UK Law and Practice Contributed by: Kate Stephenson and Zoe Stembridge, Kirkland & Ellis
Administration Administrators (who are licensed insolvency practi - tioners) take control of the company and have broad powers to manage the affairs of the company in administration. They owe their duties to the creditors generally. Their primary duty is to achieve one of three statutory purposes: • rescue the company as a going concern; • achieve a better result for creditors than liquidation; or • realise property to make a distribution to secured or preferential creditors. CVA The CVA proposal is overseen by the “nominee”, who must be a licensed insolvency practitioner. The pro - posed nominee is given notice of the proposal for a CVA (although, in practice, the directors and nominee work closely together to draft the CVA proposal). With - in 28 days, the nominee must submit a report to the court as to whether the proposed CVA has a reason - able prospect of being approved and implemented. After the CVA has been voted on and approved, it becomes effective. Its implementation is then over - seen by a “supervisor”, who must also be a licensed insolvency practitioner. In practice, the supervisor is usually the same person as the nominee. 4.6 The Position of Shareholders and Creditors in Restructuring, Rehabilitation and Reorganisation Schemes and Restructuring Plans Shareholders The role of the shareholders in schemes and restruc - turing plans varies depending on the transaction. For example, they may retain full control of the company (particularly if providing new money), their sharehold - ing may be diluted through a debt-for-equity swap, or they may be disenfranchised entirely. The sharehold - ers owe no duties to the company’s creditors and may act in their own interests. There are certain routes by which shareholders may attempt to disrupt the pro - cess. Secured creditors Schemes can bind secured creditors, if the relevant classes of creditors approve the scheme. A restructur -
ing plan can also bind an entire class of secured credi - tors without their consent, given the court’s ability to sanction a plan that not every class has approved. However, it is likely to be more difficult to persuade the court to sanction a plan that secured creditors do not support, given their senior position within the creditor hierarchy and the nature of the “no worse off” condi - tion. Creditors’ rights with respect to their security are unaffected by the launch of the scheme/plan, but may be compromised through the scheme/plan. Unsecured creditors Schemes can be used to bind unsecured creditors, provided that the relevant class or classes of creditors approve the scheme. It is usual to leave unsecured trade creditors outside schemes of arrangement. Under a restructuring plan, it is possible to bind whole classes of dissenting unsecured creditors. No moratorium or set-off There is no automatic statutory moratorium or auto - matic set-off in a scheme or plan. However, the court has certain discretionary case management powers to stay proceedings where a scheme or plan is already underway and appears to have a good chance of suc - cess. Administration Automatic moratorium Within administration, a statutory moratorium is imposed such that no step may be taken to enforce security or a guarantee over the company’s property except with the consent of the administrators or leave of the court. The same requirements for consent or permission apply to the institution or continuation of legal process (including legal proceedings, execution, distress and diligence) against the company or prop - erty of the company. Shareholders Shareholders are entitled to be notified when a com - pany goes into administration. The administrators’ primary duty is to act in the best interests of the com - pany’s creditors. Shareholders can apply to court if they believe the administrator is acting unfairly or improperly. If there is a surplus once all debts and expenses have been paid, shareholders are entitled to this residual value, but this is very rare.
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