Someone recently bought our

students are currently browsing our notes.


Corporate Insolvency Notes

LPC Law Notes > Business Law and Practice Notes

Updates Available  

A more recent version of these Corporate Insolvency notes – written by Cambridge And Oxilp And College Of Law students – is available here.

The following is a more accessble plain text extract of the PDF sample above, taken from our Business Law and Practice Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Core Module: BLP Paper A

Company Law - Private Limited Companies Corporate Insolvency Insolvency and enforcing a security Key changes in the law



Insolvency Act 1986 [IA]
Enterprise Act 2002 [EA]

Fundamental changes:

1. Promoting Administration

2. Restricting Administrative Receivership

3. Abolished 'Crown Preferences'

4. Ring Fencing [for recoveries under floating charges]

Key Date: 15th December 2003 [EA corporate Insolvency provisions came into force]. Insolvency

No definition provided within EA. S.123 IA 1986 uses the phrase: 'inability to pay debts'

When is a company unable to pay debts =
a) The company has not paid, secured or compounded a claim for a sum due to a creditor exceeding PS750 within three weeks of having been served with a writte demand in the prescribed form [the statutory demand]. b) An execution or judgment is unsatisfied c) It is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due [the cash flow test]
d) The value of the company's assets is less than its liabilities, taking into account contingent and prospective liabilities [the balance sheet test]. Why is it important to determine whether company is insolvent or not?

Transactions may be open to challenge

It will determine whether a voluntary liquidation is controlled by its creditors or members

It impacts the duties of directors

Certain procedures require 'Declaration of Solvency' [e.g. buy back shares].

Insolvency practitioner = anyone acting as a liquidator, administrator, administrative receiver, supervisor of a voluntary arrangement or a trustee in bankruptcy must be a I.P S.389 IA: criminal offence to act as an I.P when not qualified to do so. What can a lender do if borrower is in default?

1 It depends on whether the debt is secured or unsecured. Secured Unsecured

Action for debt -

Action for debt - court court

Petition for

Petition for winding winding up up

Enforcement of

Core Module: BLP Paper A security How to enforce security

Five methods to consider:

1. 2.

3. 4.

5. Possession Sale Foreclosure Appointment of receiver Appointment of administrator


Pledgee - already has possession
Legal Mortgagee -entitled to take possession irrespective of default
Court can order possession
Precursor to sale


Pledgee can sell on default
Mortgage / charges - can sell asset pursuant to the security document


Order by Court
Court brings end to the mortgagor's equity of redemption -mortgagee becomes absolute owner.
Appointed by secured lender / creditor [pursuant to the rights under the security document]
Types of receivers: a) Receivers over specific assets b) Administrative receivers

Appointment of receiver

Appointment of administrators Enforcing a floating charge

Encouraged by EA 2002 reforms

Recoveries of floating charges are subject to: a) Rights of preferential creditors;
Preferential debts: Defined Sch.6 IA 1986

b) Ring fencing
S.176A IA 1986 [introduced by EA 2002]
Apply to floating charges created on / after 15 th December 2003
Any liquidator, administrator or receiver shall set aside a prescribed part of th company's net property for distribution to unsecured creditors.
[net property = the amount of property which (but for the ring fencing) would be available for floating charge holder].

When will ring fencing apply?
R.F will not apply if:

The net property is less than the prescribed minimum 2

Buy the full version of these notes or essay plans and more in our Business Law and Practice Notes.

More Business Law And Practice Samples