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Providing legal services in a downturn An introduction to English insolvency procedures
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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
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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
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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
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The business decline curve
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“Under-performance” Decline in gross profitability? Market perception – an unreliable indicator? Obvious with hindsight: Woolworths MFI The relaunch The new project
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“Distress” Inability to fund anything other than immediate operations Refinancing Management changes A more contentious approach Payment profile changes
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“Crisis" “Managing for cash” Erratic payments/service delivery Suppliers put the company “on stop” Creditor pressure
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Insolvency processes in England and Wales Administration Receivership (and administrative receivership) CVA’s (and schemes of arrangement) Liquidation
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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
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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?
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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
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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.
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Pre-packs What is a pre-pack? Why is it controversial? Why do a pre-pack?
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Receivership Adminstrative receivership – no appointments under charges after 15 September 2003 Fixed charge receivership/LPA Receivership
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The receiver Private appointment: duty to appointor, not to all creditors Silven Properties Ltd v RBS [2003] EWCA Civ 1409 Contractual agency
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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
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Liquidation Solvent liquidation: members’ voluntary liquidation Insolvent liquidation Creditors’ voluntary liquidation Compulsory liquidation (In passing, solvent insolvent liqudations!!)
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Compulsory liquidation Process Statutory demand? Winding up petition Voidable dispositions of property Effect Shutdown Termination of employment contracts
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Creditors’ voluntary liquidation Process Company resolution Creditors’ meeting to ratify choice of liquidator Effect Usually shut-down – personal liability for contracts deters liquidation trading
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Sources of information Official notices: Companies House London Gazette Winding up registry Unofficial sources: The press Internet forums
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Internal information Payment profiles Client relationship
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