BACK TO BASICS A REMINDER OF THE KEY REQUIREMENTS

BACK TO BASICS A REMINDER OF THE KEY REQUIREMENTS Rachel McCahill-Brown Partner and Solicitor Rachel.mccahill-brown@nelsonslaw.co.uk Introduction Secretary of State Insolvency Rules Change Exceptions Court admin before 6/4/10 Admin preceded by liquidation before 6/4/10 CVL following administration before 6/4/10 Compulsory liquidation preceded by admin before 6/4/10 WHO DO YOU APPROACH FOR SANCTION? 1

Creditors Voluntary Liquidation Method Convene meeting of creditors to seek resolution for sanction; OR If no creditors committee, convene a meeting of creditors to seek resolution for sanction; OR Apply to the court for sanction Should call meeting, but post 2010 can obtain approval by way of correspondence Compulsory Liquidation Method Apply to Insolvency Service Section 141(5) IA where there is for the time being no liquidation committee, and the liquidator is a person other than the official receiver, the functions of such a committee are vested in the Secretary of State except to the extent that the rules provide otherwise. Convene a meeting of creditors committee to seek resolution for sanction; OR If no creditors committee convene a meeting of creditors Apply to the court for sanction Bankruptcy Method Apply to Insolvency Service Section 302(2) IA where in the case of any bankruptcy there is for the time being no creditors committee and the trustee of the bankrupt s estate is a person other than the official receiver, the functions of such a committee shall be vested in the Secretary of State, except to the extent that the rules otherwise provide. Convene a meeting of creditors committee to seek resolution for sanction; OR If no creditors committee convene a meeting of creditors Apply to the court for sanction 2

Requests to Secretary of State Make to insolvency practitioner section Accompany by Form CAU 101 Sanction only re specified power Can make electronically Information for and about insolvency practitioners Sanction 90% Sanction 10% Authority to take or defend Include the following information Details of solicitors, and terms re costs Amount of funds in the estate Estimate of the costs of fighting the case potential costs of losing the case Arrangements for payment of the costs where estate funds are inadequate Authority to take or defend If relying on indemnities, details of the amount, by whom given, and grounds on which it is considered indemnifiers are good Likely benefit to the estate if proceedings successful Indication of prospects of success Explanation of the need for, and objective, of proposed proceedings 3

Authority to take or defend If funding by way of CFA The uplift on the fees to be agreed How any liability is to be met for Costs Expenses Disbursements Sanction will include a financial limited Sanction not required to employ solicitors BANKRUPTCY Sanction in Bankruptcy Section 314(1) Certain powers require permission Schedule 4 Section 314(2) - appoint B to Superintend management of estate or part Carry on business Administer estate Person in good faith Sanction re specified acts not in general 4

Sanction in Bankruptcy Section 314(4) - If sanction is not obtained Creditors committee or court can ratify Only if Acted in case of emergency Sought ratification without undue delay If application to Secretary of State Expect IP to submit application at same time Only exceptional can t be contacted by telephone Fax asap 0207 291 6773 Sanction in Bankruptcy If cannot submit application at same time Consider discussing in principle with staff If there has been undue delay Secretary of State cannot sanction the application Make an application to Court Powers exercisable with sanction Power to: Carry on business of B so far as necessary Sanction for pre and post 6/4/10 cases Bring, institute or defend action or legal proceedings Sanction for pre and post 6/4/10 cases 5

Powers exercisable with sanction Bring proceedings under s 339, 340, 423 Sanction for pre and post 6/4/10 cases Accept as consideration for the sale of property comprised for the purpose of raising money to pay debts Weddell v Pearce (JA) & Major Hunt v Harb Secret marriage ending in divorce Claim H agreed to transfer 12 assets to her Transfer did not happen W declared bankrupt Powers exercisable with sanction Wife intervened Notice of discontinuance set aside High Court Directions T could reject any offer where share received the [trustee] may reject any offer...on terms that all or any part of the net proceeds of a successful claim will be paid to him or applied for the benefit of the creditors on the grounds that the purchaser would in pursuing the claim after sale be acting as the mere nominee or delegate of the [trustee] who would accordingly continue to be at risk of liability for costs. Powers exercisable with sanction Wife appealed Court of Appeal Each case on its own merits Struck out part of order entitling rejection Relevance Notice of discontinuance struck out Point not before the Court but» Considered beyond grounds of T» Court felt it required separate sanction Academic Opinion Discontinuing falls within T powers 6

Powers exercisable with sanction To mortgage, or pledge any part of the property in the bankrupts estate Where any right, option or other power forms part of B estate to make payments/incur liabilities Sanction for pre and post 6/4/10 Make such compromise or other arrangement as expedient with creditors Sanction for pre and post 6/4/10 Power exercisable with sanction Make compromise or other arrangement re any claim arising out of B estate Sanction for pre and post 6/4/10 Wording changed slightly Powers exercisable without sanction Power to Sell any part of property in B estate Refer to arbitration, or compromise debts, claims, liabilities Make compromise or other arrangements re claims arising out of B estate Sanction required pre 6/4/10 Wording changed slightly 7

