7 Insolvency

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7 - Insolvency

• Bankruptcy
• Corporate Insolvency

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Topic 7

• Insolvency - Bankruptcy

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Insolvency - Bankruptcy

• 1. Personal Insolvency
• Bankruptcy - property of an insolvent individual
  is held by a trustee who uses it to pay the debts
  
• Insolvency Act 1986

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Insolvency - Bankruptcy

• 1. Personal Insolvency
• a) The creditors each receive a proportion of
  debt
• b) The debtor protected from further legal action
• c) The causes and conduct investigated

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Insolvency - Bankruptcy

• 1. Personal Insolvency
• Advantage
• Debtor gets a clean slate
• Disadvantages
• Slow, Expensive and Creditors not paid in full

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Insolvency - Bankruptcy

• 2. The Bankrupt
• Individual
• Minor only bankrupt for a legally enforceable
  debt
• Deceased persons estate liable

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Insolvency - Bankruptcy

• 3. Bankruptcy Procedure
• a) Creditor or Debtor Petition
• b) Bankruptcy Order
• c) Trustee in Bankruptcy
• d) Discharged

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Insolvency - Bankruptcy

• 3. Bankruptcy Procedure
• Creditor's Petition
• A creditor may petition (S.267) if
• a) Debt is a specified sum
• b) Debt is for an unsecured liquidated sum
• c) Debtor is unable to repay the debt and no
  reasonable prospect of doing so
• Must establish debtor's inability to pay debt

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Insolvency - Bankruptcy

• 3. Bankruptcy Procedure
• To establish the debtor's inability to pay
• a) Statutory Demand
• Must be
• in the prescribed form
• requiring payment of the debt
• If debtor fails to comply within 3 weeks the
  creditor may petition for bankruptcy
• b) Court Order for judgement of a debt

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Insolvency - Bankruptcy

• 3. Bankruptcy Procedure
• In the court proceedings following the petition
  the debtor must show that he or she is able to
  pay his or her debts or a bankruptcy order will
  be made.

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Insolvency - Bankruptcy

• 4.Bankruptcy Petition
• Debtor' Petition
• A debtor may petition the court for his own
  bankruptcy by
• i) Showing that he or she is unable to pay his or
  her debts
• ii) Giving particulars of his or her debts and
  other prescribed information. S.272

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Insolvency - Bankruptcy

• 5.Bankruptcy Order
• Small Bankruptcy Procedure
• This is available if (S.273)
• i) Total debts do not exceed "small bankruptcies
  level"
• ii) Debtor's assets minimum amount of debts
• iii) Debtor not been made bankrupt within last 5
  years
• Court may order Voluntary Arrangement
• Bankruptcy order with Certificate for Summary
  Administration

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Insolvency - Bankruptcy

• 5.Bankruptcy Order
• Certificate for Summary Administration
• Ordered when a Voluntary Arrangement is
  inappropriate and when it is clear that the
  debtor's assets are insufficient to warrant the
  cost of realisation.
• The bankrupt's estate is administered as cheaply
  and quickly as possible by the Official Receiver.
  S.275

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Insolvency - Bankruptcy

• 5.Bankruptcy Order
• A Bankruptcy Order

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Insolvency - Bankruptcy

• 6. The Trustee in Bankruptcy
• The commencement of the bankruptcy is the date
  of the bankruptcy order.
• A Trustee in Bankruptcy is appointed
• Official Receiver or Insolvency Practitioner
  appointed by creditors.
• A bankrupt's estate automatically vests in his or
  her trustee S.306.

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Insolvency - Bankruptcy

• 6. The Trustee in Bankruptcy
• The bankrupt must
• i) Submit a statement of affairs to the Official
  Receiver/Trustee in Bankruptcy within 21 days
• ii) Deliver up all his or her property to the
  Official Receiver/Trustee in Bankruptcy
• iii) Submit him or herself for public examination
  if required to do so.

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Insolvency - Bankruptcy

• 6. The Trustee in Bankruptcy
• Functions of the Trustee in Bankruptcy
• The trustee in bankruptcy
• i) Investigates the conduct and affairs of the
  bankrupt
• ii) Applies to the court for a public examination
  of the bankrupt if fraud is suspected
• iii) Convenes a meeting of creditors as
  necessary.
• iv) Realise the assets in his or her hands to pay
  the liabilities and expenses of the bankrupt
  according to the set order of priority.

