PRACTICAL LAW MULTI-JURISDICTIONAL GUIDE 2012/13 RESTRUCTURING AND INSOLVENCY

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www.practicallaw.com/9-501-6812 A pledge is a way to create security by delivering an Pledge. A pledge is a way to create security by delivering is performed asset to a creditor to hold until an obligation takes posses- (for example, a debt is repaid). The creditor The sion of the asset while the debtor retains ownership. is not creditor can sell the pledged asset if the obligation performed. another Lien. A lien is the right to retain possession of arise auto- property until a debt is settled. Liens person’s matically under English law in certain types of commercial with his solici- relationship relationships, such as a client’s A tors or bankers. They can also be created contractually. lien does not confer a right on the holder to dispose of the relevant asset if the debt is not paid. A floating charge secures a group of assets, Floating charge. A floating charge secures time, such as cash in a trading bank which fluctuate with by a floating charge are identified account. Assets secured individually (for example, a bor generically rather than without the rower is then unable to dispose of the assets consent. lender’s floating charge In the order of payment on an insolvency, and certain other holders rank behind fixed charge holders creditors (see Question 2). rower’s undertaking and assets or inventory). rower’s the borrower Unlike a fixed charge, a floating charge allows course of to deal with the charged assets in the ordinary consent. If certain business without the charge holder’s out in the charg- events occur (usually events of default set becomes a ing instrument), the floating charge effectively which it previously fixed charge in relation to all assets over possession. “floated”, and which remain in the borrower’s and the bor At this point, the floating charge crystallises „ „ „ Formalities for creating a security interest depend on depend interest security a creating for Formalities Formalities. the nature of the asset over which security is to be granted and the nature of the security interest to be granted. be To effective against liquidators, administrators and buyers of relevant assets for value, most mortgages and fixed charges, and with registered be must company a by created charges floating all Companies House within 21 days of their creation. Registration is not a requirement for attachment; an unregistered charge is effective against the company provided it is not in liquidation or administration. Pledges and liens do not require registration. Security over certain assets may also require registration at spe cialist registers (for example, land, certain intellectual property rights, ships and aircraft). „ „ „ - ). and is reproduced with the permission of the publisher, Practical Law Company. Company. Law Practical publisher, the of permission the with reproduced is and © This article was first published in the Restructuring and Insolvency multi-jurisdictional guide 2012/13 2012/13 guide multi-jurisdictional Insolvency and Restructuring the in published first was article This © A fixed charge is typically taken over a specific, specific, a over taken typically is charge fixed A A mortgage is a transfer of ownership in land or or land in ownership of transfer a is mortgage A see below, Movable property: Floating charge Floating property: Movable below, see immovable and movable property? Are there formalities that the security documents, the secured creditor or the with debtor non-compliance of effect the is What with? comply must these formalities? What Mortgage and fixed charge. See above, Immovable property. Fixed charge. Fixed Mortgage. discharge to or debt a of payment the secure to property other redemption, of right a has debtor The obligation. other some debtor the to back title transfer must creditor the which under discharged. obligation the or repaid is debt the when aircraft). or ships machinery, land, as (such asset valuable the but borrower, the with remain possession and Title the without asset the of dispose usually cannot borrower cause can This repaid. is debt the until or permission lender’s accounts example, (for assets relevant the where difficulties borrower’s the of course ordinary the in used are receivable) these in used are charges floating therefore and business ( cases

„ „ „ A fixed legal mortgage or charge is the best security interest avail- interest security best the is charge or mortgage legal fixed A able as it gives the secured lender a proprietary appointed office-holders interest of expenses in and costs the the of ahead asset on an insolvency (other than those of the receiver appointed by the lenders), and the claims of floating charge holders, preferen A lender holding a fixed charge has recourse to the asset if the power a has usually lender The loan. the under defaults borrower of sale over the asset, or the power to receiver to deal with and realise the asset on its behalf (because appoint a fixedcharge of concerns over lender liability, the second option is normally sale of proceeds the over claim a has therefore lender The used). in priority to other creditors. Where the sale proceeds are than the amount of less the loan, the lender has an unsecured claim for the balance, but if there is a surplus after repayment of the loan, the balance must be returned to the borrower. tial creditors and unsecured creditors (see Question 2). „ Movable property Common forms of The security. most common forms of security over movable property are: „ „ Immovable property Common forms of The security. most common forms of security over immovable property are: 1. are the most common forms of security granted over FORMS OF SECURITY James Roome, Tom Bannister and Paul Durban Bannister Tom James Roome, (London) LLP Bingham McCutchen RESTRUCTURING AND INSOLVENCY AND RESTRUCTURING & Wales) (England UK MULTI-JURISDICTIONAL GUIDE 2012/13 Country Q&A tae rdtr ue n mcaim t scr unpaid secure to mechanisms any use creditors trade 3. RECOVERY AND DEBTS UNPAID „ „ „ „ „ „ „ 2. RANKING SHAREHOLDER AND CREDITOR liquidation. a in generally creditors and administrator or a liquidator against and creditors, secured against void be will charges these registered, non-compliance. of Effects RESTRUCTURING AND INSOLVENCY 2012/13 GUIDE MULTI-JURISDICTIONAL ni i hs eevd ul amn fr h gos Tee clauses These goods. the for payment full received has it until that title in goods does not pass from the trade creditor to debtsretentiontheais titleof clausebuyer saleincontracts. Thisprovides unpaid secure to creditors trade by used mechanism main The the followingorderofpriority: in paid are shareholders and creditors insolvencies, corporate In „ „ „ „ „ „ „

