1 QUESTIONNAIRE ON INSOLVENCY LAW AND COMPANY LAW Preamble: UK ANSWERSET In the UK, the regime can broadly be summarised as follows: for CVAs, s and receiverships shareholders rights can only be altered in accordance with the Companies Act 2006 and the company s articles of association ( articles ); for administrations and insolvent liquidations shareholder rights are extremely limited or non-existent. Definitions IA86 IR86 CA2006 Insolvency Act 1986 as currently in force Insolvency Rules 1986 as currently in force Companies Act 2006 as currently in force Introductory questions on the insolvency procedures available in the relevant jurisdiction 1. What insolvency procedures are available for distressed or insolvent companies? (IA86 Part I) (IA86 Part II and Schedule B1) Receivership (IA86 Part III) (a private contractual remedy, not considered in this answerset after Q4) (IA86 Part IV) (IA86 Part IV) Members Voluntary Liquidation (solvent liquidation, not considered further in this answerset) ( MVL ) (IA86 Part IV) 2. Are there special insolvency procedures available for financial institutions or other special classes of companies? Yes. Banks and investment banks (as defined) are subject to the Banking Act 2009 and/or the Investment Bank Special Regime 2011 and/or the Banking Reform Act 2013 (as appropriate) together with the applicable subordinate legislation. There are special regimes for electricity and gas suppliers (Energy Act 2004), railway companies (Railways Act 1993 s59 et seq), health companies (Health and Social Care Act
2 2012 Chapters 5 and 6), and public-private partnerships (PPP Admin Order Rules 2007): essentially, key services to the public. 3. Are there any specific legal provisions that apply to debt restructurings achieved without a full formal insolvency process? Debt restructurings without a formal insolvency may be purely contractual or may use a Companies Act of Arrangement (CA2006, part 26) ( ). For these purposes we have defined a CVA as a formal insolvency process. 4. What are the commencement criteria for insolvency procedures? Receivership The company prepares a proposal and then the Court gives permission for the proposal to be posted and meetings (of the classes which are to be d) convened. (s895 et seq, CA2006) The company need not be unable to pay its debts or insolvent within the statutory definitions. (S123 IA86 and S247 IA86 respectively) formal criteria specified in the legislation. Specifically, the company need not be unable to pay its debts or insolvent within the statutory definitions. (S123 IA86 and S247 IA86 respectively) Receivership is a private contractual remedy under a security document. It may be commenced if an event has occurred permitting the appointment of a receiver as specified in the loan and security documents. A court appointed receiver may, as the name suggests, be appointed by the court for the protection, preservation or realisation of assets. The criteria for appointment are within the discretion of the court. Criteria laid down in para11(a) of Schedule B1 IA86: the company is or is likely to become unable to pay its debts S84(1) IA86: broadly, 1 if the period of the company s existence laid down in its constitution has expired; or a condition requiring the company to be wound up (Liquidated) has been met: and in both cases a general meeting of the company has
3 passed a resolution requiring the company to be wound up voluntarily. 2 If the company resolves by special resolution that it be wound up voluntarily S122 IA86. Inability to pay debts is defined in S123 IA86, and those who may petition the court in S124 IA Who can propose a restructuring plan? The company, acting by its directors (s895 CA2006). A may also be proposed from an administration or liquidation, in which case it is the administrator or liquidator who proposes it on behalf of the company. The directors, where the company is not in administration or liquidation; or the administrator or liquidator as appropriate. (S1 IA86) Once the company is in administration, only the administrator can propose a plan, as part of their proposals under para 49 Sch B1 IA86. The liquidator: however this would be very rare, as liquidation is not generally a restructuring procedure. (for a CVA, under S1 IA86) The liquidator: however this would be very rare as liquidation is not generally a restructuring procedure. 6. Please describe whether and to what extent shareholders rights can be affected by a situation of distress/insolvency of a company before and/or irrespective of the opening of a formal insolvency proceeding (e.g. are there any fiduciary duties of the shareholders to approve corrective measures/plans proposed by the board)? S656 CA2006 requires the directors of any public company to call a general meeting of shareholders if the net assets of the company fall below 50% of called-up share capital, to consider whether, and if so what, steps should be taken to deal with the situation.