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Insolvency - Bankruptcy

• 6. The Trustee in Bankruptcy
• To do this the trustee has the following powers
• a) Seizure of the bankrupt's property
• b) Redirection of mail
• c) Private examination
• d) Arrest (with the court's sanction)
• e) Right to prevent utilities from obtaining
  payment as a condition for continued supply.

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Insolvency - Bankruptcy

• 6. The Trustee in Bankruptcy
• The Order of Priority is as follows
• 1) Creditors with fixed charges e.g. mortgages
• 2) The expense of realising assets
• 3) The cost of the bankruptcy proceedings
• 4) Preferential debts e.g. wages, Inland Revenue
  and Customs and Excise no longer preferential
  creditors Enterprise Act 2002)
• 5) Ordinary or unsecured debts of the bankrupt
• 6) Deferred debts such as those owing to a spouse.

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Insolvency - Bankruptcy

• 6. The Trustee in Bankruptcy
• Secured creditors will obtain payment by
  realising the security. If more is realised than
  the debt this must be passed to the trustee in
  bankruptcy if less is realised the creditor may
  "prove" with unsecured creditors for the
  shortfall.

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Insolvency - Bankruptcy

• 7. The Bankrupt's Estate
• A bankrupt's estate is
• a) All property belonging to the bankrupt at the
  date of the bankruptcy order
• b) All property that is deemed to belong to the
  bankrupt by reason of the provisions of the
  Insolvency Act 1986

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Insolvency - Bankruptcy

• 7. The Bankrupt's Estate
• Property that does not form part of the
  bankrupt's estate is
• a) The tools of his or her trade
• b) Household effects S.283
• c) Property held by the bankrupt in trust for
  others
• d) Specialist exemptions such as state pension.

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Insolvency - Bankruptcy

• 7. The Bankrupt's Estate
• Property acquired during the bankruptcy period is
  available to pay the bankrupt's debts
• Note restrictions
• Trustee may within 42 days of an acquisition
  serve a notice on the bankrupt requiring it.
  Title passes to the trustee from time of
  acquisition.
• Does not apply to a third party who after
  acquired property in ignorance of bankruptcy
  S.307

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Insolvency - Bankruptcy

• 7. The Bankrupt's Estate
• Income Payments Order
• The trustee may obtain that part of the
  bankrupt's income that is not required for
  reasonable domestic needs

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Insolvency - Bankruptcy

• 7. The Bankrupt's Estate
• Bankrupt's Home
• Bankrupt spouses interest will be transferred to
  the trustee who will wish sell. Normally have to
  apply for a court order. The court is directed to
  make an order for the sale of the property as it
  thinks just and reasonable having regard to the
  following
• i) The interests of the bankrupt's creditor's -
  save in exceptional circumstances these will take
  precedence after one year from the date of the
  bankruptcy order
• ii) The conduct of the spouse in contributing to
  the bankruptcy
• iii) The financial resources of the spouse
• iv) The needs of the children
• v) All the other circumstances of the case other
  than the needs of the bankrupt.
• Onerous Property
• The trustee may disclaim onerous property such as
  a lease, which cannot be assigned.

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Insolvency - Bankruptcy

• 7. The Bankrupt's Estate
• Bankrupt's Home
• The court makes such order as it thinks just and
  reasonable having regard to the following
• i) The interests of the bankrupt's creditor's
• ii) The conduct of spouse in contributing to
  bankruptcy
• iii) The financial resources of the spouse
• iv) The needs of the children
• v) All other circumstances except needs of the
  bankrupt.

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Insolvency - Bankruptcy

• 7. The Bankrupt's Estate
• Onerous Property
• The trustee may disclaim onerous property such as
  a lease, which cannot be assigned.

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Insolvency - Bankruptcy

• 8. Transactions Which May Be Set Aside
• The trustee may apply for an order to set aside a
  previous transaction
• The following transactions may be set aside
• 1. A transaction at an Undervalue 5 years before
  the petition. Transaction is at an undervalue if
• i) A gift or
• ii) A transaction in consideration of marriage
  or
• iii) Consideration received is less than
  consideration given.

