insolvensy and sequestration Flashcards
what is insolvency
financial sense= debtor cannot meet liabities to cred
common element to these procedures is that an officially appointed third party has resp of turning the property into liquid assets and distributing such assest to cred to attempt to settle debts
insolvency touches on what law
obligation property law of person(llb) employement dil tax
scots law distinction between types of debtors
company debtors = corp insolveny
non company debtors= sequestration
sequestration
judicial process transferring whole assets of insolvent to trustee. this is done for the prupose of sale of property by the trustee and distribution by cred of the insolvent.
avalible for all insolvent EXCEPT REG COMPANIES
trust deed for behoof of cred
similar to seq. but PROCEDURE is VOLENTARY rather than JUDICIAL. less expensive meaning more money will go to cred. NOT AVALIABLE FOR REG COMPANY
bankrupcy
Is concerned with the affairs of individuals partnerships and unincorp bodies reather than companies (liquidation recieverhsip and admin)
liquidation
procedure for winding up a reg company. LIQUADATOR appointed with a similar role to trustee in seq. at end of seq the COMPANY IS DISSOLVED
available for solvent as well as insolvent companies
recievership
used for enfocing old floating charges (PRE 2002 ENTERPRISE ACT) RECIVER TAKES OVER RUNNING OF COMPANY RELISES ASSETS FOR BENEFITS OF CHARGE HOLDER
administration
only available to companies. admin takes over management of company for benefit of all concerened rights of cred suspened
company voluntary arrangements
deal approved by the majority cred for payment less than 100% of debts due
WHAT governs the insolvency porceedings on scotland
BANCRUPCY SCOT ACT 2016
PRACTICAL INSOLVENCY
CASH FLOW INSOLVENCY – debtor unable to pay debts as they fall due.
ABSOLUTE INSOLVENCY
BALANCE SHEET INSOLVENCY – total liabilities exceed total assets (affects gratuitous alienations and unfair preferences and can lead to disqualification of directors).
APPARENT INSOLVENT
s 16 Bankruptcy (Scotland) Act 2016 arises automatically on occurrence of certain events. Formerly notour bankruptcy. Does it apply to companies? When does it apply? a. sequestrated b. made bankrupt in UK c. debtor gives written notice to creditors that he has ceased to pay debts d. Becomes subject to insolvency in EU member state other than UK e. debtor grants trust deed to creditors f. charge for payment served on debtor and expires without payment g. decree of adjudication is granted h. debt payment programme under 2002 Act is revoked i. creditor is owed a prescribed amount £1,500 serves statutory demand for payment and denial of debt by debtor or no payment of debt within 3 weeks
WHEN DOES APPARENT NOT APPLY
n the case of (f), (g), and (h), s 16(2) provides that apparent insolvency does not arise if the debtor was able and willing to pay debts as they fall due, or the debtor had a restraining order that made payment impossible
what are the two important effects of apparent insolvency
(1) Precondition to Sequestration. (2) Equalisation of Arrestments and Attachments
sch 7 para 1 bankcrupcy scot act 2016
Clark v Hinde Milne & Co
Diligence Act 1661 and Adjudication Act 1672
judications within a year and a day are equalised
Stewart v Jarvie 1938
equalisation can apply to sequestration and liquidation.
as arrestment. if the dililgence is created 60 days prior to sequestration or apparent insolvency then it will be equalised held it was more than 60 days so not struck down
s 24, Bankruptcy (Scotland) Act 2016
s 24(1) sequestration is deemed to be adjudication, arrestment, or attachment (the reference to adjudication will be removed by the 2007 Act if land attachments ever come into force
s 24(3), 2016 Act (applied to liquidation s 185, 1986 Act) for inhibitions and s 24(6) for arrestments, attachments interim attachments and money attachments – the 60 day rule and ineffectual diligence. The former provides that inhibitions in the 60 days before sequestration become for the benefit of the trustee in sequestration on sequestration.
