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LPC Law Notes Business Law and Practice Notes

Insolvency Ii Notes

Updated Insolvency Ii Notes

Business Law and Practice Notes

Business Law and Practice

Approximately 649 pages

A collection of the best LPC BLP notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

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Priority on Fixed and Floating Charges

Provided they have all been registered properly under s.860 CA:

  1. 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.

  2. If more than one fixed charge over same asset, it is priority of creation date

  3. If more than one floating charge over same asset, it is priority of creation date

  4. 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

  • 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
Late Registration

  • 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
No Registration

  • 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 3rd 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

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 APPOINT

Fixed Charge

s.236

A charge that attaches immediately to a fix asset belonging to Co. (premises, machinery)

Created by deed.

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).

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.)

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

Floating Charge

(created pre-15/09/03)

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

Challenging Antecedent Transactions

Always do a timeline of the transaction!
To protect the public, a liquidator, creditor or secretary of State may apply to disqualify a director.

  1. UNFIT TO RUN A COMPANY

Definitions Trans. that puts creditor, surety or guarantor in better position on insolvency & Co. desired this Any creation of a floating charge where there was no fresh consideration “Old Debt" A Co. transfers asset for no consideration or less than value of asset.
Step

Preferences

s.239

Avoidance of Floating Charge

s.245

Transaction at Undervalue

s.238
Is Company insolvent? When the Transaction was entered into Co. must have been insolvent at the time or become insolvent as a result (IA s.240(s)). This is presumed for a connected person (IA s.249 and s.435(10)) see below.
Is it a suspicious transaction? Either no consideration was given or a creditor has been put in a better position
Who can challenge it? Liquidator or Administrator with the court’s consent (s.239(1) and (2)) None required because the charge is automatically void Liquidator or Administrator with the court’s consent (s.238(1) and (2))
When can it be challenged? After the company has become insolvent
Is it within the definition?

  • The person is one of the Co.’s creditors, a guarantor for the Co.’s debts or liabilities (s.239(a))

  • A transaction that has put a creditor in a better position on liquidation (s.239(b))

  • The company desired this. This is presumed if with a connected person

  • Company was insolvent at the time of the transaction or became insolvent because of it (s.240(2))

  • The company was insolvent...

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