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Insolvency - Bankruptcy

• 8. Transactions Which May Be Set Aside
• The following transactions may be set aside
  (Continued)
• 2. A Preference transaction (where the bankrupt
  intended to pay one creditor to the exclusion of
  others) 6 months or 2 years if to an associate
  before the the petition
• The bankrupt must have be insolvent at the time
  of the preference transaction which means that
• i) he or she was unable to pay his or her debts
  or
• ii) the value of assets were less than
  liabilities .S.340

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Insolvency - Bankruptcy

• 9. Discharge of the Bankrupt
• Until a bankrupt is discharged he or she must
• a) advise of his or her status when obtaining
  credit
• b) engage in business in the name in which he or
  she was ajudged bankrupt
• c) not act as a director of a company.
• He or she will also be disqualified form holding
  certain offices and engaging in certain
  professions.S.360

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Insolvency - Bankruptcy

• 9. Discharge of the Bankrupt
• A bankrupt is automatically discharged 3 years
  from the date of the bankruptcy order.
• However if it is a summary administration it is
  reduced to 2 years.
• No automatic discharge if an undischarged
  bankrupt within 15 years before the latest
  bankruptcy order. May apply to the court for
  discharge after 5 years. The court may refuse or
  impose conditions. S.280.
• The discharge releases the bankrupt from
  liability for all bankruptcy debts.

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Insolvency - Bankruptcy

• 10. Voluntary Arrangements - an alternative to
  Bankruptcy
• a) A composition (part payment) or
• b) a scheme of arrangement.
• The initiative in proposing a voluntary
  arrangement may be taken either
• a) by the insolvent person or
• b) by the creditors

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Insolvency - Bankruptcy

• 10. Voluntary Arrangements - an alternative to
  Bankruptcy
• A nominee (insolvency practitioner) operates the
  arrangement and meets with creditors to put the
  proposals for the arrangement to them. S.5.

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Insolvency - Bankruptcy

• 10. Voluntary Arrangements - an alternative to
  Bankruptcy
• a) Secured or preferential creditor is not bound
  unless expressly consented to it S.4
• b) Any creditor may objection if
• (i) It is "unfairly prejudicial" or
• (ii) There has been "material irregularity" in
  meetings.S.6
• Court may revoke or suspend the arrangement

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Insolvency - Bankruptcy

• 10. Voluntary Arrangements - an alternative to
  Bankruptcy
• A fast track scheme for voluntary arrangements
  was introduced by the Enterprise Act 2002. The
  official receiver is able to send a proposal to
  creditors on a take it or leave it basis. If the
  creditors agree to the arrangement then the court
  may annul a bankruptcy order in favour of an
  arrangement which may enable creditors to receive
  a better repayment of their debt.

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Topic 7

• Insolvency - Corporate

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Insolvency - Corporate

• 1. Liquidation Dissolution of a Company
• A company is dissolved (ceases to exist) when its
  name is removed from the Register of Companies.
  If it appears to the Registrar that a company is
  defunct then he or she may remove the company
  from the register Companies Act s.652- however
  usually companies are operating and need to be
  put into liquidation and wound up before being
  dissolved.

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Insolvency - Corporate

• 1. Liquidation Dissolution of a Company
• A Company may be wound up
• 1) Compulsorily or
• 2) Voluntarily by either
• a) The Members or
• b) The Creditors

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Insolvency - Corporate

• 2. Compulsory Liquidation
• A Petition is presented to the High Court or, if
  the paid up share capital does not exceed
  120,000, the County Court by - a creditor
  (usually)
• - a member (in this context known as a
  contributory)
• - all the directors or
• - the company (exceptionally)

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Insolvency - Corporate

• 2. Compulsory Liquidation
• The grounds for winding up are (S.122)
• 1. by special resolution
• 2. a public company has failed to obtain a
  trading certificate with in one year of
  incorporation
• 3. the company has not commenced business within
  one year of incorporation
• 4. A public company membership is reduced to
  below 2
• 5. the company is unable to pay its debts
• 6. the court considers it just and equitable to
  wind up the company.

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Insolvency - Corporate

• Company unable to pay its debts
• a) Company owes a statutory specified sum fails
  to pay statutory demand within 21 days or offer
  security If company able to deny debt on
  reasonable grounds the court will dismiss the
  petition or
• b) judgement against a company for a debt and
  insufficient assets to satisfy the claim.
• c) a creditor satisfies the court that taking
  into account the contingent and prospective
  liabilities of the company it is unable to pay
  its debts.