MacMillan v T Leith Developments Ltd
60 day rule The interpretation given to “effectually executed diligence” in the context of arrestment (and attachment) largely deprived the expression of having any legal effect. (para 57 per Lord President Carloway and para 90, per Lord Drummond Young) (b) The expression “effectually executed diligence” relates to the 60 day rule set out in s 24 of the Bankruptcy (Scotland) Act 2016 (and its predecessor provisions). (para 58, per Lord President Carloway and paras 94–97 and 100–101, Per Lord Drummond Young) (c ) The suggested interpretation in (b) was endorsed by the promoter of the bill when the floating charge was originally introduced, and so is supported by application of Pepper v Hart. (para 59 per Lord President Carloway and paras 98–99, per Lord Drummond Young) (d) The decision in Lord Advocate v Royal Bank appears to take an inaccurate view of the law of arrestment, and relies on case law which did not directly relate to the orthodox application of the law of arrestment (paras 84–88, per Lord Drummond Young) (e) The case creates a circle of priorities where there is an assignation, an arrestment that predates intimation of the assignation, and a floating charge which postdates the intimation of the assignation. (paras 92–93, per Lord Drummond Young) (f) The decision in Lord Advocate v Royal Bank ran counter to the true nature of the floating charge in giving the debtor freedom to deal with assets before attachment of the floating charge — which means that assets are free to be attached by creditors too (para 89, per Lord Drummond Young) The next two grounds are specific statutory interpretation issues — in addition to the Pepper v Hart issue identified as factor (c ). (g) The re-enactment of the provisions relating to effectually executed diligence after the decision in Lord Advocate v Royal Bank did not serve as parliamentary endorsement of the earlier Inner House decision — Barras v Aberdeen Steam Trawling and Fishing Co, [1933] AC 402 is only an aid to construction and not conclusive and does not apply to consolidation statutes (Haigh v Charles W Ireland Ltd 1974 SC (HL) 1, at 40 per Lord Diplock endorsed). (See para 65 per Lord President Carloway and paras 104–109, per Lord Drummond Young) (h) While Lord Advocate v Royal Bank has represented settled practice for 40 years, and the courts will generally be slow to reverse a decision where practice has been settled (see, for example, R (on the application of N) v Lewisham LBC, [2015] AC 1259). IN the view of Lord Drummond Young it is necessary to distinguish between adversarial and non adversarial processes (per Lord Drummond Young at paras 111–112) and as Lord Advocate v Royal Bank related to non adversarial processes the settled practice rule did not apply to restrict the court in overturning the case. (See paras 66–68 per Lord President Carloway and paras 110–114, per Lord Drummond Young). The arguments (a) to (f) in MacMillan largely replicate the criticisms in the articles on Lord Advocate v RBS (including those of Sim and myself). Commentators had suggested in addition the following (although this does not appear as a factor directly referenced in the judgment). The reversal of Lord Advocate v RBS also serves to address this problem and ensure the floating charge operates in a way more consistent with the general law. (i) The decision in Lord Advocate v Royal Bank seems contrary to Forth and Clyde Construction Co Ltd v Trinity Timber & Plywood Co Ltd 1984 SC 1 which held that a floating charge attached subject to a statutory hypothesis — which provides that the charge attaches as if it is the default type of security applicable to the particular property to which it attaches, hence for incorporeal moveable property the charge attaches as if it is an intimated assignation in security. In the general law an arrestment made before the intimation of an assignation will mean the arrester will take priority over an assignee and therefore the approach taken by Lord Advocate v RBS was inconsistent with the general approach to competitions between diligence and fixed securities.
An area where a transaction entered into by the debtor prior to insolvency can be challenged either
CHALLENGES TO PRIOR TRANSACTIONS(a) recover assets conveyed to third parties; or (b) strike down securities in favour of third parties
Thomas v Thomson
FRAUDULENT TRANSACTIONS AT COMMON LAW
When a man is insolvent, and knows it, he is barred by the first principles of justice from giving any preference to one of his creditors over another.
