Module 9 - Administrative Receiverships And CVAs

Question 1

3 Types of Receivership?

Answer 1

Administrative Rceivership;
Fixed Charge Receivership;
Law of Property Act Receivership

Question 2

Official appointed by a Court or Lender (under the terms of a secured debenture) who takes control of all or substantially all assets of a firm in receivership and is mandated to pay off the firm’s debts without liquidating it.

Answer 2

Administrative Receiver

Question 3

3 Requirements for Lender to appoint an AR

Answer 3

QFCH;
Have the power to appoint a receiver;
Charge was created before 15 September 2003

Question 4

4 Differences between AR and Admin

Answer 4

No Moratorium;
AR may contract with personal liability - whereas Administrator is agent of the company;
Not recognised in Europe;
Can’t pursue antecedent transactions

Question 5

3 Advantages of AR v Administrator

Answer 5

Duty to Lender NOT creditor;
Business Rates & CT payable on asset gain = unsecured claim v expense;
Cheaper and easier to appoint

Question 6

An equitable charge on all the Company’s assets both present and future, available only to companies, on terms that the company may deal with the assets in the ordinary course of the business.

Answer 6

Floating Charge

Question 7

In order for an AR to be validly appointed, the charge under which the appointment made must be valid; what makes it valid?

Answer 7

Date of the Charge - before 15/09/2003
Security must be ‘intra vires’ - company was legally able to take out the security;
Valid Board Resolution to request creation of the floating charge;
Charge must be registered within 21 days of its creation at CH

Question 8

5 Steps to Appointment of Receiver

Answer 8

1 - Company breaches term of loan;
2 - Bank issues demand;
3 - Bank appoints Receiver;
4 - Bank sends Deed of Appointment to IP (specific to AR);
5 - IP Signs and returns deeds by end of new business day

Question 9

Which law are LPA Receivers appointed under?

Answer 9

Law of Property Act 1925

Question 10

3 Powers of an LPA Receiver

Answer 10

Insure;
Pay outgoings;
Collect Rent

Question 11

Common Factors between LPA and Fixed Charge Receivers

Answer 11

Appointed under fixed charge; appointed over security over a fixed asset; appointed to deal with that asset; Do not need to be an IP; appointed by deed; powers and duties outlined in charge document; duty of receiver to person who appointed them

Question 12

Pre Appointment Considerations for LPA and Fixed Charge Receiverships

Answer 12

Sign an EL;
Agree Fee Position;
Agree an indemnity with Appointer;
Consider ethical risks;
Expertise required?
Is COmpany in Admin (Court consent then required)
Any other charge holders?
Does the charge doc have the powers needed to do the job;
Ensure letter of demand properly issued;
Is the charge valid?

Question 13

Process for LPA and Fixed Charge Receivers

Answer 13

Document of appointment must be sent to proposed Receiver;
Acceptance must be made by the end of the business day following receipt;
Appointment can be accepted orally;
Ensure Receiver is in a position to accept appointment;
Appointment effective from time that Receiver signs or orally accepts

Question 14

Steps on Appointment

Answer 14

Notice of appointment must be sent to Companies House within 7 days;
Notify Company of Appointment

Question 15

Role of LPA or FC Receiver

Answer 15

Recover money for lender,
Take control of asset to protect lender;
Act independently from Bank - not become their agent;
Role of Receiver may not be terminable for Company

Question 16

Duties of LPA / FC Receiver

Answer 16

Principle duty to lender;
Duty of care to other charge holder;
Duty of care to Guarantors;
Duty of care to pref creditors;
Must act in good faith;
Must achieve best price
Seek an independent valuation;
Must give notice of ceasing to act to Companies House
Must file r&p within one month of anniversary of appointment - 6 months thereafter,
Must account for taxes such as VAT and CIS;
FCR duty to company / debtor

Question 17

Advantages of a CVA

Answer 17

Continue Trading;
Freeze HMRC debt;
Directors maintain control;
Fixed parameters of operation;
Tax advantages;
Debt forgiveness can be included;
Can be used as a means to restructure;
Forces unpredictable Creditors to be bound by CVA

Question 18

Disadvantages of CVA

Answer 18

Do or Bust;
No automatic moratorium
No investigations;
members can challenge Creditor decision;
No antecedents transactions can be pursued;

Question 19

Which SIP governs CVAs?

