- •Contents
- •Acknowledgements
- •Table of cases
- •Abbreviations
- •Introduction to the second edition
- •1 The roots of corporate insolvency law
- •Development and structure
- •Corporate insolvency procedures
- •Administrative receivership
- •Administration
- •Winding up/liquidation
- •Formal arrangements with creditors
- •The players
- •Administrators
- •Administrative receivers
- •Receivers
- •Liquidators
- •Company voluntary arrangement (CVA) supervisors
- •The tasks of corporate insolvency law
- •Conclusions
- •2 Aims, objectives and benchmarks
- •Cork on principles
- •Visions of corporate insolvency law
- •Creditor wealth maximisation and the creditors’ bargain
- •A broad-based contractarian approach
- •The communitarian vision
- •The forum vision
- •The ethical vision
- •The multiple values/eclectic approach
- •The nature of measuring
- •An ‘explicit values’ approach to insolvency law
- •Conclusions
- •3 Insolvency and corporate borrowing
- •Creditors, borrowing and debtors
- •How to borrow
- •Security
- •Unsecured loans
- •Quasi-security
- •Third-party guarantees
- •Debtors and patterns of borrowing
- •Equity and security
- •Equity shares
- •Floating charges
- •Improving on security and full priority
- •The ‘new capitalism’ and the credit crisis
- •Conclusions
- •4 Corporate failure
- •What is failure?
- •Why companies fail
- •Internal factors
- •Mismanagement
- •External factors
- •Late payment of debts
- •Conclusions: failures and corporate insolvency law
- •5 Insolvency practitioners and turnaround professionals
- •Insolvency practitioners
- •The evolution of the administrative structure
- •Evaluating the structure
- •Expertise
- •Fairness
- •Accountability
- •Reforming IP regulation
- •Insolvency as a discrete profession
- •An independent regulatory agency
- •Departmental regulation
- •Fine-tuning profession-led regulation
- •Conclusions on insolvency practitioners
- •Turnaround professionals
- •Turnaround professionals and fairness
- •Expertise
- •Conclusions
- •6 Rescue
- •What is rescue?
- •Why rescue?
- •Informal and formal routes to rescue
- •The new focus on rescue
- •The philosophical change
- •Recasting the actors
- •Comparing approaches to rescue
- •Conclusions
- •7 Informal rescue
- •Who rescues?
- •The stages of informal rescue
- •Assessing the prospects
- •The alarm stage
- •The evaluation stage
- •Agreeing recovery plans
- •Implementing the rescue
- •Managerial and organisational reforms
- •Asset reductions
- •Cost reductions
- •Debt restructuring
- •Debt/equity conversions
- •Conclusions
- •8 Receivers and their role
- •The development of receivership
- •Processes, powers and duties: the Insolvency Act 1986 onwards
- •Expertise
- •Accountability and fairness
- •Revising receivership
- •Conclusions
- •9 Administration
- •The rise of administration
- •From the Insolvency Act 1986 to the Enterprise Act 2002
- •The Enterprise Act reforms and the new administration
- •Financial collateral arrangements
- •Preferential creditors, the prescribed part and the banks
- •Exiting from administration
- •Evaluating administration
- •Use, cost-effectiveness and returns to creditors
- •Responsiveness
- •Super-priority funding
- •Rethinking charges on book debts
- •Administrators’ expenses and rescue
- •The case for cram-down and supervised restructuring
- •Equity conversions
- •Expertise
- •Fairness and accountability
- •Conclusions
- •10 Pre-packaged administrations
- •The rise of the pre-pack
- •Advantages and concerns
- •Fairness and expertise
- •Accountability and transparency
- •Controlling the pre-pack
- •The ‘managerial’ solution: a matter of expertise
- •The professional ethics solution: expertise and fairness combined
- •The regulatory answer
- •Evaluating control strategies
- •Conclusions
- •11 Company arrangements
- •Schemes of arrangement under the Companies Act 2006 sections 895–901
- •Company Voluntary Arrangements
- •The small companies’ moratorium
- •Crown creditors and CVAs
- •The nominee’s scrutiny role
- •Rescue funding
- •Landlords, lessors of tools and utilities suppliers
- •Expertise
- •Accountability and fairness
- •Unfair prejudice
- •The approval majority for creditors’ meetings
- •The shareholders’ power to approve the CVA
- •Conclusions
- •12 Rethinking rescue
- •13 Gathering the assets: the role of liquidation
- •The voluntary liquidation process
- •Compulsory liquidation
- •Public interest liquidation
- •The concept of liquidation
- •Expertise
- •Accountability
- •Fairness
- •Avoidance of transactions
- •Preferences
- •Transactions at undervalue and transactions defrauding creditors
- •Fairness to group creditors
- •Conclusions
- •14 The pari passu principle
- •Exceptions to pari passu
- •Liquidation expenses and post-liquidation creditors
- •Preferential debts
- •Subordination
- •Deferred claims
- •Conclusions: rethinking exceptions to pari passu
- •15 Bypassing pari passu
- •Security
- •Retention of title and quasi-security
- •Trusts
- •The recognition of trusts
- •Advances for particular purposes
- •Consumer prepayments
- •Fairness
- •Alternatives to pari passu
- •Debts ranked chronologically
- •Debts ranked ethically
- •Debts ranked on size
- •Debts paid on policy grounds
- •Conclusions
- •16 Directors in troubled times
- •Accountability
- •Common law duties
- •When does the duty arise?