“It is the duty of a person notoriously insolvent to abstain from every act which can affect the preferences of his creditors
WHAT IS NEEDED FOR FRAUDULENT TRANSACTIONS AT COMMON LAW
- prejudice to creditors by diminishing estate for creditors
- absolutely insolvent or about to become so
- other party to transaction (not debtor) need not know there is a problem, but if they do then, 4. collusion between transferee and debtor suggests fraud
- fraud cannot be accidental – debtor must know insolvent
- voluntary action – no legal compulsion so to act 7. ordinary acts of administration are not fraudulent transactions, extraordinary ones might be
stewart &marshall v jarvis
fraudualnt transactions
any cred not a party to it or a trustee in sequestration xan reaise an action. with remedies in REDUCTION OR REDELIVERY THERE IS NO FIXED TIME LIMIT UNDER COMMON LAW. -VE PRESCRIPTION APPLIES
GRATUITOUS ALIENTATIONS
def
are simply gifts or part-gifts. Gifts made when a debtor is absolutely insolvent can be challenged by creditors and ‘reduced’. The law is governed both by common law and statute
GRATUITOUS ALIENTATIONS
common law
. It would seem that it is not necessary to show that the debtor intended to defraud creditors or that act was done with a view to avoiding the effects of bankruptcy
GRATUITOUS ALIENTATIONS
statutues
s 98 2016 Act, s 242 1986 Act
There must be an alienation by the debtor. 2. The alienation must transfer the debtor’s property or discharge or renounce a claim or right. 3. Sequestration, grant of trust deed or appointment of judicial factor. 4. Alienation within appropriate time period 5 years if to an associate
2 years in other cases
What is an associate of the debtor?
gratioutious alienatiation
s 229, 2016 Act (applied to liquidation by s 242 1986 Act) includes various relatives and business associates, employers and employees. And note the definition of associate in the Insolvency Act 1986, s 435, for companies.
Note, the alienation will not be capable of challenge if one of the defences can be upheld.
what are the defences or grat alienation
The debtor was not absolutely insolvent b. The alienation was for adequate consideration c. The alienation was a permitted gift (birthday present etc or for charitable purpose) if reasonable in circumstances
who can raise action for challenging grat alienation
Creditor; permanent trustee; trustee under trust deed, liquidator or administrator
what remedy is granted
eduction or such other remedy as is appropriate
MacFadyen’s Tr v MacFadyen
GRAT ALIENthe term adequate consideration was considered in macfadyn were it was held to have been given its normal meaning. namely something material/ monetary
Short’s Trustee v Chung (no 1) 1998 SLT 20
GRAT ALIENreduction or restoroation is the preferred remedu and ONLY where those are IMPOSSIBLE will REDRESS be allowed
Grampian MacLennan’s Distribution Services Ltd v Carnbroe Estates
GRAT ALIENare in financial difficulty. If a court holds that a transfer of assets by a debtor is a gratuitous alienation, the transfer can be struck down and the asset returned or other redress granted, in terms of s 242 of the Insolvency Act 1986, which provides certain defences including adequacy of consideration.
In the appeal, Lord Drummond Young considered the fundamental principles of insolvency law in assessing the distressed sale of Grampian’s property and whether the £550,000 paid for it constituted “adequate consideration”. The court also considered whether a quick sale was required in the circumstances, given Grampian’s financial troubles and its immediate need for funds.
Mahmood’s Trustee v Mahmood
GRAT ALIENtransfer “for love favour and affection” from father to son considering surrounding circumstances
Johnston’s Trustee v Baird
GRAT ALIEN(is the rule ECHR compatiblE
Unfair preferences def
occur when an absolutely insolvent debtor pays a creditor in certain circumstances which give the creditor an unfair preference or advantage over other creditors. It also covers situations where an unfair security is granted to a creditor.
unfair preferences common law
Stewart & Marshall v Jervis son in debt to father transfers house to latter].
general rule is that a debtor must - at the time of insolvency - treat all creditors equally and according to their rights as then established. No preference can be given to a creditor after insolvency if such did not exist prior to insolvency.
The grounds that the challenger must prove at common law are given above in the general material on fraudulent transactions.
UNFAIR preferences stat
99 2016 Act, s 243 1986 Act
Statutory ground of challenge
A preference created in favour of a creditor made within 6 months of sequestration or the grant of a trust deed or the commencement of winding up or the commencement of administration can be struck down
unfair preferences common law
Whatmough’s Trustee v British Linen Bank 1934 SC (HL) 51 [sale of bus business/overdraft].