Answer 19

SIP 3.2

Question 20

Two Key COmponents of SIP 3.2?

Answer 20

Meet Directors in Person;
Consider other options

Question 21

Immediate actions required when entering CVA

Answer 21

Call meeting with main creditors;
Work with Directors to contact funding providers
Put Company into ADM? (Would trigger auto Moratorium);
Seek a CVA - small company moratorium;
Pre-pack?

Question 22

CVA Process

Answer 22

1 - Proposals;
2 - Delivered to IP;
3 - Notice to Nominee;
4 - Statement of Affairs;
(4.5) - Other disclosures;
5 - Statement of Truth

Question 23

Nominee’s Report

Answer 23

Copy to Company;
Filed in Court;
Proposal;
NOminee’s Report;
Consent to Act;
Comments on the Proposal

Question 24

Calling Decision of Creditors and Meeting of GM Process

Answer 24

Notice;
Proposals;
Statement of Affairs;
NOminee’s Report;
proxy and Proof;
SIP 9 Guidance
Majority

Question 25

2 Key Considerations for Calling Meeting

Answer 25

14 CLEAR DAYS;
Proof of Postage;
Meeting held on Business Day
Convenient for Creditors

Question 26

How many days between Notice and holding meeting of Company in CVA

Answer 26

28 Days

Question 27

How long between (Maximum) between creditor decision and shareholder meeting?

Answer 27

Max 5 Business days - typically on the same day

Question 28

How long between decision and report of the outcome?

Answer 28

4 Business Days - Chair’s Report must be logged to Court, Creditor Decision, Members, Registrar

Question 29

4 Things to be included in Report of OUtomce

Answer 29

Result of Meeting;
Attendance (and voting amount);
Resolutions and Voting;
EC Regs - whether they apply

Question 30

How long do Creditors have to appeal the Chair’s Report

Answer 30

28 Days

Question 31

What two grounds can a Creditor appeal on?

Answer 31

Unfair Prejudice;
Material Irregularity

Question 32

CVA Small Company Moratorium - Qualifying Criterion

Answer 32

Turnover under 10.2 million;
Assets of less than 5.1 million on balance sheet;
Equal to or fewer than 50 employees in relevant period

Question 33

Additional Qualifying Small COmpany Moratorium Components

Answer 33

Can’t be in Admin (nor in last 12 months);
No outstanding petitions (not in process of winding up);
No AR been appointed;
No CVA already in place;
No provisional Liquidator in place

Question 34

Effects of a CVA Small Company Moratorium

Answer 34

No petition for winding-up can be presented;
No Administration Order can be presented and No Admin appointed;
Landlords cannot exercise right of forfeiture;
No further steps can be taken to enforce any security or repossess goods;
Company meetings cannot be called without consent of Reciever

Question 35

How long does Small Company Moratorium last?

Answer 35

28 Days unless extended

Question 36

CVA Proposals - Components

Answer 36

Desirability - why does Company want CVA?
Assets - whether there are any charges / what can be realised?
Liabilities;
Antecedent or Voidable Transactions
Prescribed Part;
Guarantees;
Duration;
Dividends / Distributions
Remuneration;
Business of the Company;
Supervisor (basics and role and duty and powers)
Default;
Role as Nominee and Supervisor

Question 37

Which creditors are bound by the CVA

Answer 37

Any who are entitled to vote
Secured Creditors may not vote

Question 38

What makes a Creditor eligible to vote in a CVA proposal dp?

Answer 38

Written notice of the claim must be given;
Claim must not be secured