Topic 4

Question 1

Pure rescue

Answer 1

a rescue outcome under this heading, will involve continued existence of corp shell. Company will be restored to financial viability, with its workforce intact, its operations or activities substantially the same and in the ownership of the same people. (shareholders keep same residual stake in it)

Question 2

Partial rescue

Answer 2

The company’s activities are in some way modified or reduced to a ‘core’. There may be some job losses, which may include the positions of senior management and/or directors. The ownership of the company is unchanged.

Question 3

Corporate recycling

Answer 3

The company’s business, or a viable part of that business, is sold as a going concern to a third party. This means that the productive part of the enterprise is removed from its original owners. There may be associated job losses which will almost certainly include the senior management and/or directors of the company.

A viable business can still be capable of being run efficiently and profitably.
•Insolvency procedure may involve sale of the business and the transfer of employees necessary to keep business flowing.
• Sold, hyped down and purchased by 3rd party which leaves original company without business, dissolved but business survives.

Is this even corp rescue?
Well corporation itself is not rescued but the business is. But some kind of rescue outcome. Original company’s shareholders lose stake altogether and just have consideration- used to pay creditors first.

Question 4

Turnaround/Workout

Answer 4

Insolvency practitioner appointed to assist company outside of any formal procedures in the hope of rescuing the company or business and avoiding insolvency.
(Intensive care)- tends to be done by those with good knowledge of insolvency and the distressed business.

Creditors may begin to see results from turnaround ranging from month-several years.

Question 5

Company Voluntary Arrangements (CVA)

Answer 5

• Formal insolvency procedure: deal between company and creditors for repaying in part/full the liabilities of the company
• Renegotiation of payments due to all creditors/ some other form of financial restructuring, subject to creditors’ meeting and vote needs 75% of creditors present and voting at summoned meeting
• Tool to offer a solution to companies which are currently in distress BUT have sound underlying business
• Must be supervised by licensed IP who acts as nominee pending approval of VA, usually becoming supervisor once it comes into effect
• Tool

Question 6

When is CVA used?

Answer 6

• Rescue company as a going concern
• To effect orderly wind-down of a company (without it being put into liquidation)
• Following on from administration

Question 7

Who can propose a CVA?

Answer 7

Directors of company

Liquidator/administrator of company

Question 8

Outcome of a CVA

Answer 8

CVA or scheme of arrangement: rescue of the company with control of being handed back to its’ directors.
Once approved, all creditors are unable to take alternative action to recover debt in full.

Question 9

Benefits of CVA

Answer 9

• Flexible- deal between company and creditors.
• Meeting required for cva to become effective
• Proposals may be modified by creditors who vote at meeting, subject to obtaining sufficient support from other creditors to obtain required majority to approve the proposed modification
• Ds remain in control of company unless also in admin/liq

Question 10

Administrative Receivership : what is it?

Answer 10

Receiver appointed by creditor holding fix/floating charges over some or all company’s assets. Receiver’s main duty is to act for charge holder although he may have some duties towards other classes of creditors too.

mortgagees often appoint receivers in relation to unsatisfied debt. This practice was imported into the corporate arena because it worked well.
Receiver would be appointed as agent of company, relieving mortgagee from any potential liability. Receiver would manage business but there were instances where receivers would spend many years, making cost savings and getting rid of employees not valuable rescue outcome.

Part III Insolvency Act 1986

Question 11

Definition of “administrative receiver” can be found in

Answer 11

IA 1986 s. 29(2)

Question 12

Bristol Airport v Powdrill [1990] Ch 744

Answer 12

“Administration orders were introduced by the Insolvency Act 1985 following a report by [The Cork Committee]. That report identified a shortcoming in the law relating to insolvent companies. In a number of cases, companies were forced into liquidation even though they were carrying on potentially viable businesses. Such businesses were destroyed for want of a procedure whereby they could be conducted with a view either to restoring the financial health of the company or of enabling the businesses to be sold as a going concern. If the business of the company could be sold as a going concern, it would normally command a substantially higher price than on break-up. The Cork Report contrasted that position with the case where a creditor holding a floating charge had appointed a receiver and manager who was able by continuing to run the company’s business to achieve the desired result to the benefit of not only the secured creditors but also the unsecured creditors and shareholders. The Cork Report also pointed to a separate mischief, viz. the inability in a liquidation to sell the whole of the company’s business as a going concern without the co-operation and agreement of those holding fixed charges over its assets.§