Payments in cash
An insolvent who has in his hands funds sufficient to meet a debt which is immediately due is, if he pays the debt in cash, doing no more than he is bound to do. This is not considered to be a voluntary act, and it is therefore necessarily exempt from challenge. A cheque is regarded as payment in cash in this regard.
transactions in the cours of business
UNFAIR PREF
Even if an insolvent is conscious of his insolvency, he remains free at common law to continue in business and so transactions which are in the ordinary course of that business are protected from challenge. If, however, financial difficulties cause him to depart from the ordinary course of business, the transactions are reducible.
NEW DEBTS
UNFAIR PREF
There is no prohibition to an insolvent contracting new debts even once insolvent. Furthermore, there is no prohibition on him giving such a new creditor a preference compared to old creditors. The law on unfair preferences concerns the unfair treatment of existing creditors not new creditors.
An unfair preference is voidable at the instance of creditors, the trustee, or the liquidator or administrator
Some transactions cannot be challenged
ransactions in the ordinary course of trade. b. Payments in cash (includes payment by coins and banknotes, banker’s draft, cheques, and bills) unless collusive. c. Nova debita – where debtor and another party have reciprocal obligations – there is therefore no diminution in value of the debtor’s estate. A security for a new debt is fine, not a security for an old debt. However, not if collusive. d. Mandate to release arrested funds
action to reduce certain floating charges
S 245, 1986 Act Floating charges created within certain time periods will be voidable.
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If the charge is created in favour of a person connected with the company the time period is within 2 years of the commencement of winding up or administration (“connected with” means directors and others (associates): see ss 249 and 435 of the 1986 Act).
Otherwise the time period is 12 months provided that the company was unable to pay its debts at the time the charge was created: see s 123, 1986 Act.
However, NOT if the floating charge is for nova debita.
sequestration procedure
if the debtor applies for sequestration
s 195 of the 2016 Act
A debtor can give notice to the Accountant in Bankruptcy of his intention to make a debtor application and on receipt of that notice the Accountant must enter the debtor’s name in the Register of Insolvencies. This results in a moratorium on diligence which lasts for 6 weeks or when award of sequestration is registere
how does one commence a sequestration and who can do so
pettions for sequestration
debtor app
pretention for sequestration
A sequestration can be commenced by a petition to the Sheriff Court. Such a petition can be presented by the following (see s 2(1)(b) 2016 Act)
Note in particular, the apparent insolvency for a creditor’s petition must be within 4 months before the presentation of the petition; s 13(2) and the need for the creditor to serve the debtor with a debt information and advice package
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(s 3 of the 2016 Act). All petitions must be notified to the Accountant in Bankruptcy.
debtor application
If the debtor seeks his own sequestration he must make a debtor’s application to the Accountant in Bankruptcy (s 2(2) or (8) and s 8 of the 2016 Act)
Low income low asset debtors
ebtor will only be able to seek his sequestration under s 2(2) if the debt is between £1,500 and £17,000, the debtor’s assets are worth less than £2,000 and the debtor has a certificate of sequestration under s 9 (a certificate by a money adviser that the debtor is unable to pay debts), and the debtor has not been sequestrated in the preceding 5 years (or 10 years if the .
original application was under s 2(2)).
Other debtor applications
2(8) the application can proceed if the debtor owes at least £3,000 and has had money advice on the debtor’s financial circumstances and the effect of sequestration (under s 4) and is apparently insolvent and has a certificate of sequestration under s 9.
(s 22(7)(b)) 2016
the creditor or trustee petitions for the debtor’s sequestration the debtor must be given the chance to defend. There is a warrant to cite the debtor. The date of this warrant is critical. It is the “date of sequestration” if sequestration is later awarde
s 22 of the 2016 Ac
On a debtor’s application the Accountant in Bankruptcy must award sequestration forthwith if satisfied that the application has been made in accordance with the 2016 Act; that the conditions for making a debtor application are satisfie
s 26, 2016 Act
he warrant to cite or the award of sequestration by the Accountant in Bankruptcy must be sent forthwith to the Register of Inhibitions.
