Workshop 2 Insolvency

Insolvency: Security Priority Priority on Fixed and Floating Charges Provided they have all been registered properly under s.860 CA: i. ii. iii. iv.

Fixed charge or a mortgage takes priority over a floating charge over the same asset even if floating charge was created earlier than the fixed. If more than one fixed charge over same asset, it is priority of creation date If more than one floating charge over same asset, it is priority of creation date If a validly registered "floating charge is granted over "N Co.'s" whole undertaking to secure all moneys outstanding to the "X Bank" at any time" and the same X Bank had a failed earlier fixed charge against N Co.'s property then, the posterior floating charge will secure any debts owed to X Bank from the earlier failed fixed charge. This is a trick that can be used by a Bank whose fixed charge has failed due to failure to register it properly. The new floating charge will be a rescue charge which will make recoverable what otherwise would be a failed fixed charge which would have rendered the Bank another unsecured creditor.Registration?Late Registration?No Registration?

A charge must be registered at CH (s.860(7)) within 21 days of creation (s.870(1)) and is available for public inspection (s.869(7)) and kept in company's registers (s.876) Company's responsibility to register the charge (s.860(1)), but in practice it is the lender who does it to reflect their interest (s.860(2)) The original charging document and particulars of the charge should be sent along with the fee A mortgage or fixed charge over land should also be registered at the LR The court may grant the power for a late registration where the failure to register was accidental or inadvertent (s.873) The charge registered late is valid from date of registration, not creation The Charge will be Void against administrator, liquidator or creditor (s.874) Consider a negligence suit against the solicitor (limitation period = 6 years to bring the claim) It is still valid against the company and the debt becomes repayable immediately (s.874(3))

Negative Pledges?It is a contractual promise not to give any more security over the asset without the creditor's consent It will be entered into Form MG01 when the charge is registered to ensure 3 rd Ps have actual knowledge If more security is given anyway: if the new fixed charge holder has actual knowledge of the negative pledge given to a floating charge holder, then he will lose his priority over them

Workshop 2 Insolvency

Powers of Secured Creditors Creditor wants to ensure they are in the best position to recover their money if Co. gets into financial difficulty and therefore they want to secure the debt against the debtor by charging the debtors property by means of: The Creditor has a...

Can APPOINTFixed Charge s.236A charge that attaches immediately to a fix asset belonging to Co. (premises, machinery) Created by deed.??Floating Charge s.236 A charge that attaches immediately to a group of assets belonging to Co. which may change from day to day (stock, debtors but usually the whole undertaking i.e. everything Co owns.)Floating Charge (created pre15/09/03)???LPA Receiver If not in the deed, the power to appoint a receiver is implied by s.101 LPA 1925 They act solely for the charge-holder Act as agents of the company (s.109(2)) They take possession of the asset and sell it for the charge-holder Any surplus is returned to the company If the asset is not valuable enough, the rest becomes an unsecured creditor It is often followed by liquidation of the Co. as the sale of the asset usually means that the Co. will not have such asset to continue to trade (e.g. sale of the factory). Administrator Sch B1, Para 59-73 IA give them widest statutory powers Act as agents for the company (s.109(2)) They will take over the running of the company and try to rescue. They act in the interests of all the creditors equally Administrative Receiver or Administrator ss.29-41, 39-49 IA gives them wide statutory powers Act as agents of the company (s.44 IA) Act solely for the charge-holder Take over running the company and sell charged assets to repay the charge-holder

Powers of Unsecured Creditors

1. Petition for the company's liquidation by either statutory demand or execution of judgment

2. Suggest a CVA

3. Apply to court to put the company into administration

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