UK Law and Practice Contributed by: Kate Stephenson and Zoe Stembridge, Kirkland & Ellis
Secured creditors The statutory moratorium in administration means that creditors cannot generally enforce their secu - rity (subject to certain exceptions – eg, enforcement of financial collateral arrangements). Administrators may dispose of or take action relating to property sub - ject to a floating charge without the prior consent of the charge holder or the court; however, the floating charge holder retains the same priority in respect of the proceeds from the disposal of the asset subject to the floating charge. An administrator may use the proceeds to meet administration expenses if the value of the debtor’s unsecured assets is not sufficient to cover such expenses in full. An administrator can only deal with property subject to a fixed charge with the prior approval of the court, provided that disposing of the property is likely to promote the administration’s purpose and the administrator applies the proceeds from the disposal towards discharging the obligations of the company to the fixed charge holder. Unsecured creditors Creditors will be notified of the administrators’ appoint - ment. If there are sufficient funds for a distribution to unsecured creditors, creditors usually have the right to approve the administrators’ proposals at creditors’ meetings and to appoint a creditors’ committee. Set-off A mandatory insolvency set-off regime applies once the administrators have announced an intention to make a distribution to creditors. This involves an account being taken of what is due from each party to the other in respect of their mutual dealings; only the resulting net balance is either provable by the creditor (if amounts remain due to the creditor) or, conversely, is payable by the creditor to the company (if amounts remain due to the company). CVA Shareholders Shareholders are entitled to vote on a CVA. The mem - bers’ decision is made at a meeting of the company – ie, by a simple majority of those voting, subject to any express provision to the contrary in the company’s articles. If the decisions of the creditors and the mem - bers differ, the decision of the creditors prevails, but subject to a right of challenge for members. Share -
holders can retain their equity interests if so provided by the CVA. Secured creditors A CVA cannot compromise secured (or preferential) creditors without their consent. Unsecured creditors A CVA is approved by creditors if at least three-quar - ters (in value) of those responding vote in favour of it, unless more than half of the total value of uncon - nected creditors vote against it. Once approved, a CVA binds every person who was entitled to vote on it, irrespective of whether they voted for or against (or abstained). No moratorium or set-off There is no automatic statutory moratorium or auto - matic set-off within a CVA. 5. Statutory Insolvency and Liquidation Procedures 5.1 The Different Types of Liquidation Procedure Liquidation applies to corporate entities and LLPs, not individuals. It is a dissolution procedure involving the termination of the company and, ultimately, its removal from the register. It involves the appointment of liqui - dators, who collect and sell the company’s assets and distribute the proceeds to creditors (and members, in the unlikely event of a surplus); the directors lose control. There is no obligation to initiate liquidation. There are three types of liquidation:
• members’ voluntary liquidation (MVL); • creditors’ voluntary liquidation (CVL); and • compulsory liquidation. Voluntary Liquidation
Both forms of voluntary liquidation are commenced by a debtor’s members (requiring a 75% majority of votes). In the case of an MVL, the shareholders choose the identity of the liquidator. In the case of a CVL, both the shareholders and creditors may nominate a liqui - dator; if different persons are nominated, the person
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