Flashcards in Live Session 2 - Moratorium, ROT, Creditors' Decision Deck (29)
Who acts as Chairman in creditors meeting in administration
Administrator. (Different from liquidation where director acts as chairman).
Remember - Administrator can't vote in favour of their proposal.
What happens if proxy nominates the chair as their proxy without indicating their vote for or against the proposal
Treat as though they abstain from the vote as administrator is not allowed to vote for own proposal
What is special about HMRC with regard to creditors meetings
They, as officers of the Crown, may attend creditors meeting without first lodging proxy/ claim.
What is the distinction between lease claims in a CVA and Administration
In admin, claim permitted for the amount due and payable as at the date of administration. i.e Arrears at date of meeting.
In CVA, allow full amount of lease rental payments due over whole lease.
How does the creditor decision process/ votes of creditors work to vote on proposals i.e What is the process for voting
Two stage process.
Step 1: Count votes FOR the proposal.
Votes received FOR the proposal/ total votes cast
Step 2: Count votes AGAINST the proposal from independent creditors.
Votes received AGAINST the proposal/ total value of claims of independent creditors who were notified of the meeting
How are landlord dilapidations claims dealt with
Dilapidations claims are an unliquidated claim and administrator may estimate value and allow estimated minimum value for voting purposes.
What is the effect of an interim moratorium starts
1. No winding up resolution may be passed, but winding up petitions are not dismissed
2. Fixed Receiver does not vacate office but can't enforce security without leave of court
3. AR appointed may continue to act - unless agrees to stand down or charge under which they were appointed is voidable
4. An AR can still be appointed
What is the effect when the interim moratorium turns into a full moratorium
1. Winding up petitions dismissed or suspended, no winding up order can be made
2. Fixed Receiver must vacate if required by administrator
3. AR must vacate office and no AR can be appointed
4. No AR can be appointed
What is the effect of full moratorium on creditors
1. No steps can be taken to repossess ROT, HP, Chattel lease goods
2. No legal process can be commenced or continued, including executions
3. Landlords cannot distrain or forfeit
4. Receivers cannot enforce security without consent of administrator or court
5. No resolution to wind up nor any winding up order will be made
What is the process for dealing with application to court by proprietary creditors to reposs goods
1. Administrator is officer of the Court
2. Duty is owed to all creditors
4. Would repossession of ROT stock impede process of administration?
No - Allow repossession
Yes - Apply balancing exercise - losses to interests of creditors generally vs losses to proprietary creditor.
What is the DANGER acronym for dealing with applications by proprietary creditors to repossess goods
D - Deal with it promptly - if necessary make an interim decision (i.e retain goods but meet current payments as an expense of administration)
A - Act Responsibly
N - Not use moratorium as a bargaining tool
G - Give reasons/ Justify decision
E - Ensure reply in writing
R - Apply Re Atlantic guidelines - balancing exercise.
What is the general rule regarding allowing repossessions?
If losses to applicant are significant, general rule is that repossession should be allowed UNLESS these are outweighed by substantially greater losses to creditors generally.
Can an administrator use goods that HP/ Leasing creditor is attempting to repossess
No - administrator cannot use goods without permission of the creditor or permission of the Court
What will the court consider regarding an application to repossess goods
1. Balance interests of applicant creditor vs creditors as a whole.
2. Court has broad discretion and will look at all circumstances.
3. Court will not adjudicate on disputes regarding the existence or validity of security (unless short issue of law which is convenient to decide)
4. Onus is on creditor to prove grounds
5. Court will consider conduct of both parties.
6. Significant importance is given to proprietary creditors vs unsecured creditors.
7. Court will consider the financial position of a company - specifically its capacity to pay ongoing interest/ rental payments under the agreement.
When does an interim moratorium apply
1. Application to Court has been filed but not yet granted
2. QFCH has filed a Notice of Intention but administrator has not been appointed/ 5 day validity period has not lapsed.
3. Company/ Directors have filed a Notice of Intention which is valid for 10 days and administrator has not been appointed.
What is a moratorium
It prevents secured and other duress creditors from exercising rights without leave of court.
It provides breathing space to administrator to develop a strategy.
Who prevails in rights of unsecured and proprietary creditors
Administration for the benefit of unsecured creditors SHOULD NOT be conducted at the expense of those who have proprietary rights.
To whom must administrator send progress reports
How often should progress reports by prepared
First report covers period from date of commencement + 6 months, and every 6 month period thereafter.
When should progress reports be issued
Progress reports must be completed and issued within one month of the end of the reporting period.
What is the content of the progress report. (Hint - Progress Report has 14 letters. 14 things to include in progress report).
1. Court & Court Ref number
2. Company's name, address, number, reg office
3. Administrators' name, address, date of appointment
4. Name and address of appointer
5. Details of any extension to initial period of appointment
6. Details of basis agreed for administrators fees
7. Details of fees charged in reporting period
8. Details of all expenses incurred during reporting period
9. If fees charged on time cost basis, administrator must detail fees which have exceeded initial estimate and explain why and what administrator intends to do
10. Details of progress made during reporting period
11. Details of any assets that remain to be realised.
12 Statement of creditor rights to request information and challenge fees and expenses.
13. If final report and exiting to another form of insolvency, statement reminding creditors of intention to remain in office subject to receiving any objections
14. Any other relevant information for creditors.
What are the practical issues in respect of ROT/ Proprietary creditors
1. ROT creditors cannot repossess stock unless administrator or court agrees
2. Administrator cannot use stock unless ROT creditor agrees as it belongs to them.
3. Administrator likely needs to use stock to continue trading.
4. Negotiate - usual deal is to pay for stock used.
How do you check if ROT clause has been validly incorporated into a contract
1. Obtain copies of contractual documents
2. Review documents
3. Consider taking legal advice
4. Has the term been incorporated - terms of contract, notice prior to contract, regular course of dealing, post contract?
5. Can the supplier identify the goods subject to ROT clause?
6. Tenancy in common on original stock but not manufactured
7. All monies clause - only necessary to identify goods belonging to the supplier. Ask whether purchase ledger account shows a nil balance.
8. If simple clause then match specific clauses against specific stock
9. Have goods undergone any changes - manufactured - can they be identified/ removed?
10. Does clause purport to extend to suppliers rights in finished goods/ debtors/ sales proceeds? Attempt to create a floating charge which is not registered is void for non registration
What rights do creditors have to request additional/ supplementary information relating to progress report
Creditors have 21 days from receipt or report to request supplementary information.
Criteria to be able to request information:
1. Owed more than 5% of total liabilities
2. Owed 5% in conjunction with other creditors
3. Has permission of court
What options does the administrator have upon request for additional information
Administrator must provide information requested or provide reasons for not doing so
What are valid reasons not to provide creditors with the information requested
1. It will incur excessive cost
2. Will prejudice the conduct of the administration
3. It might reasonably lead to violence against any person
4. Will result in a breach of confidentiality
5. Would be prejudicial to proceedings.
Can a creditor challenge non disclosure of information
Yes. Any creditor may challenge administrators refusal to supply requested information. Application must be made to Court within 21 days of receipt of refusal.
When is it not necessary to seek creditor approval for administrators proposal
1. When it is likely that creditors will be paid in full
2. When it is likely that there will be no return to creditors
Although creditors have power to request that a decision procedure is used.