(or under any valid floating charge in its favour). charge holder can claim the balance as an unsecured creditor the charged assets is less than the amount of the debt, the (net of the costs of realising those assets). If the value of amount realised from the assets covered by the fixed charge Fixed charge holders. ing totherightsattachedtheirshares. Shareholders. Anysurplusgoestotheshareholdersaccord- post-liquidation. Interest. Interestincurredonallunsecureddebts Unsecured creditors. satisfied andthereisasurplus. holders, unlesstheclaimsofunsecuredcreditorshavebeen prescribed partmustnotbedistributedtofloatingcharge of theremainder, subjecttoacapofGB£600,000.The about GB£0.6)ofnetfloatingchargerealisationsand20% of thefirstGB£10,000(asat1March2012,US$1was (prescribed part).Theprescribedpartiscalculatedas50% be setasideandmadeavailabletosatisfyunsecureddebts from realisingassetscoveredbythefloatingchargemust ing charge.From15September2003,partoftheproceeds to theamountrealisedfromassetscoveredbyfloat- Floating chargeholders.holdersarepaidup contributions tooccupationalpensionschemes). ees withlabour-related claims(suchasunpaidwagesand Preferred creditors.creditorsaremainlyemploy- support directionsissuedbythePensionsRegulator). Insolvency expensesregardingliabilitiesunderfinancial by preferentialcreditorsorthecourt)(seeQuestion13, been authorisedorapprovedbyfloatingchargeholders, to restrictionsrelatingcertainexpenseswhichhavenot over preferredcreditorsandfloatingchargeholders(subject Liquidators. Liquidators’feesandexpenseshavepriority Can Where of thesemechanisms? debts? Are there any legal or practical limits on the operation insolvency? INFORMATION o rdtr ad hrhles ak n company’s a on rank shareholders and creditors do FOR MORE Fixed charge holders are paid up to the If these security interests are not not are interests security these If about Practical Law Company,visit Law please Practical about visit please publication, this about „ „ seeking either: Once judgment has been obtained, the creditor can enforce it by can besoughtonasummarybasis. judgment undisputed, is debt the If debt. the for judgment a ing seek debtor a against proceedings bring can creditor unpaid An Court judgment formal the than (other procedures any invoke creditors 4. trade creditor forthesaleproceeds. the to account must it goods, the sells buyer the if that, other with provides clause the or process incorporated manufacturing a of part as goods or mixed are clause toa title subject are of which retention goods where arise can issues Difficult (and not simply the price for the particular goods sold). outstandingall tradeamountsthecreditortodue havebeenpaid sometimes provide for title to be retained by the trade creditor until „ „ the other party had notice at the time they were incurred of: sumsdue from the insolvent party will not be taken into account if party will be set off against the sums due from thecompany liquidationother,in administration.or exceptsumsfromThedueone that mustbe taken of the mutual dealings between the creditor and the tion( bycontract. Where creditora proves inliquidationa oradministra Therules ofinsolvency set-off are mandatory and cannot bevaried Insolvency set-off „ „ There aretwomaintypesofreceivershipunderEnglishlaw: realise thechargedassetsonbehalfofappointingchargee. to receiver’sduty the to secondary is shareholders and creditors other directors, its company, the to owes receiver the duty Any secured assetstosatisfyitsdebt. over receiver a appoint can creditor secured the documents, rity for mechanism enforcement secured creditors. If the debtor defaults under the relevant secu- out-of-court an is Receivership Receivership „ „ „ „ „ „

the debtortojudgmentcreditorinstead. An orderrequiringathirdpartytopayreceivabledue A chargingorderoverthedebtor’s property. intention toappointanadministrator. An applicationforanadministration orderornoticeofan A resolutionorpetitiontowind up. receiver need not be an authorised insolvency practitioner. creditor for the sale proceeds (net of costs). A fixed charge function is to sell the charged assets and to account to the charge receivers over those specific assets. The receiver’s mainover specific assets, the creditor can appoint one or more fixed Fixed charge receivership. (see Question6,Administrativereceivership). Administrative receivership.UndertheInsolvencyAct1986 Can eoe ter et I tee mnaoy e-f o mutual debts oninsolvency? of set-off mandatory a there Is debt? their recover in described procedures insolvency or rescue see QuestionseeLiquidation 6,

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www.practicallaw.com/about/practicallaw Where the creditor has fixed charges and Administration ) to 6) Question ), an accountan), - - Country Q&A - - - ). see below, Conclusion below, see In most cases, an administration cannot begin cannot administration an cases, most In www.practicallaw.com/about/practicallaw ).

www.practicallaw.com/restructure-mjg The administration procedure is procedure a The way administration a of facilitating

What are the main rescue and insolvency procedures? What are the main rescue The company is, or is likely to become, unable to pay its debts. Administration is likely to achieve one of the purposes (see above, Objective). The company. directors. The company’s One or more creditors of the company. A company through its directors or shareholders. Qualifying floating charge holders.