Question 13

Restricting administrative receivership (The Enterprise Act 2002)

Answer 13

IA 1986 s. 72A

Whole purpose of schedule B(1) of insolvency act, was to make admin attractive to secured creditors. Substitute for receivership so not prejudiced by this lack

Question 14

Administration procedure: what is it for?

Answer 14

Holds company together while plans are formed to either put in place a financial restructuring or sell business and assets to produce a better result for creditors than liquidation

Admin can also be used to liquidate assets and distribute proceeds to secured/preferential creditors (not primary purpose)

Question 15

What is administrative receivership?

Answer 15

AR appointed under a charge which covers the whole/substantially the whole of company’s assets including goodwill.
• Referred to as floating charge or debenture
• Lender (holder) is the debenture holder
• Receiver is the debt collector for lender who appointed him and seeks to obtain the best value for all creditors, although

Question 16

What happens at the end of receivership?

Answer 16

• If assets realised are insufficient to pay chargeholder in full, no money available for unsecured creditor- registrar will take steps to strike company off register
• If funds are available for unsecured creditors, once receiver has finished his work, will pass these funds over to liquidator who will agree claims of unsecured creds and distribute the surplus to them – company only struck off registrar at conclusion of liquidation

Question 17

what is the difference between receivership and administration?

Answer 17

AR appointed by lender which holds security in the form of floating charge. Primary duty is to recover debt due to holder of charge who appointed him, although he was certain overriding duties to all creditors (eg a duty to proper price for assets)

Administrators are appointed by court/on app of company, Ds or out of court by floating charge holders
o Officer of the court regardless of who appointed him.
o They merely take temporary control of company while proposals are drafted for approval by creditors and then to manage property, affairs and business of company in acc proposals for restructuring of company’s debt or realisation of assets.

Question 18

Displacing management

Answer 18

IA Schedule B1, para 59(1)
IA Schedule B1, para 61
IA Schedule B1, para 64 (1)

These provisions leave the management of the company very much in the hands of the administrator during his period of office.

Question 19

what management powers are conferred onto administrator?

Answer 19

IA Schedule B1, para 60

Question 20

statutory powers of administrators in dealing with company’s assets

Answer 20

Administrators have strong powers under s.234 Insolvency Act 1986 and an office holder may require the delivery to him of property of the company not in the company’s possession.

Equally, where he seizes property which he (incorrectly but reasonably) believes to be the company’s he is not liable for loss or damage to that property unless he has been negligent in relation to it.

Question 21

Duty to protect company’s property

Answer 21

statutory moratorium (Sched B1, Para 43)

Question 22

Bristol Airport v Powdrill 1990

Answer 22

• An airline company in administration owed substantial sums to the plaintiff airport.
• The airport had a statutory right of detention of the airline’s aircraft.
• In order to prevent an aircraft from taking off from its runway, the airport authorities parked a lorry load of concrete in front of it.
• Was this an attempt to enforce a security interest for the purposes of s. 11(3)(c) IA (the predecessor to paragraph 43)?

–> the statutory purpose is to install an administrator, as an officer of the court, to carry on the business of the company as a going concern with a view to achieving one or other of the statutory objectives… It is of the essence of administration under … that the business will continue to be carried on by the administrator.

–> It is legitimate and necessary to bear in mind the statutory objective with a view to ensuring, if the words permit, that the administrator has the powers necessary to carry out the statutory objectives, including the power to use the company’s property..

Question 23

Re Atlantic Computer Systems plc [1990] BCC 859

Answer 23

court approach to granting leave:

Question 24

Innovate Logistics v Sunberry Properties Ltd

Answer 24

Innovate ran a frozen food distribution business from property owned by Sunberry, the lease containing a covenant prohibiting assignment or parting with possession of the property. Innovate ran into financial difficulties and insolvency practitioners were consulted.