4 If insolvency is in prospect, then the fiduciary duties of the directors switch from being owed to the shareholders to being owed to the creditors, and the creditors interests must be prioritised over those of the shareholders. Shareholders Rights in Companies Subject to Insolvency Proceedings 7. Are shareholders notified of the initiation of an insolvency process? If notification is individualized, what are the mechanisms used to identify shareholders? It should be noted that companies are not exempt from listing requirements to make market announcements unless and until their shares are suspended or delisted, which would normally follow an insolvency. Therefore, although no shareholder information may be required to be provided as a part of the restructuring or insolvency process, market announcements may be required in any event. Such announcements are not individualised. A listed company would be required to notify its insolvency to the relevant exchange. See also Q6. In a, only those parties whose rights are affected need to be informed and/or consent. Therefore, any proposal for a which affects shareholders rights will require shareholders to be notified individually. Shareholders are identified through the register of members. Shareholders are required to be notified of, provided with and have the opportunity to vote in general meeting on the CVA proposal where the company is not in administration or liquidation. (if it is in administration or liquidation, there is no meeting of shareholders) (S2 and S3 IA86) Shareholders are identified through the register of members. Shareholders are not individually notified. tice is filed with the Registrar of Companies and all business correspondence and the website must contain a statement of the administrator s appointment. (P45 and P46 Sch B1 IA86) Shareholders must be notified of and have the opportunity to vote on the resolution to wind up the company voluntarily. (S84 IA86) Shareholders are identified through the register of members.
5 The petition must be advertised unless the court otherwise directs. (r4.11 IR86) It is not sent to each shareholder. A shareholder has a right to request a copy. (r4.13 IR86) The winding up order of the court must be filed with the company, (r4.21 IR86) the Official Receiver, (r4.21 IR86) the Registrar of Companies, (r4.21 IR86) and advertised (r4.21 IR86). 8. Are shareholders required to file claims in the insolvency proceeding? What are the consequences of not filing a claim? s Shareholders will only be required to file claims as shareholders if the requires it. They may file claims as creditors if that class of creditor is subject to the. Shareholders are not required to file claims qua shareholder. They may file claims as creditors if they have such. Shareholders are not required to file claims qua shareholder. They may file claims as creditors if they have such. Shareholders are not required to file claims qua shareholder. They may file claims as creditors if they have such. Shareholders are not required to file claims qua shareholder. They may file claims as creditors if they have such. 9. Can shareholders continue to trade and transfer shares after the initiation of an insolvency proceeding affecting the company? In principle: yes, in accordance with the company s articles and the provisions of CA2006; though this may depend on the terms of the and there may be a closed period while the process and voting takes place, to ensure that only those members who are actually entitled to vote
6 do so. Yes, where the company is not also in liquidation, in accordance with the articles and the provisions of CA2006. Yes, but the administrator need not keep the shareholders register updated for such transfers. There is no specific provision forbidding it., unless the liquidator has consented (S88 IA86), unless the Court has consented (S127 IA86). There is no provision for the liquidator to consent. 10. Do shareholders have the right to request that a shareholders meeting is held, even if the company is insolvent? (if there are separate reorganisation and liquidation procedures, does this affect the response?) rmal Company law and the articles apply, unless the amends these in which case the amended rules apply. Where the company is not in administration or liquidation the normal rules from the articles and company law will apply.. The administrator may call a company meeting. (R2.49 IR86) right to request but a report to shareholders, which is the same as the report to creditors, must be followed by an annual meeting of shareholders. (r4.49c, r4.49d) right to request but an annual report to shareholders, which is the same as the report to creditors, must be sent if a private sector liquidator is appointed (r4.49b IR86). The Official Receiver must report to creditors and shareholders once (r4.43 IR86).