„ „ „ „ „ „ „ see Question 12 There is also an out-of-court procedure for placing a company in administration, which is available to both: Administration is potentially available to both UK and foreign- registered companies. The rules concerning cross-border insol vencies are complex but the availability of theprocedure administration generally depends on a company’s interest centre (COMI) of being main located in the dependsUK. whereonconducts it theadministration A itsofinterests company’s COMI on a regular basis and should be ascertainable by third parties ( tests. Substantive unless it can be demonstrated that both: ceeds to the secured or preferential creditors. The 2002 Act does Act 2002 The creditors. preferential or secured the to ceeds not explain what constitutes “unnecessarily harming” and it still remains to be seen what practical impact this will have decision to sell assets. administrator’s on an Initiation. An administrator can be appointed by court An order. application is usually made by: „ „ The main aim of administration is to rescue the company as a going concern. However, if the administrator thinks this is not reasonably practicable or that a better result can be achieved for creditors as a whole, the second objective is to achieve a better is company the if likely is than creditors company’s the for result wound up (without first being in administration). thinks administrator the if applies only which objective, third The it is not reasonably practicable to achieve the tives firstand if twoit will not objec- “unnecessarily harm” the interests of the creditors as a whole, is to realise property to distribute the pro „ „ „ „ „ businesses affected by the economic downturn. The BPSS is avail is BPSS The downturn. economic the by affected businesses plan. business viable a have who businesses distressed all to able there basis, individual an on case each review HMRC the Although as arranging (such options tailored temporary, to suggest is scope period). longer a over made be to payments tax for RESCUE AND INSOLVENCY PROCEDURES 6. Administration Objective. allows It assets. its of realisation better the or company a of rescue its from protection with trade to continue to company insolvent an ( moratorium statutory a through creditors - - - - about this publication, please visit about Practical please Law visit Company, FOR MORE FOR INFORMATION Is state support for distressed businesses available? Is state support for distressed businesses Transfer of the bank into temporary public sector ownership. Transfer Transfer of all or part of the bank’s business to a publicly part of the bank’s of all or Transfer controlled ‘’bridge bank’’. Transfer of the banking business to a third party, to facili- business to a third party, of the banking Transfer tate a private sector solution.

