member / creditor.
Les straight towards, more time consuming & expensive than voluntary winding up.
Compulsory liquidation - grounds
Company is unable to pay debts (creditor) - must show either:
- Owed more than £750 and have served registered office with a written demand WITHIN 21 DAYS
OR
- Attempted to enforce a judgement by execution of company’s property but it has failed to satisfy debt
OR
- Unable to pay debts as they fall due.
OR
- Assets less than liabilities
Just and equitable to wind up the company:
- Usually relied on where a member is not satisfied with directors or controlling shareholders over management of co. e.g deadlock, quasi partnership.
- Must be shown no other remedy is available.
Government may petition for winding up:
- PLC no incorporation certificate within 1 YEAR.
- Public interest and is just and equitable to wind up
Court will usually appoint a receiver (court officer) that may be replaced by an insolvency practitioner at a later date. The OFFICIAL RECEIVER must investigate causes of failure and promotion, formation, business dealings & affairs.
Consequences: can be deemed to commence earlier than petition
- Disposition of company property and transfer of shares after commencement date is VOID (unless court overrides)
- Legal proceedings in progress against company are halted (continued when court gives leave)
- Employees of company are auto dismissed, liquidator assumes powers of management previously by directors.
- Floating charge crystallises.
- Assets of a company are still companies legal property but under liquidators control (unless court says otherwise)
- Business of company may continue but liquidators duty to make sure it has a view to realisation e.g. sale of going concern.
Powers of a liquidator
Regardless of voluntary or compulsory winding up:
- Settle list of contributories e.g unpaid share cap
- Realise company’s assets
- Discharge companies debts
- Redistribute surplus’s to shareholders according to entitlement rights.
Once liquidation is complete:
- VOLUNTARY:
1. prepare account showing how winding up has been dealt with, lay it before a meeting of members / creditors.
2. WITHIN THE FOLLOWING WEEK details should then be filed with the registrar who will enter details on company file, company will be deemed to be dissolved 3MONTHS after.
COMPULSORY:
- Liquidator must go to court who makes an order to dissolve.
- Liquidator files this order with Registrar and then records on companies file to be dissolved from that date.
