Providing legal services in a downturn An introduction to English insolvency procedures

Legal services in a downturn – the key challenge  What is “insolvency law”, really?  The same, but different  Insolvency Act 1986/Insolvency Rules 1986: mechanisms and processes  Helping your clients adapt, whilst adapting yourself

The components of valuable advice  The commercial context  What is insolvency?  How do businesses decline?  The legal framework  The insolvency processes in England and Wales  How they work in practice

What is insolvency?  An economic circumstance, not a legal concept – and a destination, not a start point  Cash-flow or commercial insolvency  In the Matter of Cheyne Finance PLC (in receivership) [2007] EWHC 2402 (Ch)  Balance sheet insolvency

The business decline curve

“Under-performance”  Decline in gross profitability?  Market perception – an unreliable indicator?  Obvious with hindsight:  Woolworths  MFI  The relaunch  The new project

“Distress”  Inability to fund anything other than immediate operations  Refinancing  Management changes  A more contentious approach  Payment profile changes

“Crisis"  “Managing for cash”  Erratic payments/service delivery  Suppliers put the company “on stop”  Creditor pressure

Insolvency processes in England and Wales  Administration  Receivership (and administrative receivership)  CVA’s (and schemes of arrangement)  Liquidation

Administration  A quick history lesson: the Enterprise Act, the “rescue culture” and the end of “Crown preference”  The statutory purpose of administration  Rescuing the company as a going concern  A better return to creditors than a liquidation  A better return to one or more secured or preferential creditors

Appointing administrators  The “court route”  Who can use this route?  How does it work?  The “out of court route”  Undisclosed and difficult to detect – opaque?  Who can use this route?  How does it work?

Moratorium on creditor action  When does it come into effect?  What is the effect of the moratorium?  Lifting the moratorium by court application or administrator’s consent.  Re Atlantic Computer Systems Plc [1990] EWCA Civ 20  Innovate Logistics Limited (in administration) v Sunberry Properties Limited [2008] EWCA Civ 1261

The administrator  Acts as agent, not principal, so contracts are with the insolvent company  Officer of the court  Dealing with company in administration – “buyer beware”, supplier take care.

Pre-packs  What is a pre-pack?  Why is it controversial?  Why do a pre-pack?

Receivership  Adminstrative receivership – no appointments under charges after 15 September 2003  Fixed charge receivership/LPA Receivership

The receiver  Private appointment: duty to appointor, not to all creditors  Silven Properties Ltd v RBS [2003] EWCA Civ 1409  Contractual agency

CVA’s  An agreement between company and creditors backed with the force of statute  Creditors bound, even though they knew nothing about it  75% by value, 50% in number to approve.  Tenant portfolio management – Stylo and JJB

Liquidation  Solvent liquidation: members’ voluntary liquidation  Insolvent liquidation  Creditors’ voluntary liquidation  Compulsory liquidation  (In passing, solvent insolvent liqudations!!)

Compulsory liquidation  Process  Statutory demand?  Winding up petition  Voidable dispositions of property  Effect  Shutdown  Termination of employment contracts

Creditors’ voluntary liquidation  Process  Company resolution  Creditors’ meeting to ratify choice of liquidator  Effect  Usually shut-down – personal liability for contracts deters liquidation trading

Sources of information  Official notices:  Companies House  London Gazette  Winding up registry  Unofficial sources:  The press  Internet forums

Internal information  Payment profiles  Client relationship