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Insolvency - Corporate

• Company unable to pay its debts
• A compulsory liquidation commences upon the date
  that the petition is presented. However there is
  often a three month interval between the petition
  and the court hearing and winding up order. The
  order will therefore have a retrospective effect
  to the date of presentation of the petition.

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Insolvency - Corporate

• Company unable to pay its debts
• The delay causes difficulty in the following two
  situations
• a) The company or its other creditors may intend
  to oppose the petition at the hearing and
  therefore they will wish it to continue trading
  or
• b) The directors might consider that the best
  course of action is to carry on the business of
  the company in the hope that it will recover or
  become saleable as a going concern.

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Insolvency - Corporate

• Company unable to pay its debts
• S.127 - Any disposition of the company's property
  made after the commencement of winding up is void
  unless otherwise ordered by the court.

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Insolvency - Corporate

• Company unable to pay its debts
• 3 possible courses of action
• a) Application to court for provisional
  liquidator to take control S.135. But directors
  lose control
• b) Application to the court for validation order
  to authorise the company to carry on its business
  S.127.
• c) The officers of the company may carry on in
  the hope that the court will not make an order of
  compulsory liquidation

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Insolvency - Corporate

• Effects of a compulsory liquidation order
• The effects of an order are as follows
• a) Official Receiver becomes the liquidator
• b) Liquidation deemed to begin when petition
  presented
• c) Dispositions after liquidation void (unless
  court order)
• d) Legal proceedings against the company are
  halted
• e) Employees automatically dismissed
• f) Liquidator assumes the powers of management
• g) Company assets remain company property
  although controlled by liquidator (floating
  charges crystallise).

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Insolvency - Corporate

• Effects of a compulsory liquidation order
• Liquidation procedure
• a) Statement of affairs in 21 days
• b) Meeting of creditors and shareholders within
  12 weeks S.136.
• c) Function of meetings is to nominate a
  liquidator Ss.139 141.
• d) If no permanent liquidator appointed Official
  Receiver remains the liquidator
• e) Officers may be required to appear in open
  court to be examined. S.133.

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Insolvency - Corporate

• 3. Member's Voluntary Winding up
• The type of resolution to be passed by the
  general meeting of shareholders depends on the
  circumstances in which the winding up is sought.
• a) Company for a specific purpose and the
  Articles provide for liquidation ordinary
  resolution - 14 days notice - 50 majority.
• b) Company insolvent - extraordinary resolution -
  14 days notice - 75 majority.
• c) Any other reason - special resolution - 21
  days notice 75 majority.

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Insolvency - Corporate

• 3. Member's Voluntary Winding up
• A signed copy of the resolution must be delivered
  to the Registrar within 15 days. A liquidator is
  normally appointed at the same meeting and his or
  her appointment must be notified to the Registrar
  and gazetted within 14 days.S.109

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Insolvency - Corporate

• Declaration of Solvency
• A voluntary winding up is only a member's
  voluntary winding up if the directors make and
  deliver to the Registrar a declaration of
  solvency. S. 89. This is a statutory declaration
  that the directors have made a full inquiry into
  the affairs of the company and are of the opinion
  that it will be able to pay its debts in full
  within a specified period not exceeding 12 months.

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Insolvency - Corporate

• Declaration of Solvency
• The declaration
• a) is made by all the directors or if there is
  more than two by the majority
• b) includes a statement of the company's assets
  and liabilities
• c) must be made before the resolution to wind up
  is passed
• d) must be delivered to the registrar 15 days
  before the meeting.

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Insolvency - Corporate

• If liquidator concludes company unable to pay its
  debts a meeting of the creditor is called.
• It is a criminal offence for a director to make a
  declaration of solvency without reasonable
  grounds for doing so.
• In members' voluntary winding up creditors play
  no part as it is assumed that they will be paid
  in full.
• After a final meeting of members the liquidator
  sends accounts to the Registrar who dissolves the
  company three months later by removing its name
  from the Register.S.201.