„ „ „ The 2009 Act also introduces new insolvency and administration and administration new The insolvency 2009 Act also introduces the of features main The societies. building and banks for regimes existing the on primarily based are procedure insolvency bank new of Act provisions the 1986. Insolvency The liquidation of new bank business the of part when used be to is procedure administration a “bridge to transferred or party a third to sold been has bank the bank” under the SRR and a bank is administrator appointed by bank. residual insolvent the of affairs the administer to court the Business Payment Support Service introduced (HMRC) Customs & Revenue HM UK the 2008, late In of needs the meet to (BPSS) Service Support Payment Business a Enterprise Finance Guarantee In January 2009 the UK Government launched the Finance Enterprise Guarantee (EFG). The EFG is a loan medium guarantee and scheme small to lending bank additional facilitating at aimed enterprises (SMEs) with viable business cases but By lenders providing with security. guaran insufficient a government-backed „ tee, the aim is to facilitate lending that would otherwise not be capital the working can obtain SMEs that and to ensure available 2014-15. until continue will EFG The require. they investment and „ „ pecial Rescue and Insolvency Procedures for Banks Special Rescue and Insolvency Procedures The Banking Act 2009 (2009 Act) came into force in February special the is Act 2009 the of aspect significant most The 2009. resolution regime (SRR) which gives the government authorities various powers to deal with banks and other deposit-taking insti 5. STATE SUPPORT ing and disclosure of debtors’ assets in cross-border cases. The proposed remedies appear to be similar in nature to English law freezing orders (and ancillary disclosure orders) and would be in addition to those remedies available under national Further law. details, including the application procedure and timeframe for possible implementation, are still under discussion. tutions which are failing. The rescue mechanisms are referred to as “stabilisation powers” and the SRR provides for three stabili sation options in relation to UK banks: Cross-border debt recovery The process to recover cross-border debts is complex costs and of recovering the a debt from a debtor with assets in several member states can often be prohibitive. However, the European Parliament has recently approved draft proposals for the freez In the case of an administration, insolvency set-off takes place as place takes set-off insolvency administration, an of case the In issued is distribution intended the of notice which on date the at by the administrator with retrospective effect as at the date of administration. All amounts, including future, contingent and unliquidated sums, sums, unliquidated and contingent future, including amounts, All into account. are brought RESTRUCTURING AND INSOLVENCY AND RESTRUCTURING MULTI-JURISDICTIONAL GUIDE 2012/13 Country Q&A tioners canbeappointedasadministrators.Theadministrators: company’s administratorsorliquidators. the by liquidation, or administration in already is company the if Initiation. A CVA can be commenced by a company’s directors, or compromise orarrangementwith itscreditors. a propose to difficulty financial in company a enable to is aim Its creditors. its and company a between composition statutory of form a is (CVA) arrangement voluntary company A Objective. Company voluntaryarrangement „ „ „ „ „ „ „ control. and Supervision be enforceable. must the appointment underlying insolvent, charge be floating to the although company the for requirement no anadministra is there appoints tor, holder charge floating qualifying a If RESTRUCTURING AND INSOLVENCY 2012/13 GUIDE MULTI-JURISDICTIONAL betv. diitain sal rsls n n o mr o the following: of more or one in results usually Administration objective. its on depends concluded is administration an which in way The contracts. company with interfere not does procedure is the administrator and an appointed if employees on impact direct no is There ing theirsecurityagainstthecompanyoritsproperty. rium is a stay on creditors from taking any legal action or enforc morato The administration. the of objectives the achieve trator adminis the helps filed, is administrator an appoint to intention of notice a or administration for application an when comes effect into which moratorium, statutory automatic An Conclusion. for a period not exceeding six months, with the creditors’ consent. appointment can be extended by the court for a specified period or oneyearafter thedate the appointment tookeffect. However, the procedure.Lengthof Protection fromcreditors.Seebelow, Conclusion. business duringinsolvency, seeQuestion10.) the on carrying regarding information (For company. the of tors administrator may leave some or all of the powers with the direc the although cease generally powers management directors’ The „ „ „ „ „ „ „ ( to apply to the court to unwind pre-insolvency transactions Have investigatory and enforcement powers, including powers Have veryextensivemanagementpowers(seeQuestion10). court) andactasthecompany’s agent. Are officersofthecourt(whetherornotappointedby Liquidation). Liquidation anddissolutionofthecompany(seebelow, arrangement). A schemeofarrangement(seebelow, Schemeof arrangement). voluntary arrangement(seebelow, Companyvoluntary A compositionofcreditors’claimsthroughacompany uting theirproceedstocreditorsandshareholders. The administratorsellingthecompany’s assetsanddistrib- see Question 9, Challenging pre-insolvency transactions INFORMATION The administrator’sThe appointment terminates FOR MORE One or more licensed insolvency practi insolvency licensed more or One about Practical Law Company,visit Law please Practical about visit please publication, this about ). ------provide amoratorium(seeabove,Administration ). does which administration, with tandem in used often are they scenarios, restructuring in used are they when actions, creditor from protected not are scheme a of steps preparatory the Since scheme. the by affected be may who shareholders and creditors of classes various the of meetings and court to applications both involves costly,it be as can and consuming time complex, tively rela is process The liquidator. or administrator company’s the by or itself company the by initiated be can scheme A Initiation. certain classesofitscreditors. with or creditors its with arrangement or compromise a reach to company a enables (scheme) arrangement of scheme a ment), ie CA ( CVA a Like Objective. Scheme ofarrangement opn rvrs o t fre sau ad oto rtrs o its to directors andshareholders. returns control and status former its to reverts company The implemented. been have terms its once concluded CVAis A not interferewithcompanycontracts. does procedure the and employees on impact direct no is There bound byit. be to consent they unless creditors secured bind the not However, does it). CVA of aware becomes he date the from CVA the challenge to days 28 has and it, of notice received he if as CVA notice of the creditors’ or meeting is entitled to treatment under the receive meeting not did who creditors’ creditor any (although it the of notice received attended they whether of spective irre creditors, all and company the binds CVA The Conclusion. Length of procedure. The duration of a CVA depends on its terms. The moratoriumlastsbetweenoneandthreemonths. CVA. a contemplating companies small for available is security, of enforcement the including processes, legal on moratorium a creditors. from Protection ing insolvency, seeQuestion10.) dur business the on carrying regarding information (For control. of this supervisor. The directors do, however, otherwise remain in possible to put the relevant assets of the company into the hands everything do must directors company’s The practitioner. vency insol licensed a of supervision the under implemented normally Supervision andcontrol.IfaproposalforCVA isapproved,it become, insolvent. to likely is or is, it that demonstrate to need not does company pany must satisfy to be placed into this procedure. Therefore, the com a that requirements formal no are There tests. Substantive (see above,Administration:Initiation). administration for as companies same the to available is CVA A ( Administration). returns) financial company’s the on based is (this company” “small a is company the unless moratorium a for vide pro itself not does CVA a because administration with junction not does need to be prefaced by an it administration, it is often used in con While procedure. the in involvement active no has A copy of the proposed arrangement is filed in court, but the court

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www.practicallaw.com/about/practicallaw e aoe Cmay outr arrange voluntary Company above, see hr i gnrly o rtcin but protection no generally is There e above, see ------Country Q&A - - - - ). see below, Liquidation below, see ). This is a court proceeding. court a is This The appointment of an administrative The administrative The receiver controls the administrative This is not a court proceeding and can can and proceeding court a not is This Question 10 Question There is no time limit, but an administrative administrative an but limit, time no is There www.practicallaw.com/about/practicallaw The of appointment an receiver administrative

Administrative receivers have receivers the power Administrative to sell all or www.practicallaw.com/restructure-mjg There are two types of liquidation: liquidation: of types two are There Voluntary liquidation is initiated by a shareholders’ reso shareholders’ a by initiated is liquidation Voluntary

