Insolvency Law Corporate and Personal

Transcription

1 Insolvency Law Corporate and Personal Fourth Edition Andrew R Keay LLB; MDiv; LLM; PhD; Barrister (England and Wales); Legal Practitioner (Aust) Professor of Corporate and Commercial Law Centre for Business Law and Practice School of Law University of Leeds Professorial Research Fellow Deakin Law School Deakin University, Australia, and Barrister, Kings Chambers Peter Walton LLB; PhD Professor of Insolvency Law Wolverhampton Law School University of Wolverhampton

2 Published by LexisNexis LexisNexis Regus Terrace Floor Castlemead Lower Castle Street Bristol BS1 3AG Whilst the publishers and the author have taken every care in preparing the material included in this work, any statements made as to the legal or other implications of particular transactions are made in good faith purely for general guidance and cannot be regarded as a substitute for professional advice. Consequently, no liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made in this work. RELX (UK) Limited, trading as LexisNexis 2017 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any way or by any means, including photocopying or recording, without the written permission of the copyright holder, application for which should be addressed to the publisher. Crown Copyright material is reproduced with kind permission of the Controller of Her Majesty s Stationery Office. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN Typeset by Letterpart Limited, Caterham on the Hill, Surrey CR3 5XL Printed in Great Britain by Hobbs the Printers Limited, Totton, Hampshire SO40 3WX

3 CONTENTS Preface to the First Edition Preface to the Fourth Edition Abbreviations Acknowledgements Table of Cases Table of Statutes Table of Statutory Instruments xxiii xxvii xxix xxxi xxxiii lxix lxxxi Part I Introduction Chapter 1 Introduction The context Historical background 7 General 7 Bankruptcy 7 Corporate insolvency 9 Modern developments Terminology The effects of insolvency 13 Chapter 2 The Meaning of Insolvency Introduction 15 The tests for insolvency 16 Shortcomings of the tests for insolvency 16 What the legislation says 17 What the courts say about section Cash flow insolvency 18 Balance sheet insolvency 19 Chapter 3 Purposes, Principles and Theory Introduction The purposes Principles 22

4 vi Insolvency Law: Corporate and Personal 3.4 Theory 24 The creditors bargain theory 25 Communitarian theory 27 Multiple values approach 28 Other approaches Conclusion 30 Chapter 4 The Administration of Insolvency Regimes Introduction The courts The Insolvency Service Official receivers The Secretary of State for Business, Energy and Industrial Strategy Qualified insolvency practitioners (office-holders) Decision making 37 Chapter 5 Options for Insolvents and the Layout of the Book Options for insolvents Personal insolvency 44 Bankruptcy 44 Individual voluntary arrangement Corporate insolvency 45 Liquidation 45 Receivership 45 Administration 45 Company voluntary arrangement The layout of the book 46 Part I References 47 Part II Non-Terminal Insolvency Chapter 6 Receivership Introduction Types of security Types of receiver Appointment 60 Mode of appointment 60 Validity of appointment 61 Agency of receivers 62 Effect of appointment of an administrative receiver Powers of receivers 63 Mechanics of power of sale 63 Actions against the debenture holder 64

5 Contents vii 6.6 Contractual liability of receivers 65 New contracts 65 Existing contracts 65 Repudiation of existing contracts 65 Contracts of employment 66 Other creditors Duties of receivers at common law and in equity Formalities of administrative receivership 71 Publicity of administrative receivership 71 Information gathering and imparting Ending of administrative receivership 72 Effect of winding up 72 Distribution of proceeds 73 Termination Availability of administrative receivership after the Enterprise Act Chapter 7 Administration Introduction 77 Changes under the Enterprise Act Nature of administration Appointment of administrator 81 Procedure and grounds for appointment under the old regime 81 Purpose of administration under the new regime 81 Procedure for appointment under the new regime 86 Appointment by the court 86 Appointment by a floating charge holder 90 Appointment by the company or its directors Process of administration 96 Effect of administration 96 Moratorium on actions 97 Interim moratorium 98 Moratorium following administrator s appointment 99 Permission of the court 102 Formalities upon appointment 103 Administrator s proposals Duties of an administrator Powers of an administrator 113 Disposal of assets charged to, or belonging to, another 114 Disposal of assets without a creditors decision procedure 115 Pre-packs 118 Creditor disenfranchisement 121 Conflict of interest and duty or conflict of duty and duty? 122 Government intervention 126 Remuneration and expenses of the administrator 127

