corporate rescue and insolvency Flashcards
what are the options when a company hits financial problems?
Company trades it way out of trouble
Try to rescue the company and make it profitable again (administration or CVA)
Make sure creditors recover monies owed (receivership)
Bring the company to an end and distribute its remaining assests (winding up)
what is administration?
pro-rescue
administrator is appointed to manage the company’s business
Can be sought by the company, directors or creditors if the company cannot pay its debts or is likely to become unable to do so
what does administration allow for?
a breathing space where a receiver cannot be appointed and the company cannot be wound up
what are the methods of appointment for an administrator?
by court order
by the company or its directors
by a qualifying floating charge holder
who can apply to the court for administration?
the company
is directors
any creditor of the company
the liquidator
when will the court make an administration order ?
if:
- the company is, or is likely to become, unable to pay its debts, and
- the administration order is reasonably likely to achieve the purpose of administration
what are the duties and powers of administrator?
Administrator must prepare proposals for managing the business and submit to creditors for approval
Insolvency Act 1986 Sch 1 gives administrators wide power to achieve their objectives
Sch B1 Para 42 – statutory moratorium on creditors’ enforcement
During the moratorium, the company cannot be wound up and creditors cannot enforce security, repossess goods or commence legal proceedings
Administration usually ends after one year
what is the purpose of administration?
Rescue the company as a going concern
Achieve a better result for creditors than winding up
Realise property in order to distribute to secured creditors
what are the advantages of administration?
A pro-rescue procedure
Relatively cheap and speedy
Company can be sold as a going concern
Creditors and employees are more likely to be paid than on liquidation
what is a company voluntary arrangement (CVA)?
Proposal for an arrangement is made by directors or by a liquidator or administrator (s899 CA 2006)
Supervisor appointed
Supervisor makes a report on whether the CVA has a reasonable prospect of approval
Meetings of the company and creditors are called to approve the proposal
If approved, the proposal is binding
Appointment ends when the arrangement is satisfied or revoked
CVA allows directors to retain control of the company
CVA does not normally provide for a statutory moratorium
In limited circumstances the supervisor can apply for one – company must be a small company as defined in S382 CA 2006
What is receivership?
A secured creditor can appoint a receiver to take control of the company’s assets and use them to satisfy the debt
Often the power of appointment is contained in the debenture instruemnt – if not, the creditor can seek a court order (Enterprise Act 2002)
The receiver acts for the creditor not the company
Receivership ends when the debt is satisfied
what is liquidation/winding up?
final step before dissolution
company assets collected and realised
debts and liabilities are paid and surplus distributed to members
what are the two kinds of liquidation?
compulsory or voluntary
how can a compulsory winding up order be made
on petition by:
- the company
- the directors
- a creditor
- an administrator or receiver
- a contributory
when will a winding up petition be considered?
on specified grounds;
just and equitable
company has agreed by special resolution that they will be voluntarily wound up
company is unable to pay its debts