7 11. Do shareholders have the right to request information in an insolvent company? Do they have information rights as to the progress of a reorganization procedure? Can they exercise that right vis-à-vis the directors of the company if they remain in charge of the company or vis-à-vis the insolvency representative? rmal Company law and the articles apply, unless the amends these in which case the amended rules apply. The description of the, prior to voting, is required by S897 CA2006. Information about the company would normally come from the directors. Where there is an independent Supervisor or Administrator which is not required by law information about the would be requested from the Supervisor/ Administrator. Where the company is not in administration or liquidation the normal rules from the articles and company law will apply. Such information would come from the directors. Information about the CVA would be supplied by the CVA Supervisor. 12. Can shareholders make proposals for nomination of directors, if the directors continue managing the company? Yes, as laid down in the company s articles and general company law., because the directors are no longer in control of the company. Only the administrator can appoint and remove directors (p61 Sch B1 IA86), because the directors are no longer in control of the company., because the directors are no longer in
8 control of the company. 13. If special categories of shares exist whose holders are granted additional governance rights, are these additional rights affected by the opening of an insolvency procedure? (if there are separate reorganisation and liquidation procedures, does this affect the response?) Such rights are no more affected than any other rights of shareholders once insolvency intervenes. In a or CVA (without administration or liquidation) shareholder rights, unless amended by shareholder meetings, remain the same. In other forms of insolvency procedure shareholder rights of governance no longer apply. 14. Can shareholders challenge the decisions of the shareholder meeting if it is still active? Do they retain the possibility of taking action against the acts of the directors? And against the acts of an insolvency representative? Is any authorization by a judicial or administrative body required to do so, or more generally, to exercise corporate rights? (if there are separate reorganisation and liquidation procedures, does this affect the response?) Other than in a or CVA (see below), (i) the shareholder meeting does not remain active; (ii) shareholders may not take action against the directors, that is reserved to the insolvency practitioner and derivative claims are only allowed in special circumstances with the leave of the court (s260 CA2006); (iii) see Q15; (iv) in general, only the court can authorise such acts. In a, the directors will remain in control of the company. Shareholders retain their rights under company law to take actions, (s260 CA2006) although it should be noted that the ability to take derivative actions is rare. If an action against the Supervisor/Administrator is alleged, then the provisions of the will apply although there will always be the ability to apply to Court to take action against them. In a CVA, (i) will normally be covered by ordinary company law, and in addition the CVA may be challenged (s6 IA86). The other matters are as for any other form of insolvency. 15. Do shareholders have the right to call a special investigation of the affairs of the insolvent company? In a, such rights would be as for ordinary company law. In all other cases, if there had been alleged misfeasance/breach of duty by the IP then any party affected would be able to apply to court to correct it. (s6 IA86 to challenge a CVA; p75 Sch B1 IA86 for misfeasance in administrations; S108, s171 and s172 IA86 for CVLs and WUCs.) 16. Does the law provide for the establishment of a shareholders committee ( or several committees, in the case of different share classes)? What are their powers? Who bears the related costs? t in law, but the may allow it.
