Weak areas - business law and practice

What are the informal agreements in the context of a company in financial difficulty

• Negations with creditors without formal legal process

• Additional security

• Standstill agreements

What is a pre-insolvency moratorium and how does it help companies

Introduced by CIGA 2020. Temporarily prevents creditors from enforcing claims, giving the company time to negotiate. It lasts 20 business days and is extendable up to 1 year.

Important debts I.e. wages, rent must be paid

What is a CVA and how is it set up?

A compromise between a company and its creditors to restructure debt

It requires 75% of unsecured creditors to vote in favour

Binding in all unsecured creditors even those who disagree.

Directors remain in control during CVA

How does a restructuring plan differ from a CVA

It is court sanctioned.

Can bind secured creditors and shareholders - unlike CVA.

Allows for cross-class cram down where dissenting creditor classes can be forced to accept the plan.

Requires approval by 75% of creditors in each class with court involvement

What is the difference between pre moratorium and moratorium debts?

• Pre-moratorium debt - debts incurred before moratorium - most can be deferred except for key payments

• Moratorium debt - incurred during moratorium which must be paid

What is administration ?

A collective insolvency process to manage a company for the benefit of all creditors.

Administrators are licensed practitioners, often appointed out of court, with an aim to rescue or restructure the business

Governed by Schedule B1 of the Insolvency Act 1986

What are the statutory objectives of an administrator?

1. Rescue the company as a going concern

2. Achieve a better outcome for creditors than liquidation.

3. Realise assets to distribute to secured or preferential creditors as a last resort.

How are administrators appointed?

• Court appointment : less common, often used when immediate action is required.

• Out of court appointment : more common, usually by directors or a qualifying floating charge

• Moratorium in place during administrative to prevent creditor action.

What are the powers of an administrator ?

• Administers can manage the business, sell assets, and negotiate with creditors

• Directors lose management power but remain in office.

• Administrators report to creditors and must produce a proposal within 8 weeks.

What is an administrative moratorium ?

• Protects company from creditor sections while in administration

• Prevents legal proceedings, enforcement of security and other hostile actions unless court approved.

What is a pre-packaged administration?

A pre-arranged sale of company assets upon entry into administration.

Often to connected parties, but must follow restrictions and evaluations under 2021 regulations.

What is receivership ?

• An enforcement process for the benefit of a secured creditor.

• Focuses on recovering debt by selling assets rather than benefiting all the creditors

• No collective moratorium like in administration

What are the types of receivership?

1. Administrative receivership - rare, limited to certain older or exempt cases

2. Fixed charge receivership - appointed over specific assets

3. Court- appointed receivership - appointed in shareholder disputes or under proceeds of crime laws.