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LPC Law Notes Insolvency and Liquidation Notes

Maximising Assets On Insolvency Notes

Updated Maximising Assets On Insolvency Notes

Insolvency and Liquidation Notes

Insolvency and Liquidation

Approximately 45 pages

A collection of the best Insolvency and Liquidation 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". In short these are what we believe to be the strongest set of Insolvency and Liquidation notes available in the UK this year. This collection is ful...

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

W2 – MAXIMISING ASSETS ON INSOLVENCY

Co = company

MA = model articles

TA = table articles

OUTCOME 1 – Advise on the options available to a secured creditor of a co which is in financial difficulty

Options on insolvency (Creditor related)
Fixed charge holders LPA Receivership By power in security document – or if none then by LPA ss 101-109
CVA (creditors voluntary arrangement) Formal agreements which have been sanctioned by the court but allow the company to continue trading
Wait for another party to put co into liquidation
Informal agreement Might agree to extended credit terms, reduced payments, or payment by instalments – Disadvantage is if company breaches agreement, it is no longer binding on creditors
Scheme of arrangement
Liquidation BUT it can only prove in the bankruptcy for an unsecured balance after the sale of the asset subject to the fixed charge

Floating charge holders post-15.09.03

(n/b pre would have had administrative receiver option)

 Administrator (possibly with CVA as below) Out of court route
CVA
Scheme of arrangement
Wait for another party to put co. into liquidation
Informal agreement
Unsecured creditors Liquidation Serve statutory demand (IA 1986 s 123(1)(a) or sue the company under s 123(1)(b).
Administrator COURT ROUTE ONLY
Suggest a CVA
Informal agreement
Directors Administrator Out of court route OR court route
Liquidation
CVA

RECEIVERSHIP: OPTIONS FOR SECURED CREDITORS ONLY – insolvency unnecessary

Appointing a LPA receiver – FIXED CHARGE HOLDER (ss.28-49 IA 1986)
When do you need this?

Enforcing any fixed security taken over the company’s property.

Traditionally appointed under LPA (s.109) but now usually express power in security doc. (also sets out duties and powers of the receiver) – creditor able to appoint in event of default.
Duty of the Receiver

Solely for the charge holder to recover money owed to them (case law)

On appointment the Receiver:

  • Takes possession of the charged asset and deals with it solely for the charge-holder

  • Sells asset

  • Pays expenses

  • Repays fixed charge holder

  • If shortfall – claimed as unsecured debt from company

  • If exceeds proceeds – return remaining money to company.

  • After this has been done the Receiver has no further interest in the company (though if he is appointed under a floating charge, he does have a duty to pay preferential creditors (IA86 s 40)
Advantages/disadvantages from client’s point of view

Advantages

  • Quick realisation of amount secured

  • No notice required

  • Duty to charge holder only (as opposed to administration where duty to all creditors equally)

Disadvantages

  • LPA receiver pays outstanding expenses including receivership fees first

  • If asset has gone down in value, the amount secured may not be recovered in full and the shortfall will be claimed as an unsecured creditor

  • The company may find it very difficult to trade after this, especially if it loses its premises – so if there are other amounts outstanding this could jeopardise ability to recover those
What does the security document say?

Prima facie the lender has the powers given to it under s 101 LPA 1925, which only discusses income. s101(3) LPA allows it to extend its powers by mortgage deed need to do this in order to cover all assets. The prep task SD does this:

Power to appoint:

Cl 15.1 of the example document: lender may appoint a receiver in writing signed by an officer or manager or other authorised person/by deed:

  1. when requested by Chargor i.e. borrower;

  2. when any action is taken to put co. into administration;

  3. when an Enforcement Event is continuing.

NB: “Enforcement Event” = Event of Default (cl 1.1). “Event of Default” = (i) failure to make any payment when due (ii) breach of covenant, warranty or undertaking (iii) commencement of insolvency proceedings (Facility Agreement)

Notice required:

None: Cl 14.3 excludes the application of s 103 LPA to the deed (s.103 requires lender to serve notice on borrower)

Cl 15.1 reiterates that no notice is required

Powers of the receiver:

The receiver is the agent of the company and must apply the proceeds to the discharge of the debt (s 109 LPA; cl 15.4)

Schedule 1 of the document extends the powers that the receiver has under s 101 LPA – and they are very broad. Key power given: to take possession and realise capital. Under s 101(1)(iii), can only appoint a receiver to receive income – the chargee itself has to take possession to realise capital under the LPA
Appointing an administrative receiver (also ss.28-49 and 72A) - FLOATING CHARGE HOLDER pre 15.09.2003
When do you need this?

Enforcing a floating charge granted before 15 September 2003. Better option than appointing an administrator – as powers v. broad

Administrative receivers may be appointed under IA86 s 29 by a floating charge holder who has a FC over the company’s undertaking.

But through the Enterprise Act 2002, this can only be done for floating charges created before 15 September 2003 -> now must use administration.
Duty of the administrative receiver

Duty of the administrative receiver

Only to the floating charge holder: as opposed administrator owes duty to all creditors
Adv/dis from client’s point of view

Advantages

  • Administrative receiver has very broad powers

  • Only owes duty to chargee - not to others (cf. administration)

Disadvantages

  • Charge must have been granted before 15 September 2003 otherwise can’t use

  • Charge has to be over whole/substantially whole of co’s assets
What does the security document say?

Loan document will specify events to trigger appointment, might include:

  • Failure to meet a demand to pay capital or interest;

  • Presentation of a winding-up petition;

  • Presentation of a petition for administration or a CVA;

  • Levying of distress or execution against the company’s assets;

  • Failure to comply with restrictions in the loan documentation, e.g. by granting a new charge over assets;

  • The company ceasing to...

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