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Rebecca Walker answers your queries.

The administrators of a company developed the following list of proportion of the completion monies and have received an offer for the characteristics of a floating charge: place these into escrow. Whether or not the Q company’s business and assets of – the charge is over a class of assets, escrow arrangement expressly deals with £1, plus the assumption of certain present and future; this, it is usually the case that the monies liabilities. Are there any issues with this? – the charged assets change from time remain the property of the depositor to time; and (buyer) until the end of the warranty The administrators need to – the company is free to deal with the period, at which point any balance will be remember that they have a duty to charged assets in the ordinary course of paid to the seller. The result of this is that A act in the interests of as a its business (ie they are not under the the seller (or an insolvency practitioner whole (which includes unsecured charge holder’s control) (see National appointed in respect of the seller) has no creditors). In discharging their duties, they Westminster Bank PLC v. Spectrum Plus title in, or claim to, the monies until the should consider whether the prescribed Ltd [2005] UKHL 41). In this regard, an end of the warranty period. part applies in order to ensure that the unprecedented or exceptional transaction The escrow monies are, however, not interests of unsecured creditors are not can be regarded as being in the ordinary safe in the event of the depositor’s prejudiced by a no-cash deal. course of business even if it is not part of insolvency. In Re A/Wear UK Ltd (In the company’s day-to-day operations, ) [2013] EWCA Civ 1626 it was What is the prescribed part? but a transaction that is intended to noted that, as title in the escrow monies The prescribed part is a fund set aside for bring an end to the company’s business remained with the depositor until the unsecured creditors out of floating charge cannot (see Ashborder BV v. Green Gas trigger condition occurred requiring the realisations. Broadly, it applies where a Power Ltd [2004] EWHC 1517 (Ch)). monies to be paid out to the other party, company created a floating charge over its So where a debenture purports to create a assets on or after 15 September 2003. fixed charge over an asset that has the characteristics of a floating charge, the charge will instead take effect as a floating charge (under the ‘catch all’ provision in the debenture). And the ‘permitted disposals’ It is usually the case that clause is key to determining whether an the monies remain the It is important to establish asset is secured by a fixed or floating charge: whether each of the while the debenture might state that the property of the depositor asset is subject to a fixed charge, if the (buyer) until the end of the company’s assets are debenture permits the company to dispose subject to fixed or of it without the charge holder’s consent, it warranty period, at which floating charges. must be a floating charge asset. point any balance will be Conclusion paid to the seller. A review of the debenture and applicable The prescribed part is calculated on a case law will be required in every case. In sliding scale, depending on the value of the event that the prescribed part would any insolvency practitioner appointed to floating charge realisations, and is capped apply to a cash offer, unsecured creditors the depositor would normally have the at £600,000. As it is not necessary to carve may be prejudiced by a no-cash deal unless right to claim the escrow monies as forming out a prescribed part from fixed charge the purchaser increases the cash element of part of the depositor’s insolvent estate. In realisations, it is important to establish its offer to cover the prescribed part Re A/Wear , it was only because the trigger whether each of the company’s assets are liability. condition had occurred prior to the date of subject to fixed or floating charges. administration that the administrators My client is looking to acquire a failed in their attempts to claim the monies Fixed or ? (solvent) business. The parties for the benefit of creditors. There is a two-step process in analysing this Q have agreed that a proportion of question: completion monies will be paid into 1. What are the terms of the debenture? escrow to collateralise certain warranties Debentures typically purport to create a in the sale agreement provided by the fixed charge over a list of assets; include seller. Are there any risks if either the a ‘catch all’ provision, such that, if any of seller or the buyer goes insolvent while the listed assets are not caught by the the monies are still held in escrow? REBECCA WALKER fixed charge, they will instead be caught is a senior associate in by a floating charge; and allow disposals Naturally, the answer will depend the & of some or all charged assets in the on how the escrow arrangement has insolvency team at ordinary course of business (known as a A been set up and the escrow Stevens & Bolton LLP. ‘permitted disposals’ clause). agreement has been drafted. 2. What does the law say? Case law has Typically, the buyer will hold back a

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