Voluntary liquidation. Voluntary volun (members’ company solvent a to relation in started be (creditors’ company insolvent an and (MVL)) liquidation tary (CVL)). liquidation voluntary liquidation. Compulsory company. The shareholders. company’s The directors. company’s The creditors. company’s The „ „ „ „ „ „ receiver receiver usually seeks to realise and distribute assets as quickly possible. as Conclusion. part of and business the assets to company’s satisfy the secured claims. creditors’ not does procedure the and employees on impact direct no is There contracts. company with interfere Once a sale has occurred and of of (net sale for the proceeds the creditor to the secured accounted administrative either receiver for directors has the to returned is company the of control costs), ( liquidation final or operations continued Protection Protection from creditors. receiver does not company. create an can Creditors moratorium. automatic the against actions legal continue or commence therefore procedure. of Length Substantive tests. Substantive security in the contained provisions enforcement to the is subject documents. and Supervision control. are of powers management The directors’ of affairs the company. suspended. (For information regarding carrying on the business see insolvency, during Liquidation is used to wind up a company, and realise and distrib and realise and company, a up wind to used is Liquidation shareholders. and creditors to assets its ute by Initiation. started is liquidation Compulsory company. the up wind to lution following: the of any by court the to petition a of presentation the liquidation for file to required not are directors its and company A for liability incurring avoid to so do to wish may but insolvency, on wrongful or fraudulent trading (see Question 8). complex, are insolvencies cross-border to relating rules the While CVL and compulsory liquidation are potentially available to both UK and foreign-registered companies, provided they can demon establishment an or interest main of centre their have they strate is MVL connection. sufficient other some potentially or UK the in only available to companies incorporated in the UK. Liquidation Objective. „ „ „ „ „ „ - - - - about this publication, please visit about Practical please Law visit Company, .) FOR MORE FOR There is no moratorium so creditors The directors of the company remain Question 10 The duration of a scheme depends on its . The company must be liable to be wound up Once the scheme has been sanctioned by the court Administrative receivership is an out-of-courtenforceAdministrativean receivership is Any holder of a floating charge over all or substan INFORMATION Voted to reject the scheme. Did not attend the scheme meeting. Did not receive notice of the scheme. „ „ „ The scheme is concluded in accordance with its terms and the company reverts to its former status. Thereis no direct impact on employees and the procedure does not interfere with company contracts. Secured creditors can also be bound if their class approves the scheme. Initiation. The mechanism is used to realise assets creditor’sto satisfy debt. a Any secured duty the administrativethe company, its receiver directors, owesother creditors to and shareholders is secondary to his duty to realise the charged assets on behalf of the appointing secured creditor. Administrative receivership Objective. mentmechanism for secured creditors. Asresulta oflegislative changes introduced by the Enterprise Act thisprocess isnowused and verygenerally rarely, 2002only forsecu (2002 Act), ritisations and regulated industries. tially all of a company’s assets created 2003before can15 September appoint one or more administrativean event of receiversdefault. Subject after to certain limited exceptions, changesthe introduced by the 2002 Act now prevent the appoint administrativeanmentof receiver relationin floating to charges created after 15 September 2003. Administrative receivership is available to a company incorporated within the UK. „ „ „ Conclusion. in control. (For information regarding carrying on the business during insolvency, see Protection from creditors. terms. and a copy of the order filed at Companies House, it binds the creditors,itscompanyofall and including creditorsany did who any of the following: Supervision and control. Length of procedure. Substantive tests in the UK, but does not need to show that it is become)(or insolvent.is likely to can take enforcement action against the company up until the point at which the scheme is sanctioned. A scheme is generally available to companies registered in the UK. However, it may also be available in the case of a non-UK registered company which could be wound up in the hasUK, its centre of mainif interest itor an establishment in the UK or potentially some other sufficient connection. RESTRUCTURING AND INSOLVENCY AND RESTRUCTURING MULTI-JURISDICTIONAL GUIDE 2012/13 Country Q&A 7. ROLES STAKEHOLDERS’ „ „ „ „ following occur: company is unable to pay its debts, which is deemed if any of the the that is order winding-up compulsory a for court the petition creditors which on ground common most The tests. Substantive RESTRUCTURING AND INSOLVENCY 2012/13 GUIDE MULTI-JURISDICTIONAL Supervision and control. and Supervision together withinterest,within12monthsofthestartMVL. the directors that the company will be able to by pay sworn its debts declaration in statutory full, a by supported be must MVL An just andequitabletodoso. is it that shown be can it if company a up wind also can court A Typically, the creditors (including bondholders and lenders) are lenders) and bondholders (including creditors Typically,the procedure. statutory any of outside between company the negotiations and sen creditors involve to restructurings most favourable lenders, are ior procedures insolvency English While creditors andshareholders. to distributions made applicable, where and, assets company’s The company is dissolved once the liquidator has realised all the a winding-up. facilitate to contracts onerous terminate to ability the has dator liqui- a but terminated automatically not are contracts Company tracts areautomaticallyterminated,unlikeanMVL. con service employees’ CVL, and liquidation compulsory a On (see Question10). company the of name the in act to powers extensive with vested is who liquidator, the by replaced and dismissed automatically Once court. order,company’swinding-up are the a directors makes the court the of leave without property, its or company against the continued or started being any from prohibiting proceedings or by action moratorium or stay automatic an for vides pro CVL) or MVL an (unlike liquidation Compulsory Conclusion. dation andthecompany’s situation. Length of procedure. This depends on the substance of the liqui - Protection fromcreditors.Seebelow, Conclusion. see Question10. information regarding carrying on the business during insolvency, „ „ „ „