They recommended a sale of the business as a going concern to YHL Ltd, and the terms of the sale were negotiated prior to the practitioners being appointed as administrators, the sale being executed immediately on appointment (a ‘pre-pack’ administration – see below).

One of the terms of the sale was the grant of a licence to YHL to occupy Innovate’s premises: this was to allow YHL to complete Innovate’s contracts, which in turn would facilitate collection of the company’s book debts.

Sunberry sought leave under para.43(6) to commence proceedings to seek a mandatory termination of the licence.

Question 25

Re SSRL Realisations Ltd (In Administration) [2015] EWHC 2590

Answer 25

Another case in which a landlord (Lazari) sought leave to commence proceedings, this time to forfeit a lease of a restaurant in a shopping centre under s.146(1) LPA 1925.

The tenant entered administration and its administrators requested the landlord’s permission to assign the lease to a subsidiary of the tenant.

The landlord refused on the basis that the subsidiary’s financial standing was not assured.

Further negotiations between the administrator and the landlord followed but the landlord continued to refuse permission to an assignment of the lease and eventually sought leave, under para.43 of Schedule B1, to commence forfeiture proceedings.

The landlord adduced evidence to the effect that it would suffer financial hardship if it lost the opportunity to grant a new lease of the property.

Question 26

Schedule B1 para.99(1)

Answer 26

This paragraph applies where a person ceases to be the administrator of a company…

Question 27

Meaning of ‘adopt’ and the consequences of ‘adoption’

Answer 27

Re specialised mouldings, Re Ferranti, Powdrill v Watson,

Question 28

Re specialised Mouldings

Answer 28

Administrators sent out standard form letters to employees stating that they were not adopting their contracts of employment.

Question 29

Re Ferranti

Answer 29

AR letters to employees relieving themselves of personal liability not sufficient. ARs personally liable to pay all due debts.

• Administrative receivers (a similar provision applied, at that time, to administrators) sent out ‘Specialised Mouldings’ letters to employees (i.e., that the receiver was not adopting the contracts and that he does not assume personal liability in relation to their employment).
• The Court of Appeal held that the letters were inadequate to avoid the conclusion that the employment contracts had been adopted.
• More significantly, it agreed that the consequences of adoption were that the receivers were personally liable to pay all due debts to employees arising out of their contracts of employment. These included debts incurred prior to the appointment of the receivers, and sums due in respect of holiday entitlements, pension entitlements and sick or maternity pay.

Question 30

Powdrill v Watson

Answer 30

“If employment is continued for more than 14 days after the appointment of an administrator or receiver, there seems to be no escape from the conclusion that the whole contract is adopted.” Per Lord Browne-Wilkinson at 84)

It appears, therefore, that the test for adoption is an objective one, and will be met where, without more, employment is continued after the end of the statutory period of grace.

The House of Lords, however, disagreed as to the consequences of adoption, considering that any liabilities incurred could only relate to the post-appointment period. The Insolvency Act 1994 made a hasty amendment to the 1986 Act, which affirms this position, as can be seen from para.99(5)(c) above

Question 31

Pre-Appointment contracts

Answer 31

An administrator may find that there are certain pre-appointment contracts which he considers unprofitable or the terms of which may turn out to be disadvantageous.

Question 32

Innovate Logistics ltd v Sunberry Properties

Answer 32

The Court of Appeal appeared to inferentially accept the proposition that an administrator may sometimes have to cause the company to breach pre-appointment contracts in order to achieve the objective of the administration, as did the Court of Session in Joint Administrators of Rangers Football Club plc [2012] CSOH 55

However, this might be considered to amount to the commission of the tort of interference with contractual relations, in which case the administrator could find himself personally liable (as tortfeasor, for interfering with the contractual relations between the company and the counterparty to the breached contract).