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Insolvency - Corporate

• 4. Creditors' Voluntary Winding Up
• If no declaration of solvency is made the
  liquidation proceeds as a creditors' voluntary
  winding up even if in the end the company pays
  all its debts in full.S.96.
• To commence a creditors' voluntary winding up the
  directors convene a general meeting of members to
  pass an extraordinary resolution. They also
  convene a meeting of creditors.S.98.

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Insolvency - Corporate

• 4. Creditors' Voluntary Winding Up
• The meeting of members is held first and its
  business is to
• a) resolve to wind up the company
• b) appoint a liquidator and
• c) nominate up to 5 representatives for a
  liquidation committee.

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Insolvency - Corporate

• 4. Creditors' Voluntary Winding Up
• The creditors' meeting is convened within 14 days
  of the members' meeting to approve appointment of
  members liquidator. S.166

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Insolvency - Corporate

• 5. Proceedings in Liquidations
• The role of the liquidator is to gather in all
  the assets of the company and seek to pay all its
  liabilities in accordance with their priority.
• The assets of the company will include property
  that is subject to a charge i.e. has been used to
  secure loans received by the company. These
  charges are referred to as debentures.

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Insolvency - Corporate

• 5. Proceedings in Liquidations
• Debentures are of two kinds
• 1. Fixed Charges - over specific identifiable
  assets such as land or buildings.
• 2. Floating Charges - a specific range of the
  company's assets e.g. stock in trade or vehicles.
  Floats until liquidation when crystallises.

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Insolvency - Corporate

• 5. Proceedings in Liquidations
• Registration - Any charge must be registered
  within 21 days of its creation with the Registrar
  otherwise it will be void against the liquidator
  and the chargee will be treated as an unsecured
  creditor.

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Insolvency - Corporate

• 5. Proceedings in Liquidations
• Proof of Debts
• A creditor must prove his or her debt.
• Secured creditors.
• Unsecured creditors
• Preferential creditors - wages
• Deferred creditors

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Insolvency - Corporate

• Priority of Claims
• Schedule 6 Insolvency Act 1986 sets out the
  priority in which debts are paid as follows
• a) Secured Creditors who have Fixed Charges
• b) Costs of Winding Up
• c) Preferential Unsecured Debts
• d) Secured Creditors who have Floating Charges
• e) Unsecured Non-preferential Debts
• f) Deferred Debts

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Insolvency - Corporate

• 6. Voidable Transactions
• If a company goes into liquidation the liquidator
  may be able to challenge a previous transaction
• a) Sale at an undervalue 2 years before
  liquidation
• b) Creditor given preference 2 years liquidation
  if with a "connected" person or within 6 months
  if "unconnected"
• c) Extortionate credit transaction 3 years before
  liquidation
• d) Floating charge 12 months before liquidation
• Connected person is a director of the company

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Insolvency - Corporate

• 7. Directors' Liability for Misconduct
• Directors will be personally liable for debts
• Fraudulent Trading
• If an insolvent company carried on with intent to
  defraud creditors or for fraudulent purposes the
  court may make such order as it thinks fit for
  the parties. This is also a criminal offence.

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Insolvency - Corporate

• 7. Directors' Liability for Misconduct
• Wrongful Trading
• The court may order directors contribute to debts
  
• a) if company in liquidation cannot pay its debts
  and
• b) directors knew, or should have concluded, that
  the company had no reasonable prospect of
  avoiding insolvent liquidation and
• c) the directors did not take every reasonable
  step to minimise the potential loss to the
  company's creditors.

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Insolvency - Corporate

• 7. Directors' Liability for Misconduct
• Disqualification of Directors
• Under the Company Directors Disqualification Act
  1986 a court may disqualify a person from being a
  director if he or she has committed offences in
  respect of company legislation. The maximum
  period of disqualification is 15 years.

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Insolvency - Corporate

• 8. Members' Liability for Company Debts
• The shareholders with fully paid up shares are
  not liable for the debts of the company.
  Shareholders who have only partly paid the
  subscription of their shares will be liable for
  that part which is unpaid.

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Insolvency - Corporate

• 9. Receivership
• A debentureholder may appoint a receiver
  Insolvency Act 1986.
• The purpose is to protect the assets of the
  company over which the creditor has a charge
• The receiver only interested in the assets of
  the company over which the creditor has a charge.
  Debenture holder usually a bank with chargfeover
  all assets therefore receiver will in effect take
  over the running of the entire company.