than thecompany’s assets. (including contingentandprospectiveliabilities)aremore It isprovedtothecourtthatcompany’s liabilities its debtsastheyfalldue. It isprovedtothecourtthatcompanyunablepay A judgmentremainsunsatisfied. pany failstopay. serves astatutorydemandonthecompanyandcom- A creditorwhoisowedmorethanGB£750bythecompany Which outcome ofarestructuringorinsolvencyprocedure? INFORMATION stakeholders have the most significant role in the role significant most the have stakeholders FOR MORE See below, See and, for further for and, Conclusion about Practical Law Company,visit Law please Practical about visit please publication, this about - - - „ „ „ a director, parent company (domestic or foreign) or other 8. LIABILITY majorities ofcreditorsdonotvoteinfavourit. statutory the if defeated be can scheme or CVA proposed a and proposal restructuring a of acceptance the on vote to required had notoccurred. transaction improper the if in been have would it position the to company the restore to is principle overriding The unwound. or avoided be should transaction pre-insolvency a that determines it if orders these grant to insol discretion wide the has court before The vency. place took that transactions certain unwind or avoid to order an liquidator for court the the to apply can administration, administrator or or liquidation company’s a On Challenging pre-insolvencytransactions be transactions pre-insolvency company’s insolvent an 9. TRANSACTIONS ASIDE SETTING pany’s pensionobligations. com the for liable them make may which control), voting more of a corporate group, directors and shareholders with one-third or con are nected or associated with the who company (including other members persons on notices serve circumstances, certain in can, regulator occupational pensions the scheme, an pension benefit with defined employer an is company insolvent an If n sao drcos cn e ed ibe o otiue o the to contribute company’s to assetsareasfollows: liable held be can directors) shadow and The main ways in which a company’s directors (including de facto „ „ „

improving thereturntocreditors. there isareasonableprospectofavoidingliquidationand tors tocontinuewitharestructuringiftheyconcludethat potential losstothecompany’s creditors.Thisallowsdirec- from therelevanttime,theytookeverysteptominimise to awrongfultradingactionifthedirectorscanshowthat, of avoidinginsolventliquidation.However, itisadefence ably tohaveknown,thattherewasnoreasonableprospect pany tocontinuetradingaftertheyknew, oroughtreason- imposes personalliabilityondirectorsiftheyallowacom- Wrongful trading.Asuccessfulwrongfultradingaction for fraudulenttradingevenifthecompanyisnotinsolvent. company’s assets.Criminalpenaltiesmayalsobeimposed intent todefraudcreditorsmaybeliablecontributethe a partytothecarryingonofbusinessbycompanywith Fraudulent trading.Anypersonwhoisorwasknowingly alleged misfeasanceorbreachoffiduciaryotherduty. forming ormanagingthecompany, inconnectionwithany any officerofthecompanyoranyoneinvolvedinpromoting, creditor oranycontributorycanbringproceedingsagainst Misfeasance orbreachoffiduciaryduty. Aliquidator, any Can Can party beheldliableforaninsolventcompany’s debts? and in what circumstances? Are third parties’ rights affected? set aside?Ifso,whocanchallengethesetransactions,when

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www.practicallaw.com/about/practicallaw - - - Country Q&A ------The directors remain in con www.practicallaw.com/about/practicallaw On appointment, an administrator assumes

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on business during insolvency or who has the authority to particular, rescue supervise or carry on the proceedings? In what restrictions apply? business and company’s In Sell the company’s assets. Borrow money on behalf of the company. Bring or defend proceedings.