Question 33

Lictor Anstalt v MIR Steel UK Ltd [2011] EWHC 3310 (Ch)

Answer 33

The claimant purchased machinery and entered into an agreement with Alphasteel Ltd, allowing A to assemble the machinery on its land, but reserving L’s right to enter onto the land and remove the machinery upon giving notice.

A subsequently entered administration. A’s administrators ‘hived down’ A’s business, including its land and the machinery in question, into a wholly–owned subsidiary (Mir Steel UK) and then sold the shares in M to a third party (Libala).

C claimed that the administrators, in selling the machinery as part of the hive-down, had committed the tort of interference with contractual relations (i.e., the contractual rights as contained in the agreement between L and A). The same claim was made against the purchaser of the land (M) At all times it appears that the administrators and the purchaser were aware that the ownership of the machinery might be the subject of dispute.

In relation to the claim against the administrators the court applied by analogy the rule applying to administrative receivers, which is dependent on the agency status of such receivers (recall that administrators are also, by statute, agents of the company in administration). In essence, under general rules of agency law, an agent cannot be liable for inducing a breach of his principal’s contract as long as he acts in good faith and in the proper performance of his duties (see Said v Butt [1920] 3 KB 497).

Wherever, therefore, it appears that an administrator considers it necessary to cause the company to breach its contracts in order to achieve the statutory objective of the administration, this rule may apply.

As far as the purchaser was concerned, the same rule could not apply.

There exists a defence of justification to the tort which the court agreed might apply to a purchaser of assets from administrators. However, the court was not prepared to find that such a defence was plainly made out in the absence of full argument.

Question 34

Lictor Anstalt v MIR Steel UK Ltd [2014] EWHC 3316 (Ch)

Answer 34

The question in issue was whether the purchaser of the land (Mir Steel) could rely on the defence of justification in terms of its interference with contractual relations. The court decided that it could not:

“In my judgment there is no reason of public policy or otherwise why a defence available to an administrator should also be available to a purchaser from the administrator in circumstances where the purchaser knows that a third party asserts rights to the asset, intending to defeat those rights and purchasing at a discount to take account of the risk…”

It should be noted that termination of a contract by reason of the counterparty’s breach will be perfectly lawful: BLV Realty Organisation v Batten [2009] EWHC 2994.

Question 35

What are the general duties of admins?

Answer 35

• Schedule B1 para. 4 The administrator of a company must perform his functions as quickly and efficiently as is reasonably practicable.
• Administrators must set aside and distribute the prescribed part under s.176A IA
• Will also be under a duty to meet preferential claims, to be calculated according to the date at which the company enters administration: para.65(2).

Question 36

Statement of proposals

Answer 36

One of the central planks of administration is that it is inclusive in nature, so that the company’s creditors have a real stake in and say over its outcome.

Schedule B1 para. 49(1) The administrator of a company shall make a statement setting out proposals for achieving the purpose of administration.

Question 37

Consideration of the proposals

Answer 37

Schedule B1 para. 51(1)
Each copy of an administrator’s statement of proposals sent to a creditor under paragraph 49(4)(b) must be accompanied by an invitation to a creditors’ meeting (an “initial creditors’ meeting”).

Question 38

revision of proposals

Answer 38

Schedule B1 para. 54(1)

Question 39

Rejection of the proposals

Answer 39

Schedule B1 para. 55

Question 40

Managing the business in accordance with proposals

Answer 40

Schedule B1 para. 68(1)

Question 41

Re T & D Industries plc [2000] BCC 956

Answer 41

Administrators of the company had received an offer for the entirety of its assets.
They wished to dispose of the assets without consulting a creditors’ meeting.
They applied to court for directions as to whether such a course required leave of the court.

Neuberger
• Commercial urgency was a reasonable justification.
• Certainly, even where urgency was driving situation, might be possible that admin should consider the proposal
• Given commercial backdrop, no legal requirement that admins act with court consent.
• He does point out that court is not being used as a bomb shelter.
• Creditors still have rights as against admins after proposed actions take place.
• Asking court for consent is time consuming, they have v little to even say.

Case Te & D is pre-enterprise act. The act wanted to include creditors.

