Live Session 2 - Proxy, Proof of Debt, Distributions, Remuneration

Question 1

What is a proxy and when should they be issued

Answer 1

Authority given by one person to another to attend, speak and vote as his representative at a meeting.

All notices convening a meeting must enclose a proxy form

Question 2

A proxy must comply with the following rules in order to be valid

Answer 2

1. Must be received by the time and date specified in the notice of the meeting.
2. Proxy must be authenticated by principal or on behalf of authorised signatory - the relationship of authorised signatory must be stated on form
3. Proxy can be used at an adjourned meeting
4. Principal may revoke proxy at will
5. Faxed/ E-mailed proxies ARE valid for voting purposes
6. Chairman has no discretion to permit vote when there is a failure to lodge proxy.
7. If proxy represents corporation it must present authority for him to act as proxy at the meeting

Question 3

What can the proxy holder not do (hint - when chairman is nominated as proxy)

Answer 3

Proxy holder cannot vote in favour or any resolution that would allow him and his associates to receive any remuneration out of the estate unless the proxy had specifically directed him to vote this way.

Question 4

What is the threshold for being required to submit a proof of debt

Answer 4

Creditors owed less than £1,000 do not need to submit a proof of debt to prove claim. BUT - they will not be permitted to vote unless they have submitted one.

Question 5

What information must be included in a proof of debt

Answer 5

1. Company name, address and registered number
2. Total amount of claim, including VAT at the date the company entered administration. LESS, any payments made after that date in respect of claim, and any deductions for valid set off
3. Whether or not the claim includes outstanding uncapitalised interest
4. Particulars of how and when the debt was incurred by company
5. Particulars of any security held, including date given and value creditor puts on it.
6. Name and address of person authenticating form.

Question 6

What else should be submitted to prove claim

Answer 6

Any documents which can help to substantiate the proof. Administrator may call for documentary evidence where required.

Question 7

Who may inspect proofs

Answer 7

1. Any creditor who has submitted a proof which has not been wholly rejected
2. Any contributory
3. Any representative of the above

Question 8

What are the tax consequences of administration

Answer 8

Administration begins a new tax period. Earlier losses cannot be carried forward to set off against any capital gain incurred on disposal of assets.

If administrator trades profitably, corporation tax payable is an expense of the administration.

Interest earned during the administration will be taxed and be an expense of the administration

Question 9

How can capital gains tax be mitigated

Answer 9

If assets are sold prior to the administration, the tax liability will rank as an unsecured claim in the administration.

Question 10

Does an administrator need Court sanction to make distributions

Answer 10

No. Administrator can pay secured, prefs and prescribed part payment to unsecured creditors without seeking leave of court to do so.

Administrator will need Court approval to pay distributions to unsecured creditors above the prescribed part.

Question 11

Who do preferential creditors receive distributions in priority to

Answer 11

As in a winding up, pref creditors will rank in priority to holders of floating charge.

Question 12

What other payments can an administrator make without the need to seek court approval

Answer 12

Administrator may make any payment which is necessary or incidental to the performance of their duties.

Question 13

What happens to amounts due to employees retained by the administrator

Answer 13

They are paid as an expense of the administration. On leaving office, any amounts outstanding to employees must be settled by administrator in priority to his remuneration and floating charge holders.

Question 14

What conditions are attached to payments from realisation of fixed charge assets

Answer 14

Administrator may realise fixed charge assets with leave of court if selling them is consistent with purpose of administration. A condition of the Court order to approval the sale is that the administrator must pay the charge holder the higher of net sale proceeds or market value. Where the sale proceeds are less than market value, administrator must make up the shortfall.

Question 15

What options does an administrator have when adjudicating claims

Answer 15

1. Admit in full
2. Admit in part
3. Reject in full

Question 16

When are debts valued and characterised

Answer 16

The date of appointment rather than date of adjudication or creditors meeting.

Question 17

What is the exception to valuing debts as at the date of appointment

Answer 17

If administrator allows an unliquidated claim to be admitted based on the estimated minimum value of a claim, administrator should take account of the events occurring between date of appointment and date of meeting

Question 18

What should an administrator do if they reject a claim - in full or in part

Answer 18

Send creditor a written statement giving reasons for rejection

Question 19

What recourse does a creditor have if their claim is rejected

Answer 19

If creditor is dissatisfied with the administrator’s decision, they have 21 days from receipt of rejection statement to apply to court to challenge the decision.

Question 20

What other rights do creditors have regarding admission or rejection of claims

Answer 20

ANY CREDITOR may appeal admission or rejection of claims by administrator within 21 days of become aware of administrators decision,.

Question 21

Can a claim be amended or withdrawn

Answer 21

Yes. Proof may be amended or withdrawn at any time by agreement between creditor and administrator

Question 22

How does an administrator deal with debts payable at a future time.

Answer 22

For purposes of dividend, they apply a discount formula - x/ 1.05n

x = value of admitted claim 
n = period beginning with the relevant date an ending on date debt would otherwise be due. It is expressed in years and months in decimal form.

Question 23

What is the effect of discounts on a claim

Answer 23

All trade and other discounts should be deducted from claim.

Exception to this is where discount is given for immediate/ early/ cash settlement

Question 24

What happens if secured assets don’t realise enough to pay secured creditor

Answer 24

Secured creditor may prove for any balance remaining after deducting amounts realised for security

Question 25

What if the creditor also owes the company in administration funds

Answer 25

Mutual set off applies. We owe £200, they owe £100, they may prove claim for remaining £100

Question 26

How are foreign currency debts treated

Answer 26

Debt must be converted into sterling using official exchange rate on DATE OF APPOINTMENT

Question 27

How are claims periodical payments (i.e rent) dealt with

Answer 27

Creditor may only prove for amounts DUE and UNPAID up to the date of administration.

Question 28

Is a creditor allowed to apply interested to unpaid balances

Answer 28

Yes - interest may be included in claim up to the date of administration - post administration interest is not provable.

Question 29

how much notice must be given by administrator for notice of intended dividend and to give creditors final chance to prove claims.

Answer 29

21 days.

Question 30

What does an administrator need to do in respect of this notice

Answer 30

Advertise in Gazette and may chose to advertise appointment in such other manner as they think fit

Question 31

Who must notice be sent to

Answer 31

The notice of intended dividend must be sent to all known creditors whose addresses are known to the administrator.

Question 32

What must be included in notice of intended dividend

Answer 32

1. Who dividend is for - prefs only, prefs and unsecured
2. Where dividend is unsecured, the value of the prescribed part
3. Statement that distribution will be made within 2 months from last date given for proving claims.
4. Whether the dividend is an interim or final dividend.
5. The last date for proving claims - must not be less than 21 days from the date of the notice.

Question 33

When must a dividend be declared by administrator

Answer 33

Within 2 months of period stated in notice of intended dividend

Question 34

Who must dividend declaration be given to

Answer 34

All creditors who have proven their debts

Question 35

What must be included in declaration of dividend

Answer 35

1. Amounts raised by sale of assets and to the extent practical, amounts raised by sale of particular assets
2. Payments made by administrator
3. Where dividend is unsecured, the value of prescribed part
4. Provision - if any - for unsettled claims and funds retained for other purposes
5. Total amount of dividend and rate of dividend
6. Whether any further dividend is expected to be declared

Question 36

What is a notice of no dividen

Answer 36

Administrator gives notice that he is unable to make a dividend, notice must state that either

1. He has not realised any funds; or
2. Funds realised have already been distributed or allocated for defraying the expenses of the administration