UK Law and Practice Contributed by: Kate Stephenson and Zoe Stembridge, Kirkland & Ellis
Receivership A secured creditor may enforce its security by appoint - ing a receiver (usually an insolvency practitioner) over the specific secured asset(s), in accordance with the terms of the security document. The appointment can be made without court involvement. Following the appointment, the receiver will have broad powers specified in the security document, including to collect in any income from the asset and to sell it. Administrative receivership – which involves the appointment of an insolvency practitioner over sub - stantially the whole of the company’s property – is now available in limited circumstances only. Power of Sale A creditor may also exercise its power of sale under the security document (if they have a legal mortgage or if the terms of the security document otherwise permit). This permits the creditor to sell the secured asset without needing to apply to court, and to use the proceeds to settle the secured liabilities. A receiver or a creditor selling secured assets is obliged to get the best price reasonably obtainable in the circumstanc - es; no public auction is required unless required by the security document. One advantage of appointing a receiver is that the lender is not usually responsible for the receiver’s conduct. Appropriation The enforcement option of appropriation is available where the security constitutes a “financial collateral arrangement” under the Financial Collateral Arrange - ments (No 2) Regulations 2003. “Financial collateral” includes cash and financial instruments (including shares); the security arrangement must constitute the requisite degree of “possession or control” to quali - fy as a “financial collateral arrangement”. The rem - edy of appropriation permits the secured creditor to appropriate (essentially, take possession of) the finan - cial collateral, without applying to court. The power depends on the terms of the security document. If the value of the financial collateral appropriated exceeds the secured debt, the secured creditor must account to the security provider for the excess.
Foreclosure In theory, the possibility of foreclosure constitutes an additional enforcement option, but this is uncommon in practice for various reasons. In addition, a qualifying floating charge holder has the power to commence administration of the relevant debtor out-of-court. 2.4 Unsecured Creditors Outside of restructuring or insolvency, unsecured creditors benefit from the following. Retention of Title Most trade creditor contracts include a retention of title clause allowing the trade creditor to retain owner - ship of goods supplied until payment is made in full. If the debtor fails to pay, the creditor can reclaim the goods (provided the company is not protected by a moratorium). Right of Set-Off This allows an unsecured creditor to offset a debt owed by the creditor to the debtor against amounts owed by the debtor to the creditor. There are man - datory set-off rules in administration and liquidation. Outside a restructuring or insolvency context, con - tractual provisions on set-off will apply. Pre-Judgment Attachment Unsecured creditors may be able to obtain a freezing injunction if they have a strong case and there is a real risk of dissipation. 3. Out-of-Court Restructuring 3.1 Out-of-Court Restructuring Process Out-of-court or consensual restructurings are com - mon in the UK, and are normally negotiated directly between the debtor and its key stakeholders with- out involvement from insolvency practitioners or the court. There are no formal requirements other than the requisite consent levels in the relevant contractual documentation. Participation is voluntary but debtors often use a combination of “carrots” and “sticks” to drive consent. Once the requisite majority of creditors
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