“Save where the issue is whether he has power to take that action as a matter of law, it will normally be an administrative or commercial decision. The court almost always will conclude that the answer is either obviously favourable, or that the decision is a commercial or administrative one for the administrator on which the court has nothing useful to say.” Per Neuberger J at 961.

“There will be many cases where an administrator will be called upon to make urgent and important decisions and where the urgency means that there is no possibility of a s. 24 creditors’ meeting being called to consider the decision prior to it having to be made. However, the importance of the decision and the time involved may well be such that the administrator should have what consultation he can with the creditors … Whether he should effect any consultation, with whom he should effect it, how he should effect it, and what decision he should make following any consultation, must be a matter for him to decide by reference to the facts of the individual case.” Ibid at 966.

Question 42

In Re Transbus International [2004]

Answer 42

Lawrence Collins J considered that the Enterprise Act had not altered the law in this respect, and that the approach adopted by Neuberger J (as he then was) remained legitimate.

Lawrence: law had not changed that much since T&D was decided. He did not explore the matter v deeply or cite the various provisions.
No impediment to acting before meeting- even though in T&D case, where possible admins should perform some exercise.
so new style admin was to include creditors in process and make admins accountable to creditors for their actions.

Question 43

Admins acting unfairly

Answer 43

Schedule B1 para.74

(1) A creditor or member of a company in administration may apply to the court claiming that—
(a) the administrator is acting or has acted so as unfairly to harm the interests of the applicant (whether alone or in common with some or all other members or creditors), or
(b) the administrator proposes to act in a way which would unfairly harm the interests of the applicant (whether alone or in common with some or all other members or creditors).

(2) A creditor or member of a company in administration may apply to the court claiming that the administrator is not performing his functions as quickly or as efficiently as is reasonably practicable.

Question 44

Re Lehman Brothers International (Europe) [2008] EWHC 2869

Answer 44

• The case involved an application by a group of investment funds in relation to certain securities which had been lodged with LBIE as collateral for loans that might be made to the claimants.
• The claimants were seeking information from the administrators of LBIE as to the state of these securities.
• Directions had previously been given to the administrators to establish a ‘Trust Property Team’ to deal with this matter, and proposals to this effect had been approved by a creditors’ meeting.
• The claimants, however, argued that the agreement of terms for the transfer of their securities immediately prior to the Lehman group’s insolvency meant that the administrators were in a position to provide the further information requested and that failure to do so amounted to unfair prejudice for the purposes of para.74.

“Where, as here, where there is no suggestion that the administrators are acting other than in accordance with their obligations under Schedule B1 and the order made on 7 October it is exceedingly difficult to see how the unwillingness of the administrators… to devote more time and resources than they have already to answering questions put to them by a particular group of creditors (as I shall assume the applicants to be) directed to eliciting information about assets which the creditors claim are theirs can be said to be unfair even if it can be said to be causative or likely to be causative of harm.” (per Blackburne J, para.39)

Question 45

In Re Coniston Hotel (Kent) LLP [2013] EWHC 93 (Ch)

Answer 45

• It was noted that the concept of ‘unfair harm’ would usually connote ‘unequal or differential treatment to the disadvantage of the applicant which could not be justified by reference to the interests of the creditors as a whole, or to achieving the objective of the administration’.
• The theme of ‘even-handedness’ was followed in the Northern Irish case of Re Sheridan Millennium Ltd [2013] NICh 13, where it was held that and action could only be challenged as causing unfair harm where it engendered a ‘tangible detriment to an individual creditor or member of the company vis-a-vis another creditor/creditors or member/members’.

Question 46

Hockin v Marsden [2014] EWHC 763

Answer 46

• The claimants bought proceedings against the administrators of a property company. The claimants considered that the company had a claim against its bank in relation to the mis-selling of interest rate swap agreements and, as the administrators did not wish to pursue this claim, requested that the claim be assigned to them (the claimants). The administrators refused.