6 viii Insolvency Law: Corporate and Personal 7.6 Contractual liability in administration 128 Existing contracts 128 New contracts 130 Employment contracts Ending administration 131 Distributions to creditors 131 Automatic end (paras 76 78) 133 Court ending on application of administrator (paras 79, 81 and 82) 134 Termination of administration where objective achieved (para 80) 135 Converting administration into creditors voluntary liquidation 135 Administration to dissolution 136 Chapter 8 Company Voluntary Arrangements Introduction 137 What is a company voluntary arrangement? Procedure 143 Procedure to approve a company voluntary arrangement 143 Procedure under Schedule A Transparency Effect of approval 152 Creditors with no notice of the qualifying decision procedure 152 The unknown creditor 153 Future or contingent creditors 153 Other effects Unfair prejudice or material irregularity 155 Unfair prejudice 155 Unfair prejudice and the football creditor rule 158 Material irregularity Theoretical basis of voluntary arrangements Duties of the nominee and supervisor Variation of a voluntary arrangement Termination of a voluntary arrangement 171 Chapter 9 Individual Voluntary Arrangements Introduction Procedure 178 Procedure where an interim order is made 179 Effect of the interim order 181 Nominee s report on debtor s proposal 182 Procedure where no interim order is made 182 Consideration of Debtor s proposal by Creditors 183 Effect of approval 184

7 Contents ix Unfair prejudice or material irregularity Implementation and supervision of the IVA Ending of the IVA 188 Chapter 10 Other Types of Arrangement Introduction Informal arrangements 191 The demise of the London Approach and the rise of the Distressed Debt Market Formal arrangements for companies 194 Schemes of arrangement under Part 26 of the Companies Act Formal arrangements for individuals 196 Debt relief orders 196 County court administration orders 199 Enforcement restriction orders 201 Debt management schemes 202 Part II References 203 Part III Provisional Liquidation Chapter 11 Provisional Liquidation Introduction The applicant 210 Creditors 210 Contributories 211 The company 211 The Secretary of State for Business Energy and Industrial Strategy The application The basis for an appointment The order The effect of an appointment The provisional liquidator The termination of the appointment 216 Part III References 218 Part IV Winding Up Chapter 12 Introduction to Winding Up The nature of winding up The purposes of winding up An overview of winding up 224

8 x Insolvency Law: Corporate and Personal Chapter 13 Creditors Voluntary Winding Up Introduction The procedure 229 No declaration of solvency 229 The members meeting and resolution 229 Informing the creditors and appointment of a liquidator 230 Liquidator decides the company is insolvent 234 After the appointment of the liquidator 235 Chapter 14 Compulsory Winding Up Introduction The basis for winding up Petitioners for winding up The hearing of the petition Winding up unregistered companies The making of a winding-up order An order following voluntary winding up Creditors petitions 244 The creditor as petitioner 244 Insolvency as a ground for winding up 245 Statutory demand 247 Unsatisfied execution Injunction to restrain the presentation or the advertising of the petition Winding-up procedure 253 Presenting the petition 253 Service of the petition 253 Giving notice of the petition 254 Substitution of creditors 254 The hearing 255 Disputed debt 257 Abuse of process 260 Creditor opposition to the petition Stay of winding-up proceedings 263 Chapter 15 The Aftermath of the Advent of Winding Up Introduction On the company itself 267 The entity and powers of the company 267 Name 268 Ownership of property 268 Dispositions of property 269 Compulsory winding up 269 Effect of the making of a void disposition 277 The impact of the Human Rights Act

9 Contents xi 15.3 On directors 278 Powers 278 Office 278 Responsibilities On company contracts On members On legal proceedings 282 Proceedings commenced against the company 282 Compulsory winding up 282 Voluntary winding up 285 Proceedings on behalf of the company On creditors 286 Chapter 16 The Players in a Liquidation Introduction The official receiver The creditors and members (contributories) The liquidation committee 289 Compulsory liquidation 289 Creditors voluntary liquidation 290 Position of committee members 291 Powers The Insolvency Service The Secretary of State for Business Energy and Industrial Strategy 292 Chapter 17 The Liquidator Introduction Appointment 295 The appointee 295 The method of appointment Liquidator s position Duties of liquidators 298 Fiduciary duties 299 Refraining from a conflict of duty and interest 300 A duty to act with impartiality 300 Duties of skill and care 300 Duty to exercise discretion 301 Specific duties 301 Publishing and filing notice of appointment 301 Providing statement of affairs and report 302 Settling a list of contributories 302 Retaining records, books and accounts 302 The collection of property 303 The investigation of the affairs of the company 303 The preserving of assets 304