Powers exercisable without sanction Give receipts for money received Prove, rank, claim and draw a dividend Any powers vested in parts VIII - XI of the Act Deal with property comprised in estate as B beneficially entitled as tenant in tail LIQUIDATION Powers exercisable with sanction Compulsory Section 167 Insolvency Act Creditors Voluntary Liquidation Section 168 Insolvency Act Both refer to Schedule 4 8

Powers exercisable with sanction Compulsory and CVL Power to Pay any class of creditor in full Sanction not required for payment to prefs Rationale Section 175 IA Compulsory - Power to make any compromise or arrangement with creditors or debtors Creditors - sanction pre and post 6/4/10 Debtors sanction pre 6/4/10, not for post Powers exercisable with sanction Compulsory and CVL CVL - Power to make any compromise or arrangement with creditors or debtors Creditors - sanction pre and post 6/4/10 Debtors sanction pre 6/4/10, not for post Taylor case Power to compromise includes power to depart from general rules re pari passu basis. If creditors committee refuses, court can override Powers exercisable with sanction Compulsory and CVL Bring legal proceedings under s 213, 214, 238, 239, 242, 243 or 423 IA Not required for s 212 IA If sanction is not obtained, can grant retrospectively if Rule 4.184(2) met: where the liquidator has done anything without that permission, the court or the liquidation committee may, for the purpose of enabling him to meet his expenses out of the assets, ratify what he has done, but neither shall do so unless it is satisfied that the liquidator has acted in a case of urgency and has sought ratification without undue delay 9

Powers exercisable with sanction Compulsory and CVL Gresham International Limited v Moonie Compulsory liquidation Creditors in excess of 8 million Originating application issued 16 May 2007 Wrote to committee seeking sanction Requested from Sec of State 7 August 2007 No mention that proceedings already issued Granted on 13 August 2007 Powers exercisable with sanction Compulsory and CVL Proceedings amended 7 September 2007 Application to Court 8 December for directions Court held Court can grant retrospective sanction even where no strict compliance...it is essential that the court retains a residual power of control in such areas where it can in appropriate circumstances overcome non compliance with the statutory requirements. Powers exercisable with sanction Compulsory and CVL 13 August 2007 sanction not effective Retrospective sanction was required This had not been granted If correct sanction has been obtained, application to amend should have been made before proceedings issued Judge use discretion Grant sanction from date of hearing Refuse sanction prior to hearing 10

Powers exercisable with sanction Compulsory and CVL L can apply part way through proceedings If application is to continue Court should grant unless strong reasons not to L had not explained failure to apply Not grant where L made an incomplete application Do not rely on case to issue without sanction Powers exercisable with sanction Compulsory only Power to Defend or bring any action or other proceeding in name and on behalf of co Carry on the business of the co so far as may be necessary for its beneficial winding up Old rules Sanction to continue not sufficient to settle Post 2010 require for settlement with creditors but not third parties Powers exercisable without sanction Compulsory and CVL Power to Sell co property by public auction or private contract Compromise, on such terms as may be agreed All calls and liabilities to calls, all debts and liabilities Questions relating to or affecting assets or winding up and to take security for discharge 11

Power exercisable without sanction Compulsory and CVL Do all acts and execute, in name of co, deeds, receipts and other documents Prove, rank and claim in bankruptcy, insolvency of any contributory and to receive dividends Draw, accept, make or indorse any bill of exchange or promissory note Power exercisable without sanction Compulsory and CVL Raise on the security of the assets any money requisite Take out letters of administration to any deceased contributory and acts necessary to get payment of money due Appoint an agent to do business the liquidator is unable to do himself All other acts necessary for winding up and distribution EFFECT OF SANCTION 12

Effect of Sanction Benefit to creditors? Less likely to be challenged? Costs as an expense Risk of personal liability ADMINISTRATION Is sanction required? Schedule 1 sets out the administrators powers Take possession, collect and get in property Sell or otherwise dispose by auction or contract Raise or borrow money and grant security Appoint solicitor/accountant/qualified person Bring or defend any action or proceedings 13

Is sanction required? Refer to arbitration any question affecting the co Effect and maintain insurances re business/property Use the co seal Do all acts and execute in the name and deed, receipt or other document Draw, accept, make and endorse any bill of exchange or promissory note Is sanction required? Appoint any agent to do business Power to employ and dismiss employees All such things necessary for realisation of property of the company Is sanction required? Power to make payment necessary or incidental to performance of his functions Old law wide enough - if put into liquidation Re Designer Room Limited Construed as giving powers if making of payment necessary or incidental to performance of function Re Lune Metals Products Limited Payments can be made where discharge of administration is followed by striking off 14

Is sanction required? Paragraph 65 Can make distribution to creditor Interpreted widely Re HPJ UK Limited Authorised to make single payment to Revenue Re WW Realisation 1 Limited Administration to liquidation Could distribute to secured creditor without making provision for rent or rates as an expense Is sanction required? Paragraph 66 Can make a payment if likely to assist achievement of purpose of administration Pay arrears to creditor if condition of future supply Carry on the business of the co Establish subsidiaries of the co Transfer to subsidiaries of co the whole or any part of business and property of the co Is sanction required? Grant or accept surrender of lease or tenancy Make any arrangement or compromise Call up any uncalled capital Rank and claim in bankruptcy, insolvency, liquidation of any person indebted to the co Receive dividends Present or defend a petition for winding up Change situation of registered office Things incidental to exercise of the powers 15

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