„ „ „ During the administration, the creditors administrator and must seek report approval to believes for that the his administration proposals.is not being If conducted a prop creditor erly, heerly, can apply to court for the removal of the administrator. CVA and scheme of arrangement. trol of the company, continue to trade and undertake the com pany’s business, unless otherwise provided by the terms of the CVA or scheme. Liquidation. pany’s directors are automatically dismissed and the replaced liquidator by who is vested with the extensive company’s behalf. powers The to liquidator act can on continue thecompany’s tobusiness if this achieves operatebetter realisation of the assetsimmediatethanan liquidation, liquida arare for is it but tor to do so. dation, the liquidator may consider disclaiming the licence as onerousInsolvencypropertythe1986.undersectionof Act 178 Only a liquidator can disclaim onerous property: an administra tor may not do so. However, an administrator may cause the to insolvent breach the company terms of the licencesue for and damages. allowIf successful, the the licensorlicensor towould rankunsecured creditor. as an management of a company and, although the directors usually remain in place, they cannot exercise any powers in a manner that is inconsistent with the administration dismissed(directors by the administratorscan at any time). be The administrator can do anything necessary or the managementexpedient of the company’s affairs,for business or property, such as: Authority/supervision See above, Circumstances. Intellectual property licences Intellectual property (IP) licensors do not right haveto terminate an automaticthe debtor’s rights to matters use are IP governed assets. by Thesethe terms of the licence,the event of defaultparticularly and termination provisions. If the IP is not business critical and the company is in liqui CARRYING ON BUSINESS DURING INSOLVENCY 10. what circumstances can a company continue to carry Circumstances Administration. „ „ „ - - - about this publication, please visit about Practical please Law visit Company, FOR MORE FOR INFORMATION the company enters into the transaction in good faith the company enters into carrying on its business; and for the purpose of reasonable grounds for believing at the time, there were benefit the company. that the transaction would „ „ The vulnerable period is two years before the start of liqui- The vulnerable period dation or administration. Dispositions after the start of winding up. Any disposition of has started is property made after winding up a company’s void, unless the court orders otherwise. This provision can cause difficulties, as a compulsory winding-up is deemed to start when the petition is presented, rather than on the date of the court order. Transactions defrauding creditors. This is similar to a Transactions at an transaction at an undervalue (see above, Transactions undervalue), but the court only makes an order to unwind a transaction if it is satisfied the transaction was entered into to defraud creditors by putting assets beyond the reach of No time limit applies for claimants against the company. unwinding the transaction. Avoidance of floating charges. Floating charges created by Avoidance insolvency are an insolvent company in the year before the the considera- invalid, except to the extent of the value of the charge tion given to the company by the lender when years where the was created. This period is extended to two person” (see charge was created in favour of a “connected above, Preferences). a transaction is only a transaction at an under Generally, see above, Transactions at an undervalue) or a value (see above, Transactions avoided, if at the preference, and a floating charge is only or creates the time the company enters into the transaction unable to charge, it is unable to pay its debts or becomes or preference. do so as a consequence of the transaction A preference is a transaction by a company Preferences. A preference is a transaction surety or guarantor by putting that that prefers a creditor, of the com- party (in a hypothetical insolvent liquidation would have pany), into a better position than that party The court been in if the transaction had not taken place. that the com- can set aside a preference if there is evidence The the creditor. pany was influenced by a desire to prefer or admin- vulnerable period is six months before liquidation are connected istration starts, unless the preferred creditors directors), in to the company (for example, the company’s which case the period is two years. „ „ The court can set aside a undervalue. The court at an Transactions for no consideration, entered into by a company transaction of the than the value less consideration or for significantly transaction, unless both: „ „ „ „ „ tions are complex. Although third-party rights may be affected, there is generally protection for bona fide purchasers acquiring property or benefits for value without notice of the relevant cir the to parties recipients, direct not are who Persons cumstances. transaction, or connected with the company or the parties to the transaction, are usually accorded a broad defence. Third party rights The rules concerning third party rights in pre-insolvency transac „ „ „ „ The transactions that can be set aside are as follows: that can be set The transactions „ RESTRUCTURING AND INSOLVENCY AND RESTRUCTURING MULTI-JURISDICTIONAL GUIDE 2012/13 Country Q&A „ „ and promote: uniform legislative provisions provide to deal with cross-border Regulations insolvency The 2006. Regulations Insolvency Border implemented in England and Wales on 4 April 2006 by the Cross- The UNCITRAL Model Law on Cross-Border Insolvency 1997 was Concurrent proceedings procedures isautomaticallyeffectiveinanothermemberstate. winding-up or reorganisation of commencement the to relating state’s insolvency member rules apply home throughout the EU the and any decision exceptions, certain to Subject business. its state in which a credit institution has been authorised to take up member EU the in commenced be to proceedings or reorganisation winding-up of set up single a for winding provides institutions and credit of reorganisation the on 2001/24/EC Directive member states ( contains detailed provisions and on statesconcurrent memberproceedings EU in different other in started proceedings insolvency Regulation)requires the English courts to automatically recognise Regulation (EC) 1346/2000 on insolvency proceedings (Insolvency jurisdiction ifitisconsistentwithEnglishlaw. apply substantive English insolvency law or the law of the foreign can court the assistance, provide to whether considering When dependencies. and colonies UK former of number a of relation statutory in courts English with a co-operation reciprocal the provides for framework 1986 Act Insolvency the of 426 Section Recognition are the rules regarding recognition, concurrent proceed 12. CASES MULTINATIONAL provide additionalfunding. to lenders existing its to look will company Typically, the tors. credi its and company the between agreement for matter a be to tends security as assets of use the and finance of raising The CVA andschemeofarrangement fixed charge)asanexpenseoftheadministrationorliquidation. additional funding has priority Such over all claims company.(other than those secured the by a of assets unencumbered the of security the on money raise can liquidator or administrator An Administration andliquidation proceedings insolvency to subject is that company a 11. FINANCE ADDITIONAL RESTRUCTURING AND INSOLVENCY 2012/13 GUIDE MULTI-JURISDICTIONAL „ „