Fortune’s Trustee v Medwin Investments Ltd [2016] CSIH 49.
CONSEQUESES OF FAILING TO REG NOTICE
under s 54 2016
INTERIM TRUSTEE where the debtor agrees the appointment in a creditor or trustee-initiated application or the creditor or trustee shows good ground
(s 41 2016
INTERIM TRUSTEEhowever, a trustee in sequestration will be appointed. The trustee is to be given a statement of assets and liabilities
s 39 and s 53.
If there is an interim trustee s/he has duties to preserve the estate under
s 44 of the 2016 Act
A trustee may or may not choose to call a statutory meeting of creditors under s 44 of the 2016 Act, with notice given to creditors within 60 days of the decision whether or not to call the meeting. A creditor may within 7 days of notice choose to call a meeting
s 45
If there is NO statutory meeting s 45 applies and a report must be made to the Accountant in Bankruptcy
s 48
If there is a STAT meeting then s 48 applies and creditors can vote whether to keep the trustee
49
governs voting and s 60 governs the appointment of the replacement trustee. The sheriff is to approve the appointment.
ss 78, 79, 85 – 88, 90 – 97, 112 and 113 of the 2016
- Heritable property: see Burnett’s Trustee v Grainger 2004 SLT 591 (but note the trustee is not be able to register title for 28 days beginning with the date of registration of the s 26 notice – s 78(3) and (4)). Additionally, s 87 gives some protection to a purchaser who acquired from a party that was already bankrupt and consequently unable to deal with the property.
- Corporeal moveables – s 78(8);
- Incorporeal moveables (those which require registration and those which do not) – s 78(8);
- Pensions;
- Acquirenda i.e. estate acquired by the debtor after the date of sequestration and within 4 years following the date of sequestration – see s 86(4), (5) and 79(5);
- Assets outside Scotland;
- Property exempt from diligence (in accordance with Debt Arrangement and Attachment (Scotland) Act 2002, s 11 and Part 3) – s 88;
- Income of the debtor s 85 but note that Debtor Contribution Orders must be made in respect of a debtor – ss 90 – 97;
- Property held in trust – s 88(1)(c);
- Family home (s 113).
Burnett’s Trustee v Grainger
note the trustee is not be able to register title for 28 days beginning with the date of registration of the s 26 noticE
WHAT ARE THE DUTIES OF THE TRUSTEES
To recover, manage and realise the debtor’s estate. To distribute the estate among the debtor’s creditors according to their respective entitlements.
The duties of the trustee are set out throughout the 2016 Act (see especially s 50 (on functions), 109 (on management and realisation of assets) and 126-7 (on adjudication of claims).
WHAT ARE THE RESPECTIVE ENTITLE MENTS OF CRD
SECURED CREDITORS
DILIGENCE S.24 2014
OTHER CRD S.129 1985 ACT
if inadequate not the pari passu ranking for certain groups ogf cred
s.24(6) 2016
attachment and arrestment has been carried out but not completed pre sequestration = equalised
stewart v jarvie
if dil is within 60 days prior to sequestration/ apparent insolvency then dil = equalised
s.24(3) 2016
An inhibition against a debtor does not affect the trustee’s right over the property for sequestration purposes, unless obtained 60 days prior to sequestration
baird &brown v stirrats tustee
An inhibition against a debtor does not affect the trustee’s right over the property for sequestration purposes, unless obtained 60 days prior to sequestration. But if there are granted post-inhibition debts, the trustee will give effect to the inhibition in ranking
Bankruptcy and Diligence etc (Scotland) Act 2007, s 154
regarding inhibition not conferring a preference in ranking processes. Consider the implications of this.
debtor discharge
deemed to be free from continuing liability. This can be so even if creditors have not received 100% of their debt or the sequestration continues and the permanent trustee has not been discharged. The debtor may be discharged one year after date of sequestration. Where the Accountant in Bankruptcy is not the trustee in sequestration discharge can only be made on application to the Accountant in Bankruptcy – s 137. Such application can only take place 12 months after sequestration
process of getting a debtors discharcge
debtor can request an application. Applications have to be accompanied by statements as to the debtor’s affairs and conduct. The trustee is to provide a report to the AiB. The AiB makes the decision taking into account the trustee’s report and any representations made by the debtor and any creditor.