9 , unless in the CVA proposal... A contributories (equivalent to shareholder: but as defined in s74 IA86) committee can only be established if creditors do not establish a committee and the court consents (R4.154). Only travel expenses would be borne by the estate. Otherwise committee members bear their own costs. The committee has no power and this is very, very rare. 17. Can shareholders voluntarily transfer shares of the company undergoing insolvency proceedings against any provisions in the articles/bylaws restricting transfers of shares?. Shareholder provisions are as in Q9. In a the Articles would continue to apply. 18. Can outstanding shares of the company undergoing insolvency proceedings be assigned to third parties without the consent of the relevant shareholders? If yes, under what conditions? Are existing shareholders entitled to compensation? What other safeguards are provided? (e.g. does the law include a principle according to which the affected shareholders should not receive less than in a liquidation procedure?) As far as I am aware this is only available using the special regimes for financial institutions, in particular the bail-in tool. In such a case compensation would only be available if the affected parties were worse off than they would have been in an insolvency procedure; ss49-62 Banking Act 2009 as amended by the Banking Reform Act Can outstanding shares of the company undergoing insolvency proceedings be cancelled without the consent of the relevant shareholders? If yes, under what conditions? Are existing shareholders entitled to compensation? What other safeguards are provided? (e.g. does the law include a principle according to which the affected shareholders should not receive less than in a liquidation procedure?) Cancellation of shares is not possible under normal insolvency procedures, although in an administration if uncalled capital is available the administrator may call it, so diluting the existing shareholders. (Sch 1 IA86). If, in a or CVA, the proposal required the cancellation of shares, this would require shareholder meetings and consent.
10 In the special regime applicable to financial institutions, it is possible, but not explicit, that outstanding shares may be cancelled under the stringent conditions of the Banking Act 2009 and Banking Reform Act Compensation would follow ss49-62 Banking Act 2009 as amended by the Banking Reform Act Do shareholders of the company undergoing insolvency proceedings have preemption rights over new issues of shares? Are there special conditions for the suppression of pre-emption rights if the company is insolvent? (if there are separate reorganisation and liquidation procedures, does this affect the response?) Pre-emption rights remain the same as in the articles and in company law unless varied by ordinary company law processes. It would be extremely unusual for shares to be issued in a liquidation (CVL or WUC) or administration. For a CVA a shareholder meeting would be required. In the special regimes for financial services companies pre-emption rights, in common with other shareholders rights can be over-ridden. 21. Can shareholders retain a participation in the company that has emerged from an insolvency process (or in the company to which the insolvent company s assets have been transferred) even if the company was insolvent according to a balance-sheet test? (i.e. where the value of its liabilities exceeds the value of its assets) If yes, under what conditions? (if there are separate reorganisation and liquidation procedures, does this affect the response?) Shareholders retain participation in a company which has emerged from insolvency e.g. a completed CVA. It is unusual for a corporate form to survive administration, but any changes to shareholder rights to bring the entity out of administration would require shares to be issued/transferred in accordance with the articles and company law. The corporate form does not survive liquidation. Shareholders in the insolvent company have no automatic right to any participation in a separate company to which the business or assets of the insolvent are sold. 22. Are the ranking of classes of shares and the preferential rights of classes of shares affected (and if yes, to what extent) by the fact that the company is undergoing an insolvency process? (if there are separate reorganisation and liquidation procedures, does this affect the response?). For a, the changes would have to be part of the and thus voted on by the relevant classes of shareholders. There is no automatic change. 23. Can shareholders, in the course of an insolvency procedure, supply goods, services or financial resources to the company? If yes, under what conditions (e.g. judicial authorization)? What would their ranking position be towards other creditors? Yes, in principle. Otherwise than in a or CVA, where the directors will remain in control of the company, the insolvency officeholder would need to approve it. Ranking would be as any other insolvency expense. 24. Can shareholders, in their capacity as counterparties, be under a duty to continue a contractual relationship with the insolvent company during an insolvency procedure?