10 xii Insolvency Law: Corporate and Personal The realisation of assets 304 Determining and discharging liabilities Powers of the liquidator 307 Statutory powers 307 Compulsory winding up 307 Supplementary powers 309 Delegated powers 310 Voluntary winding up Remuneration The end of the appointment 312 Resignation 312 Removal The supervision of liquidators 317 Court examination of the conduct of liquidators 318 Review of the acts or decisions of liquidators 318 Control of the court 319 Chapter 18 Dissolution Introduction The process 321 Compulsory winding up 321 Voluntary winding up 322 Early dissolutions 322 Administration to dissolution The consequences of dissolution 323 Proceedings 323 Property Restoration 324 Part IV References 325 Part V Bankruptcy Chapter 19 Introduction to Bankruptcy Introduction Outline of bankruptcy procedure Who can be made bankrupt? Who can apply or petition for bankruptcy? 334 Chapter 20 Debtor s Application Introduction 335 Chapter 21 Creditor s Petition Introduction 339

11 Contents xiii 21.2 The petition 340 Statutory demand 342 Expedited petition 343 Application to set aside a statutory demand 344 Unsatisfied execution Procedure 345 Chapter 22 Effects of Bankruptcy Introduction Dispositions of property by the bankrupt after the application or petition Loss of property 351 Reasonable replacement 352 After-acquired property 353 Income of the bankrupt 354 Pension rights 354 Bankrupt s home Release from creditor harassment Personal consequences 360 Criminal liability 361 Personal restrictions 362 Chapter 23 The Trustee in Bankruptcy Introduction Appointment of official receiver as first trustee 365 Replacement of official receiver as trustee by creditors 366 Formalities following appointment of trustee in place of official receiver Administering the estate 368 Trustee s duties 368 Trustee s powers 370 Trustee s remuneration 371 Resignation, removal or vacation of office by the trustee Distribution to creditors Ending the administration of the bankruptcy 373 Chapter 24 Discharge Introduction Automatic discharge Effect of discharge Restrictions on the bankrupt after discharge Effect of BRO or BRU Annulment 383 Part V References 386

12 xiv Insolvency Law: Corporate and Personal Part VI International Insolvency Chapter 25 Cross-Border Insolvency Introduction Approaches to cross-border insolvencies 392 Territorial approach 392 Universal approach 392 Other approaches Developments The provision of judicial assistance The common law The Model Law The Cross-Border Insolvency Regulations Introduction 402 Foreign Representative 405 Proceedings 405 Main proceedings 410 Non-main proceedings 410 Centre of main interests 411 Miscellaneous The future 415 Chapter 26 European Insolvency Proceedings Introduction Brexit Introduction and background to the EC Regulation on Insolvency Proceedings Definitions Centre of main interests Proceedings 433 Main proceedings 434 Secondary proceedings 434 Territorial proceedings 438 Insolvency-related proceedings Conflict Forum-shopping Which law applies? Recognition of insolvency proceedings Creditor claims Co-operation Insolvency registers Corporate groups The Future Summary 451 Part VI References 452

13 Contents xv Part VII Administration of Insolvent Estates Chapter 27 Investigations and Examinations Introduction Investigations 462 General 462 The official receiver 462 Compulsory winding up 463 Bankruptcy 464 Company liquidators 466 Trustees in bankruptcy Public examinations 467 General 467 Pre-examination issues 469 The examination Private examinations 473 Rationale for examinations 475 The function of examinations 476 The nature of examinations 477 The examinee 478 The extent of examinations 479 The examination Conclusion 484 Chapter 28 Funding Introduction Legal proceedings The options 487 Creditor indemnity 487 Fighting funds 488 Conditional fee agreements Third party funding arrangements Insurance Conclusion 493 Chapter 29 Disclaimer Introduction Scope of the power 495 Introduction 495 The process 497 The effect of a disclaimer 499 Freehold land 500 Leasehold land 501 Contracts 504

14 xvi Insolvency Law: Corporate and Personal Chapter 30 Distribution of Property in Insolvent Estates Introduction The pari passu principle Exceptions to pari passu 507 Set-off 507 Debt subordination 508 Liquidation, administration and bankruptcy expenses 509 Preferential creditors 509 Summary The anti-deprivation principle Distribution of the estate a matter of priorities 513 Liquidation 513 The expenses of winding up 514 Preferential debts 519 Unsecured debts 525 Post-liquidation interest on debts 527 Deferred debts 527 Administration 527 Bankruptcy 528 Costs and expenses of bankruptcy (section 328(2), rule ) 528 Pre-preferential debts 529 Preferential debts (section 328(1)) 529 General body of ordinary unsecured creditors (section 328(3)) 529 Post-bankruptcy interest on debts (section 328(4)) 530 Deferred debts 530 Surplus Statutory subrogation Payment of dividends 532 General 532 Procedure for payment 533 Final dividend 535 Part VII References 536 Part VIII Creditors Chapter 31 Secured Creditors and Guarantees Introduction Liquidation Bankruptcy Administrative receivership Administration Voluntary arrangements 548