ested persons,includingdebtors. that protectstheinterestsofall creditorsandotherinter Fair andefficientadministration ofcross-borderinsolvency involved incasesofcross-border insolvency. Co-operation betweenthecourts andcompetentauthorities What Can are theproceduresforforeigncreditors? What cases? multinational in treaties international and ings tothe given priority repayment ofthisfinance? Isspecial equivalent)? or financing debtor-in-possession example, (for finance additional obtain INFORMATION see below FOR MORE ). about Practical Law Company,visit Law please Practical about visit please publication, this about - ­ - n te roiy f lis n diitain Te eiin has decision been appealed The to the Supreme Court given administration. its public importance. in claims of priority the and directions, support financial with companies issue to which it enable powers, hazard” “moral ofthe so-called the status Regulator’s on Pensions both impact significant a has ruling The insolvency process. rank above floating charge holders and unsecured creditors in the therefore, and, debts provable than rather administration, the of expense an as treated be should administration into gone have they after companies directions against Regulator support Pensions the by financial issued under liabilities that (Ch)) 3010 EWHC [2010] ors and Regulator Pensions The v ors and (Bloom Brothers Lehman and Networks Nortel of cases the in judgment Court High the confirmed Appeal of Court the 2011 October In Insolvency expenses 13. REFORM vency proceedingswillbetakenintoaccount. insol foreign the in made recovery any abroad, proceedings rent ensure that local creditors are not prejudiced, if there are concur to However, sterling. into converted are debts currency Foreign creditors. local as manner same the in proceedings insolvency UK in them to due debts claim can creditors foreign Generally, Procedures forforeigncreditors „ „ The followinginternationaltreatiesapply: International treaties „ „ „ „ „ tant changesinclude: impor most the of Some 1986). Act Insolvency the supplement a series of modernisation changes to the Insolvency Rules (which Over the last three years, the Insolvency Service has implemented The InsolvencyRules force beforeOctober2013. into come not will Rules new the although 2012 of summer the that a draft set of Rules for consultation will be published during anticipated is It Rules. Insolvency the replace entirely and ture theInsolvency work, Service intends to produce the modernisation a new set of Rules which will restruc - of phase final the As „ „ „ „ „ „ „

Cross-Border InsolvencyRegulations2006. Insolvency Regulation. The rescueoffinanciallytroubledbusinesses. assets. The protection and maximisation of the value of the debtors’ remote attendanceatcreditors’meetings. between insolvency office holders and creditors and allowing Facilitating thedeliveryofdocumentselectronically the administration. expenses incurredbeforehisappointmentasanexpenseof Enabling aninsolvencyofficeholdertorecovercostsand insolvency events. A moreflexibleregimefortheadvertisingand/orpublicityof Are thereanyproposalsforreform?

www.practicallaw.com/restructure-mjg

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W PAUL DURBAN Bingham McCutchen (London) LLP T F E Acted as counsel to creditor groups in in groups creditor to counsel as Acted Restructuring; insolvency. Restructuring; www.practicallaw.com/about/practicallaw

England and Wales, 2006 England and Wales, www.practicallaw.com/restructure-mjg

Qualified. Areas of practice. Recent transactions. the restructurings of three major Icelandic banks, three major major three banks, Icelandic major three of restructurings the Damovo, Entertainment, Filmax institutions, financial Irish European Meinl Club, football United Leeds Kremikovtzi, Northern and Group Pearl Production, Floating Nexus Land, and secured in investors institutional the advised and Rock; companies European involving placements private unsecured also He Group. Quinn the and Hampson NV, Heijmans as such issues. law insolvency English on advises ­ - - CONTRIBUTOR DETAILS about this publication, please visit about Practical please Law visit Company, [email protected] www.bingham.com +44 20 7661 5300 +44 20 7661 5400 [email protected] www.bingham.com +44 20 7661 5400 +44 20 7661 5319

W JAMES ROOME Bingham McCutchen (London) LLP T F E W F E TOM BANNISTER Bingham McCutchen (London) LLP T FOR MORE FOR Advised on the debt for equity equity for debt the on Advised Representing noteholders on: the the on: noteholders Representing Restructuring; insolvency. Restructuring; Restructuring; insolvency. Restructuring; England and Wales, 1984; Hong Kong, 1985 England and Wales, England and Wales, 2005 England and Wales, INFORMATION Areas of practice. Recent transactions. Qualified. swaps of Gala Coral and Wind Hellas (for the key creditor creditor key the (for Hellas Wind and Coral Gala of swaps represented companies); these of control acquiring groups Nationwide Irish of bondholders of committees hoc ad the in lenders the represented and Truvo; and Society Building Directories, European Viridian, including restructurings LBO Medical. Alliance and Telecommunications Bulgarian Qualified. Areas of practice. Recent transactions. restructuring of Quinn Group Limited (a large Irish and UK UK and Irish large (a Limited Group Quinn of restructuring the conglomerate); insurance and glass products, building multinational Greek-based (a Maillis MJ of restructuring and administration the and manufacturer); packaging compliance housing, social (a Plc Connaught of restructuring UK). the in business forestry and ment will further consider views on the proposals during 2012, but it is unlikely that they will be implemented before the sum mer of 2012 at the earliest. These proposals were embodied in the draft Insolvency (Amend ment) (No 2) Rules 2011. However, following consultation with govern The delayed. been has implementation parties, interested Pre-pack insolvency sales Pre-pack insolvency In March 2011 the government unveiled controversial plans to pre-pack of use the surrounding regime regulatory the strengthen insolvency sales. In brief, the proposals aim to make it administra- pre-pack through push to practitioners insolvency for harder tions by requiring administrators to provide creditors with more in advance of the pre-pack sale process. detailed information RESTRUCTURING AND INSOLVENCY AND RESTRUCTURING MULTI-JURISDICTIONAL GUIDE 2012/13 UK -Bingham.indd 106 The tougher thedeal, themore we enjoy it. bingham.com 20/12/2011 14:42:45

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