11 (if there are separate reorganisation and liquidation procedures, does this affect the response?) t qua shareholder. Certain processes allow for key suppliers to be required to continue supply. This applies regardless of their relationship with the insolvent company. Partly-paid shares can be required to be paid up in the same way as any debt due to the company can be required to be paid. (see for example s74 IA86 and s150 and 160 IA86) 25. Can shareholders (or companies of the same group) holding credit claims against the company under insolvency procedure participate in the creditors meeting and vote on the insolvency plan without restrictions? (if there are separate reorganisation and liquidation procedures, does this affect the response?) Associated and/or connected parties may vote their credit claims without restriction as long as they belong to the class which is entitled to vote, but approval of the is subject to a fairness test adjudicated by the Court and so a passed purely on the votes of associated and/or connected parties may not survive the fairness hearing. Associated and/or connected parties may vote their credit claims without restriction, but approval of the CVA requires a simple majority of creditors present and voting who are not associated or connected as well as a 75% majority of all creditors. (r1.19 IR86) Yes. However, approval requires a simple majority of creditors present and voting who are not associated or connected with the insolvent entity. (r2.43 IR86) Yes Yes 26. If shareholders (or companies of the same group) do not hold credit claims against the company under insolvency procedure, must/can they participate in the creditors meeting? If that is the case, what rights or duties do they have in that meeting? (if there are separate reorganisation and liquidation procedures, does this affect the response?).
12 27. Do shareholders in an individual company have information rights as to the filing of insolvency proceedings by the parent or other related companies? The Role of the Shareholders Meeting in Companies Subject to Insolvency Proceedings 28. Does the shareholders meeting continue to exist in insolvency proceedings? (if there are separate reorganisation and liquidation procedures, does this affect the response?) Absent an administration or liquidation, shareholder meetings continue to take place as required by the articles and/or law Absent an administration or liquidation, shareholder meetings continue to take place as required by the articles and/or law, except as detailed in Q10, except as detailed in Q10
13 29. Does the shareholders meetings preserve all of its competences, generally? (if there are separate reorganisation and liquidation procedures, does this affect the response?) Absent an administration or liquidation, shareholder meetings and decisions continue to take place as required by the articles and/or law Absent an administration or liquidation, shareholder meetings and decisions continue to apply as required by the articles and/or law 30. Does the shareholders meeting need to approve the accounts of the distressed/insolvent company? Yes, if the company is not subject to any other insolvency process. Yes, if the company is not subject to any other insolvency process. 31. Does the shareholders meeting have the power to dismiss directors if directors are still in charge of the insolvent company? Can the shareholders meeting request the removal of the insolvency representative? (if there are separate reorganisation and liquidation procedures, does this affect the response?) In a or CVA (absent an administration or liquidation) the powers of the shareholders under the articles and the law continue. Therefore there is the possibility that it may dismiss directors. The shareholders have no power to dismiss directors in any other insolvency procedure but in any event the directors powers cease on the appointment of an administrator or liquidator.
14 A shareholder meeting cannot remove an insolvency representative. This would require an application to court and cause would have to be shown. 32. Is a shareholders meeting authorization required to start an insolvency procedure? (if there are separate reorganisation and liquidation procedures, does this affect the response?), because only the classes of creditor or shareholder affected need to vote. The process is begun by the directors. (s895 CA2006) Yes (s3 and s4 IA86) t necessarily. If the company makes the appointment, then a shareholder resolution may be required. In any other form of administration appointment, it is not. (p22 Sch B1 IA86, but see Re Frontsouth (Witham) Ltd  BCC635) Yes (S84 IA86) 33. Does the shareholders meeting need to approve an insolvency or reorganization plan? Can shareholders, even individually, challenge an insolvency or reorganization plan? If shareholders are affected, they must be allowed to vote on the. All classes voting must approve the by the statutory majorities (75% by value and half in number of those voting) so if shareholders are voting then they must approve the for it to be effective. There is no cram-down provision: creditors or shareholders of a higher priority cannot override a vote of a lower priority class. Shareholders vote on the proposal and approval is by simple majority. If creditors approve it, but shareholders do not, the creditors prevail, but any shareholder may apply to the court to challenge that outcome. (S4A IA86) approval. Challenge only if breach of