- •Statutory duties and liabilities
- •General duties
- •Fraudulent trading
- •Wrongful trading
- •‘Phoenix’ provisions
- •Transactions at undervalue, preferences and transactions defrauding creditors
- •Enforcement
- •Public interest liquidation
- •Expertise
- •Fairness
- •Conclusions
- •17 Employees in distress
- •Protections under the law
- •Expertise
- •Accountability
- •Fairness
- •Conclusions
- •18 Conclusion
- •Bibliography
- •Index
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the quest for turnaround |
procedures rather than as being the end of the administrative receivership procedure.’135
Exiting from administration
A number of routes out of administration are possible.136 An administrator will automatically vacate office one year from the date the administration commenced, unless this term has been extended by the court (for such period as the court deems necessary) or extended with the consent of the creditors for up to six months.137 Furthermore, the new-style administration can be converted to a Creditors’ Voluntary Liquidation (CVL) by filing documents at Companies House if the administrator thinks that there will be a distribution to unsecured creditors.138 This process obviates the needs for advertising the office holder’s appointment or for holding a creditors’ meeting. In the alternative, the administrator can now make a distribution to the company’s creditors, generally the secured and preferential creditors,139 and can then move to put the company into CVL under Schedule B1, paragraph 83, as noted above.
135S. Davies, Insolvency and the Enterprise Act 2002 (Jordans, Bristol, 2003) pp. 40–1; ‘the new deal is merely “son of receivership”’: see Willcock, ‘How the Banks Won the Battle’.
R3 commented on the White Paper proposals, Insolvency – A Second Chance, that the status quo was being upheld and that banks would have the same real powers in case of administration as they did with receivership: Financial T imes, 1 August 200 1.
136See G. Todd, ‘Administration Post-Enterprise Act – What Are the Options for Exits?’ (2006) 19 Insolvency Intelligence 17.
137Sch. B1, paras. 76–9. This automatic termination of administration after twelve months is a feature introduced by the EA 2002 reforms and evidences the clear aim of the legislature to make administration a short-lived, transitory process to be dealt with ‘quickly and efficiently’: see also para. 4. For a pragmatic interpretation of the exit routes available under para. 79 see Re TM Kingdom Ltd [2007] BCC 480 (Norris J).
138Sch. B1, para. 83. Preconditions are laid down in para. 83(1) and (2), namely that provision must have been made to ensure that all secured creditors will be paid off and, after that, there must be something remaining available for the unsecured creditors. The procedure is available for court-appointed or out-of-court-appointed administrators and with the former it is not necessary to seek a court order: see Re Ballast plc (in administration) and Others [2005] BCC 96. See Re GHE Realisations (formerly Gatehouse Estates Ltd) [2006] BCC 139 regarding exit modes in paras. 83 and 84.
139Sch. B1, para. 65. If a distribution is sought to any other type of creditor the court’s permission must be obtained. The Financial Markets Law Committee has raised concerns that these new rules to make distributions to unsecured creditors (which include set-off provisions – Insolvency Rules 1986 r. 2.85 – and administration expenses – IA 1986 Sch. B1, para. 99 and IR 1986 r. 2.67) could give rise to potential legal uncertainties
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Alternatively the administrator can institute a process to dissolve the company. Such a direct move into dissolution is possible where the administrator thinks that there is no property left which might permit a distribution to creditors.140 The administrator will achieve this result by sending a notice to the registrar of companies and, at the end of three months, the company will be dissolved automatically.
Where an administrator has been appointed out of court and there has been a rescue and a return of the company to the directors, the administrator may end the process of administration by giving notice that the purpose of the administration has been achieved.141
A court order may also end the administration.142 This may happen when the administrator applies for such an order (for instance when he feels the objective cannot be achieved, or that the company should not have entered administration or if a creditors’ meeting so directs him to apply). If the administrator has been appointed by the court then he may apply to the court to end the administration if he thinks the purpose has been achieved. When the administrator reports to the court that there is a stalemate regarding the administrator’s proposals, the court may also end the administration.143 A creditor may apply for an order to end the administration on the basis that there has been an ‘improper motive’ behind the appointment,144 and where a creditor or member wishes to challenge the conduct of the administrator on grounds of unfairness or harm to the interests of the applicant, the court can provide for the administrator’s appointment to cease to have effect.145 Finally, the Secretary of State may apply to the court to have the company
which could, in turn, discourage counterparties from dealing with companies in administration, thereby harming any rescue attempt: see FMLC discussion paper, ‘Administration – Set-off and Expenses’ (Issue 108, 17 January 2008), available on the FMLC website (www.fmlc.org). (On set-off see ch. 14 below.) The administrator can also make payments other than through para. 65 ‘if he thinks it likely to assist achievement of the purpose of administration’ (para. 66). This could allow the administrator to pay off arrears owed to a creditor who made such a payment a condition of making further essential supplies, e.g. fuel or raw materials: see L. S. Sealy and D. Milman,
Annotated Guide to the Insolvency Legislation 2007/2008 (10th edn, Thomson/Sweet & Maxwell, London, 2007) p. 550.
140Sch. B1, para. 84. See Re GHE Realisations Ltd [2006] BCC 139, which indicated that an administrator was only required to think at that time that there was no further property to distribute (and prior distributions were immaterial). This decision departed, in this regard, from obiter comments in Re Ballast plc [2005] BCC 96.
141Sch. B1, para. 80. 142 Ibid., para. 79. 143 Ibid., para. 55.
144 Ibid., para. 81. 145 Ibid., para. 74(4)(d).