I do not myself see why the requisite unfairness must necessarily be found in an unjustifiable discrimination. A lack of commercial justification for a decision causing harm to the creditors as a whole may be unfair in the sense that the harm is not one which they should be expected to suffer… My view is that a differential treatment is not the only form of unfairness capable of satisfying paragraph 74…

The question, however, is not whether it is justifiable to decline to pursue any of the claims but whether it is justifiable also to decline to assign them, so that they will be lost… Since it is proposed that an assignment should be on terms that the administrators would receive a percentage of any recoveries, any success if the Applicants pursued the claims would be a benefit to the creditors; conversely, if the claims failed, the creditors would have suffered no prejudice.

Question 47

Breach of duty/dishonesty/misfeasance

Answer 47

Schedule B1 para. 75(1)

The court may examine the conduct of a person who—

(a) is or purports to be the administrator of a company, or
(b) has been or has purported to be the administrator of a company.

Question 48

what is a pre-pack administration?

Answer 48

• Deal to sell assets of a failed company, agreed to prior to insolvency, which is completed almost immediately after appointment of admins/receivers.
• Concerned with how administrator goes about selling.
• In practice, admins plan strategy bfore appointed- investigate, look into history of company etc.

Question 49

Why do a pre-pack?

Answer 49

• It can often be the best means ot preserving the value for the business, creditors and shareholders. If a company enters into traditional insolvency, it can result in disruption, uncertainty and a real prospect that the business would cease to operate loss for all stakeholders.
• This accelerated disposal process can mean smooth transition with enhanced realisations for creditors and preservation of value for goodwill and brands of business
• Employees better off with pre-pack too

Question 50

What does pre-pack involve?

Answer 50

• IP and firm are enaged with a company/stakeholders for a number of weeks prior to the sale taking lace.
• IP takes on a role which is usually the remit of the corporate financier- researching interested parties, preparing IM, agreeing confidentiality letters, seeking initial offers, undertaking DD and negotiating contract
• This is much faster than standard corporate finance deals, and insolvency commences immediately before contract completed

Question 51

what are the benefits and disadvantages of pre-pack. why all the controversy?

Answer 51

CON:
The debate around pre-packs essentially centres upon whether or not the pre-pack is an appropriate and effective method of selling a business.
It may be considered inappropriate or ineffective for a number of reasons. In summary, the main ones are as follows:

A pre-packaged business has not, by definition, been exposed to the competitive forces of the market, which may lead to the business being disposed of for a consideration less than would have been obtained had it been marketed for an appropriate period.

Where a pre-pack is effected through administration, the rights of stakeholders to participate in the decision-making process, as envisaged by the Insolvency Act 1986, are frustrated.

The pre-pack process is insufficiently transparent: creditors, or at least certain classes of creditors, are not provided with information adequate to allow them to measure whether the practitioner has carried out his functions in a manner that has not improperly or unlawfully prejudiced their interests.

Linked to the previous point, a lack of transparency inevitably results in a want of accountability: creditors are entitled to challenge the practitioner’s conduct but are disabled from doing so without the information necessary to mount a challenge;

Pre-packs may be unacceptably biased towards the interests of secured creditors, most notably floating charge holders. There may be no incentive to negotiate a consideration for the business much over the amount necessary to discharge the secured indebtedness, especially where a valuation puts these two sums reasonably close.

Pre-packs may also be geared rather more towards achieving enough to satisfy the claims of the floating charge holder and the practitioner’s fees and expenses, with no effort at capturing any premium over and above these amounts.

Where a pre-pack involves the sale of a business to a party previously connected with the company, usually as director, the process resembles the practice of ‘phoenixing’, which of itself gives rise to the imposition of qualification requirements on those who wished to act as office-holders in relation to insolvent companies, following the recommendations of the Cork Committee.

Linked to the above, the opportunities for and appearances of collusion with the purchaser of the business are heavily amplified where a sale of a business is effected through a pre-pack.

