Corporate Insolvency - Formal and Informal Arrangements Flashcards
(21 cards)
What is a standstill agreement?
An agreement where creditors agree not to enforce their rights or remedies for a specified period to give the company time to negotiate a restructuring deal
What is a pre-insolvency moratorium?
A statutory period during which creditors are prevented from enforcing debts while a company attempts to restructure
What are the 4 main restrictions of a pre-insolvency moratorium?
1) No enforcement of security
2) No legal proceedings or winding-up petitions (unless by directors)
3) No administration proceedings (unless by directors)
4) No shareholder resolutions to wind up (unless approved by directors)
What documents must be filed at court to obtain a pre-insolvency moratorium?
- Statement that the company is or is likely to become unable to pay its debts
- Statement from a licensed insolvency practitioner (Monitor) that rescue is likely
How long does a pre-insolvency moratorium last?
20 business days initially, extendable by a further 20 days by directors, and longer by creditor consent or court order
What is a pre-moratorium debt and is it payable during the moratorium?
Debt due before or during the moratorium under a pre-moratorium obligation. It is not payable except for certain exceptions (e.g. monitor fees, rent, wages)
What are moratorium debts, and must they be paid during moratorium?
Debts incurred during the moratorium period - Yes, they must be paid in full
Company Voluntary Arrangement?
A statutory agreement between a company and its creditors to compromise debts.
Who can initiate a CVA?
Directors, or where the company is in administration of liquidation, the administrator/liquidator
What is the role of the Nominee in a CVA?
A licensed insolvency practitioner who reviews the proposal and reports to court on whether it should be put to creditors and shareholders
What majorities are needed to approve a CVA?
- 75% in value of unsecured creditors voting in favour (excluding secured creditors)
- Must not include more than 50% in value of connected creditors voting against
- Simple majority of shareholders
Does the CVA bind all creditors?
Binds all unsecured creditors, but only binds secured and preferential creditors if they consent
On what grounds can a CVA be challenged?
A creditor may challenge within 28 days based on unfair prejudice or material irregularity in procedure
What is a restructuring plan?
A formal, court-sanctioned procedure to restructure a company’s debts
Who can propose a restructuring plan?
Company, a creditor, a shareholder, a liquidator, or an administrator
What is the approval required for a Restructuring plan?
75% in value of those voting in each affected class and final court sanction
What is ‘cross-class cramdown’?
A mechanist by which the court can approve a plan that binds dissenting classes of creditors or shareholders if:
- they would be no worse off than in the alternative scenario
- at least one class with genuine economic interest approves the plan
What key advantage does a Restructuring plan have over a CVA?
RP can bind secured creditors and shareholders, and it may be imposed by court despite some classes voting against
CVA vs RP - do they require court sanction?
CVA - No - approval by creditors and shareholders is required
RP - Yes, including the possibility of a court-imposed cram down
Who can initiate a CVA vs RP?
CVA - directors, administrators, or liquidator
RP - company, creditor, shareholder, administrator or liquidator
Which creditors are bound by which procedure?
CVA - Unsecured creditors (not secured or preferential without consent)
RP - All creditors, including dissenting secured creditors and shareholders
