Live Session 2 - Moratorium, ROT, Creditors' Decision

Question 1

Who acts as Chairman in creditors meeting in administration

Answer 1

Administrator. (Different from liquidation where director acts as chairman).

Remember - Administrator can’t vote in favour of their proposal.

Question 2

What happens if proxy nominates the chair as their proxy without indicating their vote for or against the proposal

Answer 2

Treat as though they abstain from the vote as administrator is not allowed to vote for own proposal

Question 3

What is special about HMRC with regard to creditors meetings

Answer 3

They, as officers of the Crown, may attend creditors meeting without first lodging proxy/ claim.

Question 4

What is the distinction between lease claims in a CVA and Administration

Answer 4

In admin, claim permitted for the amount due and payable as at the date of administration. i.e Arrears at date of meeting.

In CVA, allow full amount of lease rental payments due over whole lease.

Question 5

How does the creditor decision process/ votes of creditors work to vote on proposals i.e What is the process for voting

Answer 5

Two stage process.

Step 1: Count votes FOR the proposal.

Votes received FOR the proposal/ total votes cast

Step 2: Count votes AGAINST the proposal from independent creditors.

Votes received AGAINST the proposal/ total value of claims of independent creditors who were notified of the meeting

Question 6

How are landlord dilapidations claims dealt with

Answer 6

Dilapidations claims are an unliquidated claim and administrator may estimate value and allow estimated minimum value for voting purposes.

Question 7

What is the effect of an interim moratorium starts

Answer 7

1. No winding up resolution may be passed, but winding up petitions are not dismissed
2. Fixed Receiver does not vacate office but can’t enforce security without leave of court
3. AR appointed may continue to act - unless agrees to stand down or charge under which they were appointed is voidable
4. An AR can still be appointed

Question 8

What is the effect when the interim moratorium turns into a full moratorium

Answer 8

1. Winding up petitions dismissed or suspended, no winding up order can be made
2. Fixed Receiver must vacate if required by administrator
3. AR must vacate office and no AR can be appointed
4. No AR can be appointed

Question 9

What is the effect of full moratorium on creditors

Answer 9

1. No steps can be taken to repossess ROT, HP, Chattel lease goods
2. No legal process can be commenced or continued, including executions
3. Landlords cannot distrain or forfeit
4. Receivers cannot enforce security without consent of administrator or court
5. No resolution to wind up nor any winding up order will be made

Question 10

What is the process for dealing with application to court by proprietary creditors to reposs goods

Answer 10

1. Administrator is officer of the Court
2. Duty is owed to all creditors
3. DANGER
4. Would repossession of ROT stock impede process of administration?

No - Allow repossession
Yes - Apply balancing exercise - losses to interests of creditors generally vs losses to proprietary creditor.

Question 11

What is the DANGER acronym for dealing with applications by proprietary creditors to repossess goods

Answer 11

D - Deal with it promptly - if necessary make an interim decision (i.e retain goods but meet current payments as an expense of administration)
A - Act Responsibly
N - Not use moratorium as a bargaining tool
G - Give reasons/ Justify decision
E - Ensure reply in writing
R - Apply Re Atlantic guidelines - balancing exercise.

Question 12

What is the general rule regarding allowing repossessions?

Answer 12

If losses to applicant are significant, general rule is that repossession should be allowed UNLESS these are outweighed by substantially greater losses to creditors generally.

Question 13

Can an administrator use goods that HP/ Leasing creditor is attempting to repossess

Answer 13

No - administrator cannot use goods without permission of the creditor or permission of the Court

Question 14

What will the court consider regarding an application to repossess goods

Answer 14

1. Balance interests of applicant creditor vs creditors as a whole.
2. Court has broad discretion and will look at all circumstances.
3. Court will not adjudicate on disputes regarding the existence or validity of security (unless short issue of law which is convenient to decide)
4. Onus is on creditor to prove grounds
5. Court will consider conduct of both parties.
6. Significant importance is given to proprietary creditors vs unsecured creditors.
7. Court will consider the financial position of a company - specifically its capacity to pay ongoing interest/ rental payments under the agreement.

Question 15

When does an interim moratorium apply

Answer 15

3 Situations:

1. Application to Court has been filed but not yet granted
2. QFCH has filed a Notice of Intention but administrator has not been appointed/ 5 day validity period has not lapsed.
3. Company/ Directors have filed a Notice of Intention which is valid for 10 days and administrator has not been appointed.

