10: Insolvency Flashcards
(30 cards)
Two main options to a company in financial difficulty?
Administration
- aims to rescue the company so it can continue as a going concern
Liquidation
- winds up company, bringing life to an end
How does administration work and what are the purposes?
Appointment of an administrator to manage the affairs, business and property of a company
Introduced in Insolvency Act 1986, amended by Enterprise Act 2002.
Purposes:
- rescue a company in financial difficult with the aim of allowing it to continue
- achieve a better result for creditors if company does wind up
- if not above, to realise the company’s assets to make a distribution to one or more creditors
Who can appoint an administrator?
Court in response to a petition by directors, creditors or company itself
(Court will only agree to appoint if happy that:
- company unlikely to pay debts
- admin will achieve its objectives)
A holder of a qualifying floating charge over the company’s assets
- QFCH has charges that amount to a charge over substantially the whole of the company’s property
- two days notice to be given
Company or directors, if winding up not already begun
- most useful way
- five days notice to be given to QFCHs
What are the consequences of being in administration?
Company continues to trade
Website and documents must state that business is being run by administrator
Enters into a moratorium period
Directors continue but powers suspended
- admins may appoint or remove directors
Employees may be terminated
Admin can sell property and use proceeds for the business without gaining chargee’s permission
Admin can sell assets with courts permission and use proceeds to pay off chargee/owner
What happens in a moratorium period?
Right of creditors is suspended
Any petition for winding up is dismissed
No resolution may be passed to wind up
No other legal proceedings can commence
No property under a lease agreement can be recovered without consent of admin or court
Property can only be sold with consent
Meetings held only with consent
What are the tasks of the admin?
Company’s agent - acting in best interests of all the company’s creditors
Takes on director’s powers
- can manage the business and property
- can bring and defend legal proceedings, sell assets and borrow money
Can remove and replace directors and employees
Must file notice of appoint to registrar within 7 days
Can request statement of affairs within 7 days
- company has 11 days to comply
Must draw up a statement of proposals within 8 weeks
What is a statement of proposals and a creditor’s committee?
Proposals to submit to members and creditors of company, and registrar
MUST be approved by creditors, either by:
- deemed consent process
- virtual meeting
- some other reasonable method
Creditors committee is between 3 to 5 creditors, and admin must hold a committee of this 6 weeks of forming
Approved - carry them out
Not approved - court may dismiss admin or make other provisions
How does administration end?
When completed, or when admin discharged
Must normally be completed within 12 months
- can be extended by consent of court or majority of creditors
- extension can only happen ONCE
What is receivership? Power and duties?
Person who specifically realises the company’s assets, which are sold to enable company to pay off debts
Not used much any more
Power and duties are identical to that of an admin! Include to:
- borrow
- commence and take legal proceedings
- appoint advisers
- pay off company debts
Duties are to the person who appointed them, their agent
What are admin receivers?
Appointed by floating charge holders
Receivers and managers of company
Never used after Enterprise Act 2002
What are fixed charge receivers?
Appointed by holders of a fixed charge over land
LPA receivers
Duties are to collect rent and sell property
What is Company Voluntary Arrangements?
Allows a corp to enter into an arrangement with creditors where it either:
- agrees to pay a set proportion of debts (composition of debts)
- pays its debts over a set period of time (scheme of arrangement)
Procedure for choosing a CVA nominee?
Appointed by:
- company
- administrator
- liquidator
Nominee must report to court as to whether they feel the CVA could have a reasonable prospect of success
How is a CVA approved?
Must be approved by creditors, and creditors choice will prevail in any difference between results
Once approved, becomes binding on all creditors. Approval reported to court
When approved, nominee supervises implementation of CVA
Company may continue trading
How to challenge a CVA?
Creditors have 28 days from approval to challenge the CVA
Must show:
- CVA unfairly prejudices them
- material irregularity in procedure to gain approval of CVA
If challenge successful, approval is revoked or suspended
How does the moratorium apply for CVA?
When preparing CVA, directors may apply for moratorium of 28 days
Breathing space to prepare proposal
To do this, must submit to court:
- proposed CVA
- statement of company’s affairs
- confo that CVA has reasonable prospect of success
What type of resolutions are needed for voluntary liquidation?
Ordinary when:
- fixed period for duration of company expires
- event occurs when articles state company needs to be wound up
Special when any other reason!
Once resolution passed, notice of liquidation should be posted in Gazette within 14 days
Two types of voluntary liquidation?
Members - when company is solvent
Creditors - when company is insolvent
Process for members voluntary winding up?
Directors make declaration of solvency
- must be made no more than 5 weeks before resolution to wind up is passed
- delivered to registrar within 15 days
Winding up starts from date of resolution passing
Members appoint liquidator by ordinary resolution
Liquidator realises the assets and distributes the proceeds
Liquidator presents report to final meeting of members
Liquidator informs registrar of final meeting and submits report
Registrar registers report
Company dissolved three months later
Process for creditors voluntary winding up?
Winding up starts from date of resolution passing
Directors appoint liquidator, and seek creditors decision on liquidator
Directors send creditors a statement of affairs within 7 working days
Creditors approve - 10% needed for non-approval
Liquidator realises the assets and distributes the proceeds
Liquidator presents report to members and creditors
Liquidator submits report to registrar
Registrar registers report
Company dissolved three months later
What is compulsory liquidation?
When a petition for a winding up order is presented to court
Court then passes on order that the company is to be wound up
Grounds for a liquidation petition?
Plc not issued with a trading certificate within year of incorporation
Company unable to pay its debts
- creditor who is owed at least £750 has served a written demand for payment, not paid sum within 3 weeks
- creditor has tried but cannot enforce a judgement on company’s property
- court decides so, looking at liabilities
It is just and equitable to do so
- only used if no other remedy is available
Who may petition the court for liquidation?
BEIS
A member (to claim for just and equitable reasons, must have been shareholder for 6 of last 18 months)
Creditor owed £750
Effects of petition being passed?
Actions for recovery of debt are stopped
Floating charges crystallise
Legal proceedings against company are halted
Company ceases to carry on business unless necessary for winding up
Powers of directors cease
Employees automatically redundant
Assets are company’s legal property but are under liquidator’s control