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Insolvency - Corporate

• 9. Receivership
• The purpose of appointing a receiver instead of
  putting the company into liquidation is that the
  debentureholder hopes to protect the assets of
  the company over which he or she has a charge,
  especially if the debentureholder has a floating
  charge, to try and ensure that he or she obtains
  payment in full.

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Insolvency - Corporate

• 9. Receivership
• The receiver is really only interested in the
  assets of the company over which the creditor has
  a charge. However since charges, especially bank
  charges, are usually drafted in such a way as to
  ensure that the loan to the company is secured
  against all the assets of the company, the
  receiver will in effect take over the running of
  the entire company.

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Insolvency - Corporate

• Receivers
• The function of a receiver is to take control of
  the assets subject to the charge under which he
  or she is appointed.
• If the charge is a floating charge over the whole
  of the company's assets the receiver is known as
  an Administrative Receiver s.29.

70
Insolvency - Corporate

• Appointment of a Receiver
• Express in Debenture or by Court
• Appointment
• authorised insolvency practitioner.
• Appointed in writing
• Appointee must accept the day after receiving
  notice of the appointment.
• The appointment will be from the day the notice
  was received.S.33.

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Insolvency - Corporate

• Functions of the Receiver
• Manage/ realise assets subject to the charge
• If company put into liquidation by another
  creditor, receiver remains in office until
  discharge of debt

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Insolvency - Corporate

• Functions of the Receiver
• Receiver represents the debentureholders
• Liquidator is appointed to realise all the assets
  and to pay all the debts of the company and
  distribute the surplus if any to the shareholders.

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Insolvency - Corporate

• Administrative Receiver
• The administrative receiver has a number of
  statutory powers which are conferred
  automatically, unless the debenture provides to
  the contrary, (Sch 1 s.42) as follows
• a) to borrow money and give security
• b) to carry on the business of the company
• c) to sell the company's property over which the
  charge extends
• d) to transfer the business of the company or a
  part of it to a subsidiary (hiving down).

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Insolvency - Corporate

• As agent of the company the administrative
  receiver
• a) is personally liable on contracts made in the
  course of the receivership
• b) is entitled to an indemnity for that liability
  from the company's assets
• c) can bind the company by his or her acts.

75
Insolvency - Corporate

• Effect of the Administrative Receiver's
  Appointment
• On appointment of an administrative receiver
• a) The receiver takes control of the assets
  subject to the charge and the director's powers
  in respect of those assets are suspended during
  the receivership.
• b) All company stationery must state that a
  receiver has been appointed. S.39.
• c) If the administrative receiver is appointed by
  the court or as agent of the debenture holder
  then the employees of the company are
  automatically dismissed (14 days to decide S.44)

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Insolvency - Corporate

• Effect of the Administrative Receiver's
  Appointment
• d) All floating charges crystallise.
• e) Within 28 days of appointment the company must
  send to the receiver a statement of affairs who
  must inform the creditors of appointment.Ss. 46
  47.
• f) The receiver must within 3 months send a copy
  of the statement the Registrar, the company and
  the debentureholders (and the court if he or she
  was appointed by the court). unsecured creditors
  creditors may appoint a committee to maintain
  contact with the receiver.

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Insolvency - Corporate

• Priority of Claims in Receivership
• The order of application of assets in the hands
  of the receiver is as follows
• a) Payment of expenses
• b) Receiver's expenses
• c) Costs of any court application
• d) Preferential debts if floating charge
• e) Payment of the secured debt

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Insolvency - Corporate

• Liability of the Receiver
• Not liable upon contracts made before
  appointment.
• The receiver personally liable on contracts after
  appointment
• Therefore forms limited company
• Charge for authority must be valid

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Insolvency - Corporate

• 10. Administration Orders - an alternative to
  liquidation
• The main disadvantages to the appointment of a
  receiver are that
• a) only a secured creditor may appoint a receiver
• b) a petition for the liquidation and winding up
  of the company may still be made by an unsecured
  creditor

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Insolvency - Corporate

• The procedure for obtaining an Administrative
  Order from the court is intended to offer an
  alternative to both Receivership and
  Liquidation/winding up. An administration order
  and a receivership and liquidation/winding up are
  mutually exclusive.