Where the trustee is the Accountant in Bankruptcy the AiB has to decide whether to apply for discharge – s 138. Where there is a decision to refuse discharge notification has to be given to those interested with reasons why. The decision can be reviewed by application. if the debtor cannot be traced discharge will be deferred.
Where the debtor has minimal assets (and makes a low income low asset application under s 2(2) of the 2016 Act) the discharge period may be reduced to 6 months, but there is a 12 month restriction order that will apply, which limits the obtaining of credit.
debtors discharge can it be reinvested
Discharge of the debtor does not reinvest the debtor in property vested in the permanent trustee.
Section 145(7) makes clear that student loans are not discharged on bankruptcy. Section 145 also provides that debts secured by a right in security are not discharged.
what happens once it has been discharged
‘discharged’ the debtor is deemed to be free from continuing liability for debts due at the time he was sequestrated. But it is possible that the debtor will have to make a regular Debtor Contribution Order which can last for 48 months from the first date of payment – see ss 90 - 97) and vesting of assets in the trustee for 4 years from the date of sequestration – s 86(4) and (5).
are there any restictions on debtors discharge
YES These impose a regime to punish certain bankrupts. The regime is for bankruptcy restriction orders and undertakings which can last to a maximum of 15 years and will impose restrictions on credit facilities and certain offices that may be held. The legislation is reticent as to how they could be used (a
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general discretion is given to the court to grant a BRO and various types of conduct are then listed – see s 56B(2)). No guidance is given as to how the duration of the BRO is to be fixed
in liquidation what are the gorunds for petition s.. 122 1986 act
Company unable to pay its debts. Company has by special resolution resolved that company be wound up by court.
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Company does not commence business within one year of incorporation or suspends business for a whole year. Court is of the opinion that it is just and equitable to wind up the company – minority shareholder protection. In Scotland, a company over which the Court of Session has jurisdiction, can be wound up by the Court if there is subsisting a floating charge over property comprised in the company’s property and undertakings and the court is satisfied that the security of the creditor entitled to the benefit is in jeopardy.
what are the finctions of the liquidator
Administer the assets of the company and manage matters during winding up distribute assets to creditors according to their rights as creditors.
The Liquidation Committee supervises the liquidator
what are the issues arising from liquidation
distribution of assets Secured creditors (including those doing diligence) (for special ranking rules for floating charges, see below) Expenses of liquidator Preferred creditors Unsecured creditors Postponed creditors Shareholders – only receive payment when the creditors have been paid in full
Pari passu ranking
admin procedure
Administration is a mode of company rescue involving a moratorium procedure
ss 8 to 27 of the Insolvency Act 1986 and especially by Sch B1 of the same Act
admin of the court
Sch B1, paras 10 – 13
when Unable to pay its debts (defined s 123 IA) – but see para 35 if application by FC holder Order will achieve purpose of administration
what is the purpose of admin
111 refers to para 3 objectives
(a) Rescue company as going concern or
(b) Achieve better result for company creditors than likely if wound up immediately or
(c) Realise property for secured/preferential creditors
Para 3(3) and (4) suggest (a) takes priority, then (b), then (c). (although when you read the wording of para 3
who can petition court in admin
Company Directors (not individual director) Creditor(s)
Court discretion
out of court procedures
Appointment by the holder of a floating charge (para 14) after giving notice to any prior FC holder (or obtaining their consent to application)
Grounds to appoint? (cf receivership)
Or appointment by company or directors (para 22)
Grounds? Not clear However, see para 27 which identifies requirements of notice of intention to appoint including: unable to pay debts; not in liquidation; and not in CVA.
effect of admin
Applicable either if appointed by court or informally (paras 42 and 43)
No liquidation No enforcement of security or other debts No irritancy
powers of admin
paras 59 and 60 and Sch 1 (which you must read)
Manage company affairs Duties Custody of property Notify appointment Can dispose of property where security over it To set out (para 48) objectives to meet purpose of administration
end of admin
1 year para 76 can be extended or winding up
recievership
can go ‘into receivership’ as well as ‘into liquidation’. Indeed, a company can be in both states at the same time.