Question 16

What is a moratorium

Answer 16

It prevents secured and other duress creditors from exercising rights without leave of court.

It provides breathing space to administrator to develop a strategy.

Question 17

Who prevails in rights of unsecured and proprietary creditors

Answer 17

Administration for the benefit of unsecured creditors SHOULD NOT be conducted at the expense of those who have proprietary rights.

Question 18

To whom must administrator send progress reports

Answer 18

1. Creditors
2. Registrar
3. Court

Question 19

How often should progress reports by prepared

Answer 19

First report covers period from date of commencement + 6 months, and every 6 month period thereafter.

Question 20

When should progress reports be issued

Answer 20

Progress reports must be completed and issued within one month of the end of the reporting period.

Question 21

What is the content of the progress report. (Hint - Progress Report has 14 letters. 14 things to include in progress report).

Answer 21

1. Court & Court Ref number
2. Company’s name, address, number, reg office
3. Administrators’ name, address, date of appointment
4. Name and address of appointer
5. Details of any extension to initial period of appointment
6. Details of basis agreed for administrators fees
7. Details of fees charged in reporting period
8. Details of all expenses incurred during reporting period
9. If fees charged on time cost basis, administrator must detail fees which have exceeded initial estimate and explain why and what administrator intends to do
10. Details of progress made during reporting period
11. Details of any assets that remain to be realised.
    12 Statement of creditor rights to request information and challenge fees and expenses.
12. If final report and exiting to another form of insolvency, statement reminding creditors of intention to remain in office subject to receiving any objections
13. Any other relevant information for creditors.

Question 22

What are the practical issues in respect of ROT/ Proprietary creditors

Answer 22

1. ROT creditors cannot repossess stock unless administrator or court agrees
2. Administrator cannot use stock unless ROT creditor agrees as it belongs to them.
3. Administrator likely needs to use stock to continue trading.
4. Negotiate - usual deal is to pay for stock used.

Question 23

How do you check if ROT clause has been validly incorporated into a contract

Answer 23

1. Obtain copies of contractual documents
2. Review documents
3. Consider taking legal advice
4. Has the term been incorporated - terms of contract, notice prior to contract, regular course of dealing, post contract?
5. Can the supplier identify the goods subject to ROT clause?
6. Tenancy in common on original stock but not manufactured
7. All monies clause - only necessary to identify goods belonging to the supplier. Ask whether purchase ledger account shows a nil balance.
8. If simple clause then match specific clauses against specific stock
9. Have goods undergone any changes - manufactured - can they be identified/ removed?
10. Does clause purport to extend to suppliers rights in finished goods/ debtors/ sales proceeds? Attempt to create a floating charge which is not registered is void for non registration

Question 24

What rights do creditors have to request additional/ supplementary information relating to progress report

Answer 24

Creditors have 21 days from receipt or report to request supplementary information.

Criteria to be able to request information:

1. Owed more than 5% of total liabilities
2. Owed 5% in conjunction with other creditors
3. Has permission of court

Question 25

What options does the administrator have upon request for additional information

Answer 25

Administrator must provide information requested or provide reasons for not doing so

Question 26

What are valid reasons not to provide creditors with the information requested

Answer 26

1. It will incur excessive cost
2. Will prejudice the conduct of the administration
3. It might reasonably lead to violence against any person
4. Will result in a breach of confidentiality
5. Would be prejudicial to proceedings.

Question 27

Can a creditor challenge non disclosure of information

Answer 27

Yes. Any creditor may challenge administrators refusal to supply requested information. Application must be made to Court within 21 days of receipt of refusal.

Question 28

When is it not necessary to seek creditor approval for administrators proposal

Answer 28

1. When it is likely that creditors will be paid in full
2. When it is likely that there will be no return to creditors

Although creditors have power to request that a decision procedure is used.

Question 29

What are some points to note regarding creditors meetings

Answer 29

1. If no chairman within 30 mins, meeting is adjourned to same place and same time following week
2. Adjourned meeting must be held within 14 days of original meeting
3. Meetings can be suspended once for a period of up to one hour
4. Creditors may vote at an adjourned meeting even if they had not lodged their proof in time for the original meeting. Proofs must be lodged by 4.00pm on the business day before the adjourned meeting.
5. The Court may allow administrator to give notice generally, rather than serving personal notice.