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Insolvency - Corporate

• The effect of the administration order
• Puts an insolvency practitioner in control of the
  company with a defined programme and meanwhile
  prevents any of the creditors, secured or
  unsecured, from collecting their debts and
  thereby give the administrator an opportunity,
  not available to the receiver, to perhaps save
  the company for the benefit of all the creditors.

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Insolvency - Corporate

• Petition presented by company.S.9
• Court must be satisfied that
• a) company unable to pay its debts and
• b) An administration order is likely to ensure
• i) survival of the company or
• ii) approval a voluntary arrangement or
• iii) sanction of a scheme of arrangement
  Companies Act 1985 S.425 or
• iv) advantageous realisation of assets S.8.

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Insolvency - Corporate

• The effect of the administration order is to
• a) Prevent a voluntary or compulsory liquidation
  or
• b) Prevent seizure of the company's goods or
• c) Prevent re-possession of goods held on
  hire-purchase or
• d) Prevent the institution of legal proceedings

84
Insolvency - Corporate

• Appointment of Administrator
• Appointed by the court
• Insolvency practitioner
• Acts as the company's agent but not liabile on
  contracts
• Administrator's name on correspondence S.12.
• Must give notice to Registrar within 14 days and
  creditors within 28 days. S.21
• Must implement the order
• Entitled to a statement of affairs

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Insolvency - Corporate

• Appointment of Administrator
• Must produce and circulate proposals within 3
  months the creditors members
• Must hold meeting of creditors within 14 days
• Must report to the court S.24.
• Creditors may appoint a committee S.24.
• Proposals may be modified S.25
• Creditor or member may petition the court on the
  grounds of unfair prejudice and the court may
  make such order as it thinks fit. S.27

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Insolvency - Corporate

• Powers
• An administrator has the following powers
• a) to borrow money and give security
• b) to carry on the business of the company
• c) to sell the company's property
• d) to transfer the business to a subsidiary
• e) to challenge past transactions
• f) to sell charged assets of the company. S.15
• g) to remove and appoint directors
• h) to call meetings of creditors and members

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Insolvency - Corporate

• 11. Voluntary Arrangements - an alternative to
  liquidation
• Avoids a formal insolvency by selling off part of
  the business and making the company solvent by
  improved management or reorganisation.

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Insolvency - Corporate

• Voluntary arrangement may be
• a) a composition or
• b) a scheme of arrangement.
• A voluntary arrangement may be taken either
• a) by the directors or
• b) by the liquidator

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Insolvency - Corporate

• Stage 1
• Insolvency practitioner known as a "nominee".
• Holds separate meeting of the members and the
  creditors and puts the proposals for the
  arrangement to them. If both approve it becomes
  binding S.5.

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Insolvency - Corporate

• a) A secured or preferential creditor is not
  bound unless consents S.4
• b) Any creditor or member may apply to the court
  if
• (i) "unfairly prejudicial" or
• (ii) there has been some "material irregularity"
  in relation to one of the meetings.S.6
• Court may revoked or suspended arrangement

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Insolvency - Corporate

• Stage 2
• Insolvency practitioner known as "supervisor
• Arrangement administered

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Insolvency - Corporate

• Moratorium
• Insolvency Act 2000 enables small company to
  declare a moratorium (stay of action for
  litigation) immediately before Voluntary
  Arrangement
• A small company is one whose
• annual turnover does not exceed 2.8 million
• Balance sheet total - not more than 1.4 million.
  
• Number of employees - not more than 50.

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Insolvency - Corporate

• The nominee must agree that the arrangement has a
  reasonable chance of success and the company may
  then
• File a court application
• Advertise the moratorium
• Notify the Registrar of Companies
• Endorse it on the company's stationery
• 28 days may extend to further two months.

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Insolvency - Corporate

• The effect of the moratorium is that
• No security can be enforced,
• No court proceedings can be brought
• No insolvency proceedings can be commenced
• No floating charge can be crystallised
• No goods can be re-possessed
• No landlord can forfeit

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Insolvency - Corporate

• Criminal offence for company to
• Obtain credit for more than 250 without
  informing the creditor
• Dispose of its property other than in the normal
  course of business
• Pay the debt if the person was a creditor at the
  time of the arrangement.
• The moratorium can be terminated by a court order
  or the nominee withdrawing his consent or by a
  decision of the creditors or on the expiry of the
  time limit.