concerned with the use of floating charges. As the name suggests, a floating charge ‘floats’ over the general property of a company and when there is default on the debt it ‘attaches’ to the property, freezing the latter and ensuring that the creditor gets paid
receivership is a hybrid of
an insolvency process, and (b) the enforcement by a single creditor of his security. Receivership represents the enforcement of a “floating charge
takes control of the company’s assets, and has power to do juridical acts for the company. He or she can thus sell individual assets or - and this is common - the whole active side of the patrimony. In other words, the receiver can sell the business as a going concern.
define floating charge
which is available only if the debtor is a company (or certain other type of corporate entity), affects the debtor’s entire patrimony, movable and immoveable, corporeal and incorporeal, real and personal, present and future. It must be publicly registered (see earlier handout on rights in security). So long as the company is solvent, the effect of the charge is suspended. At this stage, the charge is not a real right. That does not arise until attachment.
what happens on attachment by recievership
S 53(7) attaches “as if” a fixed security S 57 – receivers are deemed agents of the company
forth and clyde construction v trinity timber
receiver has power to sell but is not a secured cred. the charge holder is a secured cred BUT CANNOT SELL
procedure
receiver is appointed to enforce the floating charge. Unlike a liquidator, the receiver acts in the interest of the holder of the floating charge and only has very general duties to the company. However, the receiver is an agent of the company. The primary duty of the receiver is to realise the frozen assets to pay the debts secured by the floating charge.
The receiver is empowered to act in accordance with the powers found in 1986 Act, Sch 2 and the powers include that to sell the business.
timing of receivership
A floating charge will attach immediately if the company goes into liquidation (s 463, Companies Act 1985
a holder of a floating charge can appoint a reciver at any time after default of debt
A receiver can be appointed even after the company has gone into liquidation, and a company can go into liquidation even after it has gone into receivership MANLEY PETR
distribution of mney in recievership
The order of priority of distribution of moneys by the receiver is in IA 1986 s 60. It is:
- Fixed securities ranking prior to or equally with the floating charge (see below); 2. those who have “effectually executed diligence” on property subject to the charge; see MacMillan v T Leith Developments Ltd [2017] CSIH 17; 2017 SC 642 (a five judge decision); 3. debts incurred by the receiver; 4. the receiver’s outlays and fees; 5. preferential creditors; 6. the floating charge holder;
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Floating charge on attachment ranks above other claims including
(
ordinary unsecured creditors (except the “prescribed part” – as introduced by Enterprise Act 2002, see s 176A of the Insolvency Act 1986) (b) later floating charges: s 464(4) (c) later rights in security that are made real rights after the creation of the floating charge (if there is a negative pledge clause: s 464(1) and (1A) of the Companies Act 1985: AIB Finance Ltd v Bank of Scotland 1995 SLT 2)
The floating charge ranks after
Prior floating charge; (b) Prior real security (and a later real security which is made a real right prior to the floating charge’s attachment, if the floating charge has no negative pledge); (c) Prior and posterior tacit security (cf Cumbernauld Development Corporation v Mustone 1983 SLT (Sh Ct) 55 with Grampian Regional Council v Drill Stem 1994 SCLR 36); (d) Preferential creditors (a curious regime – amended substantially by Enterprise Act 2002); (e) “Effectually executed diligence” (see MacMillan v T Leith Developments Ltd [2017] CSIH 17; 2017 SC 642 (a five judge decision)); (f) The prescribed part; (g) Quasi-securities, eg trusts
Circles of priority: eg the preferential creditors circle
COMPANY VOLENTARY ARRANGEMENTS
nsolvency Act 1986 ss 1 to 7, directors of company may make a proposal to creditors for a composition of debts. Insolvency practitioner nominated as trustee to administer scheme. Meetings of company and creditors consider proposals. (There can also be Schemes of Arrangement under Part 26 of the Companies Act 2006)