15 Contents xvii Chapter 32 Retention of Title Introduction Liquidation Administrative receivership Bankruptcy Administration Voluntary arrangements 555 Chapter 33 Execution Creditors and Landlords Introduction Execution creditors 558 Third party debt orders 558 Charging orders 560 Writ of control Execution creditors and insolvent debtors 562 Administrative receivership 562 Compulsory liquidation 564 Voluntary liquidation 565 Bankruptcy 566 Voluntary arrangements 567 Administration Rights of a landlord 570 CRAR 570 Forfeiture of the lease Landlords and insolvent tenants 572 Bankruptcy 572 Voluntary arrangements 574 Compulsory liquidation 574 Voluntary liquidation 576 Administrative receivership 577 Administration 577 Chapter 34 Preferential Creditors Introduction Liquidation Bankruptcy Administrative receivership Administration Voluntary arrangements 581 Chapter 35 Set-Off Introduction Insolvency set-off in bankruptcy, administration and liquidation 584

16 xviii Insolvency Law: Corporate and Personal 35.3 Equitable or contractual set-off applicable in receivership Set-off in voluntary arrangements 589 Chapter 36 Proving Debts Introduction Liquidation Bankruptcy 595 Part VIII References 596 Part IX Swelling the Asset Pool Chapter 37 General Principles and Concepts Introduction The legislative framework Applicable concepts 604 The relevant time 604 Insolvent 605 Connected persons and associates 606 Assignment 607 Chapter 38 Transactions at an Undervalue Introduction Conditions for adjustment The transaction Consideration Value Defences Court orders Protecting third persons Limitation of actions 622 Chapter 39 Preferences Introduction The elements to be established for adjustment 624 Improvement in the position of the creditor or guarantor 626 Secured creditors and granting security 626 Influenced by a desire 627 Re MC Bacon Ltd 627 The problems with desire 628 After Re MC Bacon Ltd 630 Commercial pressure Court orders Limitation of actions 633

17 Contents xix Chapter 40 Transactions Defrauding Creditors Introduction Transactions at an undervalue The purpose Fraud and inferences Orders Limitation period 644 Chapter 41 Invalidation of Floating Charges Introduction The relevant time Void charges Exceptions The effect of invalidation 649 Chapter 42 Extortionate Credit Transactions Background to the provision The scope of the provisions Extortionate: the critical element Court orders 653 Chapter 43 Wrongful Trading Background The section Elements needed for liability The scope of the provision Defences Orders Limitation of action Some reflections 664 Chapter 44 Fraudulent Trading Introduction Knowingly Intent to defraud Fraudulent purpose Bringing proceedings Court orders The proceeds 674 Chapter 45 Breach of Directors Duties Introduction 677

18 xx Insolvency Law: Corporate and Personal 45.2 Directors duties Duty to act for proper purposes Duty to promote the success of the company Duty to exercise independent judgment Duties of care, skill and diligence Duty to avoid conflicts of interest Duty not to accept benefits from third parties Duty to declare interest in proposed transaction or arrangement Duty to consider creditors Disqualification Disadvantages with actions 688 Part IX References 690 Part X Misconduct Chapter 46 Misfeasance Introduction The applicant The respondent The conduct Orders Relief for respondents 701 Chapter 47 Disqualification of Directors Introduction The nature of proceedings The bases for orders Directors of insolvent companies found to be unfit 706 General 706 The length of disqualification Procedure Leave to continue 710 Chapter 48 Offences Introduction Procedure Offences in liquidations 713 Fraud in anticipation of winding up 713 Transactions in fraud of creditors 714 Misconduct in the course of winding up 715 Falsification of company books 715 Material omissions from statement relating to company s affairs 715

19 Contents xxi Fraudulent representations to creditors 716 Restriction on re-use of company name Offences in bankruptcy 717 Failure to disclose or inform of disposal of property 718 Concealment of property 718 Improper dealings with records 719 False statements 719 Fraudulent disposal of property 719 Absconding with property 719 Dealing with property obtained on credit 719 Obtaining credit 720 Engaging in business Offences in other regimes The types of proceedings 720 Part X References 721 Index 723