15 duty or misfeasance by IP. approval. Challenge only if breach of duty or misfeasance by IP. approval. Challenge only if breach of duty or misfeasance by IP. 34. Is a shareholders meeting decision required to issue new shares of the company undergoing insolvency proceeding? Can a new share issue be decided by the board? Can a new share issue be decided by the insolvency representative? If a capital increase has to take place through the conversion of claims into new shares, does this affect the response? In practice this will only be realistic in the case of a, CVA or administration. For a or CVA, the normal rules of company law will apply together with any restrictions in the articles. The IP does not have the power unilaterally to issue shares, nor can they enforce a conversion of claims into new shares without the share issue being approved in the normal way. (special provisions apply within the regime for financial institutions) In an administration the administrator has the power to call up uncalled capital (Sch1 IA86) but after that the same principles apply as for a CVA. The liquidator has power to call up amounts due from contributories (WUC: r4.202 IR86 and in CVL implicit in Sch 4 IA86) 35. Can an insolvency/reorganization plan affect the structure of the corporate entity (e.g. by merger, spin-off or change of the legal form)? Is a shareholders meeting authorisation required for this? In principle yes, but if a shareholder meeting would be required to affect the entity s legal structure then one would be required in insolvency. In practice, it would be far more likely that the business would be sold to a NewCo which is set up with the required structure already in place. 36. On what conditions can the company carry on business during an insolvency procedure? (if there are separate reorganisation and liquidation procedures, does this affect the response?) Is a shareholders meeting authorization required? As laid down in the approved. Where this is silent, normal company law applies and the company will carry on business. As laid down in the approved proposals, which are voted on by shareholders (see Q33) As the administrator sees fit. Shareholder
16 authorisation is not needed. Trading on is very rare. S87 IA86: the company shall from the commencement of the winding up cease to carry on its business, except so far as may be required for its beneficial winding up. Shareholder authorisation is not needed. Trading on is not permitted. Implicit in s143 IA86: the assets of the company are got in, realised and distributed to the company s creditors 37. In the course of an insolvency procedure, what provisions apply to the sale of specific assets out of the ordinary course of business and to the sale of the entire business operation of the company? Is a shareholders meeting authorization required? (if there are separate reorganisation and liquidation procedures, does this affect the response?) As laid down in the proposals, and if not covered normal company law applies. It appears that the only areas covered in company law relate to transactions with directors. (s190 et seq CA2006) As laid down in the proposals, and if not covered normal company law applies. It appears that the only areas covered in company law relate to transactions with directors. (s190 et seq CA2006) t required (CA2006 s193) t required (CA2006 s193) t required (CA2006 s193) 38. Does the shareholders meeting have any power in relation to a decision of the Board or the insolvency representative to continue or reject any favourable, unfavourable or essential contracts during an insolvency procedure? (if there are separate reorganisation and liquidation procedures, does this affect the response?) power remains with the Board (absent a liquidation or administration) power remains with the Board (absent
17 a liquidation or administration). Decision making rests solely with Administrator. Decision making rests solely with liquidator. Decision making rests solely with liquidator 39. If an insolvency plan can be presented for a whole corporate group, must that plan be approved by the shareholders meetings of each company of the group, including of those that are balance-sheet insolvent? How are the different meetings decisions coordinated? Are there specific safeguards (e.g. any veto power or other remedy) for the minority shareholders of the companies that are not insolvent? A plan must be presented for each company in insolvency separately. Except for a CVA, or potentially in a, there is no requirement for shareholder approval for those companies in insolvency. Companies not in insolvency would need to follow the ordinary requirements of company law and their constitution. 40. If companies belonging to the same group file separate insolvency proceedings, are there specific requirements/mechanisms to provide for co-ordination of those proceedings? Are shareholders meetings of the relevant companies involved in the co-ordination mechanisms, if any? There are no specific requirements to co-ordinate the proceedings under English law. The insolvency officeholders may request procedural co-operation from the court but this is relatively rare. Other Obstacles for Insolvency Proceedings Found in Company Law 41. Please list any other legal provision in company law that, in your opinion or in your experience, may interfere with the insolvency procedure of a company in your jurisdiction. n/a
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