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Insolvency Notes

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Insolvency Comparison of the different corporate insolvency procedures

a) Negotiated settlement

1) Who can initiate the procedure and how?

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2) What is the purpose of this procedure?

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Achieve terms acceptable to all parties Keeping the company in business

3) Who runs the business during this procedure?

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The directors continue to run the business However the bank is likely to require rights to monitor the company's financial performance closely

4) Does the office holder have the powers to swell the company's assets during this procedure

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No

5) Is there any protection from being sued by individual unsecured creditors during this procedure?

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No, there is no protection form legal action Trade creditors are likely to require immediate payment if they are to continue supplying The bank and the company will recognise in the terms of the agreement that the company needs to immediately pay the trade creditors to keep the business running

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b) A Company Voluntary Arrangement - s.1-7 Insolvency Act 1986

In theory the bank, the company or the unsecured creditors In practice, the company is likely to approach creditors with proposed terms

1) Who can initiate the procedure and how?

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Company only The company will draft proposals and appoint a nominee who considers the proposals and calls meetings of creditors to approve them The bank / unsecured creditor cannot initiate An administrator or liquidator can call a CVA

2) What is the purpose of this procedure?

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Keeping the company in business If unsuccessful, better realisation of assets

3) Who runs the business during this procedure?

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The directors continue to run the business However this will be under the terms of the CVA and under the supervision of the supervisor

4) Does the office holder have the powers to swell the company's assets during this procedure

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No

5) Is there any protection from being sued by individual unsecured creditors during this procedure?

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Possibly - An optional moratorium can be called but only for small company and only until creditors and members meetings Can be extended after these meetings at these meetings Once the CVA has been approved, all unsecured creditors (known or unknown) are bound, regardless of whether the participated in the creditors meeting

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c) Administration - Schedule B1 IA 1986

1) Who can initiate the procedure and how?

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Company using the out-of-court procedure Bank using the out-of court procedure Unsecured creditor by an application to court
*Bank and company can use court procedure, but in reality wouldn't as is expensive and complicated

2) What is the purpose of this procedure?

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3 cascading objectives: a) Rescue the company as a going concern; b) If that is not reasonably practicable or would achieve a better result for the creditors as a whole, the object is achieving a better result for the company's creditors than if the company were wound up c) If a) or b) is not reasonably practicable, then the object is realising property to make a distribution to one or more secured or preferential creditors

3) Who runs the business during this procedure?

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The administrator (acting in the interests of all creditors)

4) Does the office holder have the powers to swell the company's assets during this procedure

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Administrator can set aside certain antecedent (poor) transactions to claw-back their value

5) Is there any protection from being sued by individual unsecured creditors during this procedure?

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Yes, there is an immediate moratorium on appointment of administrator Interim moratorium runs from date of application until appointment occurs

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d) Liquidation - s.73-229 IA 1986

1) Who can initiate the procedure and how?

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2) What are the grounds for compulsory liquidation?

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Company - By way of special resolution (Is a Members' voluntary liquidation if solvent, a creditors' voluntary liquidation if insolvent) Bank / unsecured creditor - Can petition the court for a winding up order (Compulsory liquidation)

The usual grounds are: a) The company's inability to pay its debts - s.122(1) (f) IA 1986 b) The court being of the opinion that it is just and equitable the company is wound up - s.122(1)(f) IA 1986 Proof of inability to pay debts - s.123 IA 1986 a) Failure by the company to comply with a creditor's statutory demand b) Creditor fails in trying to execute a judgement debt c) Proof to the satisfaction of the court the company is unable to pay its debts d) Proof to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities

3) What is the purpose of this procedure?

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To realise and distribute assets to the creditors of the Company in the order of priority, with a view to dissolution of the company

4) Who runs the business during this procedure?

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The liquidator

5) Does the office holder have the powers to swell the company's assets during this procedure

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Same powers of claw-back as administrator Can also sue directors for wrongful / fraudulent trading Can disclaim onerous property (reduce outgoings)

6) Is there any protection from being sued by individual unsecured creditors during this procedure?

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Yes There is no moratorium but pending actions or proceedings against the company are automatically stayed

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