UK Law and Practice Contributed by: Kate Stephenson and Zoe Stembridge, Kirkland & Ellis
1. Overview of Legal and Regulatory System for Insolvency/Restructuring/ Liquidation 1.1 Legal Framework The main domestic legislation governing restructur - ing and insolvency matters of companies and partner - ships in England and Wales is: • the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016 (in each case, as amended by the Corporate Insolvency and Gov - ernance Act 2020, or CIGA); • the Companies Act 2006 (as amended by CIGA), in relation to schemes of arrangement and restructur - ing plans; • the Cross-Border Insolvency Regulations 2006, which implement the UNCITRAL Model Law on Cross-Border Insolvency in Great Britain, with cer - tain modifications; and • the Company Directors Disqualification Act 1986. These laws are supplemented by other legislation and principles of common law. 1.2 Types of Insolvency The key procedures under the Insolvency Act are: • administration; • company voluntary arrangement (CVA); • liquidation (also known as winding-up); • moratorium; and • administrative receivership. Schemes of arrangement and restructuring plans are also available under the Companies Act 2006. Finally, receivership is available as an enforcement remedy for secured creditors (in part drawing on pro - visions under the Law of Property Act 1925). Special regimes apply for certain types of companies, such as financial institutions, certain regulated entities and charities. Each proceeding is summarised below. Administration Although administration is designed as a rescue pro - cess, in practice it rarely results in the rescue of the
company itself (although it may result in a sale of the underlying business to a new owner). A company in administration is protected by a statutory moratorium, curtailing creditors’ rights. Existing management loses control of the company to the administrator, who is a licensed insolvency practitioner. The administrator will seek to rescue the company as a going concern in the first instance; if that is not possible, the goal of the administration is to achieve a better result for creditors than a liquidation (or, failing that, a realisation of the company’s assets). The administrators’ duties are owed to the creditors as a whole. “Pre-pack” administrations are particularly prevalent in the UK, and are arrangements under which the sale of all or part of the company’s business or assets is negotiated with a purchaser (by putative administra - tors) prior to the appointment of administrators. His - torically, the administrators have effected the sale almost immediately after appointment, without the sanction of the court or creditors. However, since 30 April 2021, substantial disposals by administrators of the company’s business or assets to connected party purchasers (defined broadly and including by refer - ence to certain former connections) within the first eight weeks of an administration require advance approval from either the creditors or an independent evaluator. Company Voluntary Arrangement This insolvency procedure permits a company to make a binding compromise with its creditors. A CVA cannot compromise secured creditors without their consent. A CVA is implemented out of court unless it is challenged. A CVA requires the consent of at least 75% in value of unsecured creditors; it will not be approved if more than half of the total value of uncon - nected creditors vote against it. A CVA does not trig - ger a moratorium of claims or proceedings. Prior to the introduction of the restructuring plan proceeding in June 2020, CVAs were used extensively to compro - mise companies’ leasehold obligations to landlords, especially in the retail and casual dining sectors. Liquidation/Winding-Up This is a dissolution procedure involving the termina - tion of the company and, ultimately, its removal from the register. It involves the appointment of liquidators
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