Chapter 18 - Corporate Rescue Flashcards

1
Q

What are the three main avenues of corporate rescue?

A

CVA
Small company moratorium
Administration

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2
Q

What is a CVA?

A

A company voluntary arrangement, by which a company may put in place a scheme of arrangement that binds all unsecured creditors even though not all agree to its terms.

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3
Q

Is a preferential or secured creditor bound by a CVA?

A

No, unless they agree to it.

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4
Q

Who may bring about a CVA?

A

The directors, or administrator (s1 IA)

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5
Q

If the company is not in administration or liquidation, what must the nominee or supervisory send to the court within 28 days of receiving notice of the terms of a proposed CVA?

A

A report stating:

  • whether the CVA has reasonable prospect of succeeding
  • whether the proposal should be considered by meeting of the members and creditors
  • the date, time and place at which the nominee proposes a meeting to be held.
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6
Q

How have the SBEEA 2015 and the IR 2016 altered to procedure for approving a CVA?

A

A physical meeting of the creditors is no longer necessary.

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7
Q

What is the effect of a CVA?

A

A CVA binds every person entitled to vote on it as if they were a party to it.

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8
Q

When may the CVA come to an end?

A

If the company defaults on the payments agreed in the CVA

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9
Q

What is a small company moratorium?

A

A procedure allowing small companies to delay enforcement of its debts to allow it time to put a CVA in place.

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10
Q

Where is the small company moratorium procedure set out?

A

IA 1986 Schedule A1

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11
Q

Explain why a small company moratorium may be considered necessary.

A

To allow small companies time to arrange a CVA.

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12
Q

Which companies qualify for a small company moratorium?

A

Those with two of:

  • turnover under £10.2 m
  • balance sheet total not mare than £5.1 m
  • less than 50 employees.
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13
Q

When does the moratorium come into force?

A

When the relevant documents are filed at court.

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14
Q

How does a small company moratorium usually end?

A

Usually with the CVA being approved, or after 28 days.

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15
Q

What are 5 consequences of a small company moratorium being in effect?

A
  • no legal proceedings may commence
  • no winding up petition may be presented
  • no administrator may be appointed
  • no security may be enforced against the company’s property
  • no meetings will be held without the consent of the nominee.
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16
Q

Where are the rules governing administration found?

A

IA 1986 Sch B1

17
Q

What are the three objectives of administration in priority order?

A

1 Rescue the company as a going concern
2 Achieve a better result for creditors as a whole than would otherwise be likely on a winding up
3 Make a distribution to one or more secured or preferential creditors

18
Q

Who may appoint an administrator?

A

The company, the company’s directors, or the holder of a qualifying fixed charge.

19
Q

Identify two routes by which an administrator may be appointed.

A

1) Out of court

2) Appointment by the court

20
Q

Who is a qualifying floating charge holder for the purposes of appointing an administrator?

A

A floating charge qualifies if it:

  • states that para 14 of Sch B1 applies to the floating charge
  • purports to empower the holder to appoint an administrator or reciever
  • relates to whole or substantially the whole of the company’s property
21
Q

When may the courts make an administration order?

A
  • if the company is unlikely to be able to pay its debts

- the administration order is reasonably likely to achieve the purpose of administration

22
Q

What is the effect of appointment of an administrator on a winding up petition?

A

A pending winding up petition will be dismissed.

23
Q

How does administration affect the employees and contracts of the company?

A

There is no automatic redundancy, but the administration will review employment contracts and decide whether to terminate them.

24
Q

What is meant by the term ‘super-priority’?

A

Super-priority refers to the preferential treatment given to employee over the wages and expenses of the administrator.

25
Q

When does administration end?

A
  • automatically after 1 year
  • on order of the courts (e.g. if the administrator petitions that the purpose cannot be achieved.
  • on achieving the objective
  • ## public interest winding up