PRO

Exponents of the pre-pack strategy are to be found largely, but not exclusively, among practitioners, who point to commercial exigency as the driving force behind the procedure and maintain that, for some distressed businesses at least, a pre-pack is the best or the only method capable of extracting value for creditors from the corporate estate. The main justifications for pre-packing are as follows:

The pre-pack sale is one, and perhaps the only way of countering insolvency-related depreciation of the value of the estate. Entry into an insolvency procedure is both a public event and an unsettling one for a variety of corporate stakeholders. The value of goodwill, in particular, is subject to rapid erosion once the fact of insolvency becomes known.

The pre-pack delivers certainty. There is no hiatus between the business being put up for sale and its eventual disposal, during which time the value of the estate may deteriorate, as described above. Key resources of the business, including its employees and customers, will value certainty above all else, and without it may be tempted to jump ship.

It may in fact be impossible to offer the business for sale during a post-appointment period of marketing. In order to be saleable the business needs to continue trading, and this in turn will require funding. In some cases funding will simply not be available, as the company has no free assets to liquidate and its existing funders are unwilling to provide the necessary working capital.

The pre-pack allows for a seamless continuation of the business, which in turn will suppress opportunistic termination of contractual agreements and hold-outs. Equally, the collection of debts owed to the company is less likely to be prejudiced where the debtors in question will be anxious to trade with Newco in the future.

Pre-packing saves on costs. Although it may well generate pre-appointment costs, so too does the ‘business sale’ strategy. In the post-appointment period, trading can be a heavy drain on the corporate estate, and a trading profit, or even a break-even outcome, cannot be guaranteed. The pre-pack avoids both trading costs and those associated with a widespread marketing campaign.

Question 52

Is a pre-pack really that unfair for creditors?

Answer 52

Objective of PP is to facilitate smooth transition for survival of business, enhanced realisations for creditors and rescued jobs

PP is insolvency procedure so practitioner must always account for his actions to all creditors (secured, pref, unsecure)

Pre-packaged sale of business does not absolve IP from his duty to account for everything and obtain best price for the business

Insolvency reg authorities 2009 IP obliged to provide to creditors, a detailed explanation of the sale and why pre-pack was undertaken so creditors can be satisfied that admin has acted with due regard to their interests.

Also encourages IP to inform crediors and hold 1st meeting of creds as soon as possible after appointment. Can answer questions here

Insolvency causes creditors loss, not the pre-pack process.

Question 53

Insolvency reg authorities 2009: what did this do?

Answer 53

IP obliged to provide to creditors, a detailed explanation of the sale and why pre-pack was undertaken so creditors can be satisfied that admin has acted with due regard to their interests.

Also encourages IP to inform crediors and hold 1st meeting of creds as soon as possible after appointment. Can answer questions here

Question 54

DKLL Solicitors LLP [2007] EWHC 2067.

Answer 54

claimed If prepack didn’t go ahead, we would get chance to say deal didn’t go out and exercise vote against this deal- what you’re proposing has the effect of removing ability to vote against.

The court rejected this contention on the basis that the court could, under para.55(2), order the implementation of proposals that had been rejected by creditors. Whether or not this is correct, the fact of the pre-pack did not appear to trouble the court.

Question 55

Re Hellas Telecommunications (Luxembourg) II SCA [2009] EWHC 3199 (Ch)),

Answer 55

• Involved a huge Greek telecommunications operation ‘migrating’ its operations to the UK in order to enter administration and effect a pre-pack sale of its business.
• It was noted that the court could grant an administration application and give express permission for the pre-pack to be effected, but the possibility of subsequent creditor challenge to the administrators’ conduct in entering into the pre-pack agreement
• . As it turns out, such a challenge has been made, but in a somewhat indirect manner.

Question 56

Clydesdale Financial Services v Smailes [2009] EWHC 1745

Answer 56

I am confident that the evidence so far does not fully disclose the course of negotiations, in particular as to how the price of £1.9 million and the deferred payment terms were arrived at and as to the parts played by the various individuals involved … The conclusion on this is that the terms and circumstances of the sale are a legitimate matter for consideration and perhaps investigation by an officeholder acting in the interests of the creditors. I have not separately considered the complaint that financial support should have been sought from the existing funders as an alternative to a sale. This is an issue which no doubt an office holder could consider. (paras. 28-29)