UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
ment engagement, incentives or alternative teams. If any directors are unco-operative: • lenders may remind them in writing of their person - al duties, which, under English law shift towards creditors when insolvency, liquidation or adminis - tration is probable; and • in extreme cases, lenders could use voting rights under share security documents to remove unco- operative directors. Receivers, administrators or security agents will require indemnification and possibly up-front cost coverage and separate legal counsel. Insolvency is assessed on a company-by-company basis, so both English and non-English subsidiaries must be carefully managed, with filing obligations monitored according to jurisdiction. 7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes Administration The purpose of administration is threefold: • rescuing the company as a going concern; • achieving a better result for creditors as a whole than in an immediate liquidation (if the first objec - tive is not reasonably practicable to achieve); or • realising property for secured or preferential credi - tors (if the first two objectives are not reasonably practicable to achieve). An administrator can generally be appointed out of court by the debtor company, its directors or a holder of a “qualifying floating charge”. Administrators have broad powers to conduct the business of the company and, subject to satisfying the requirements under the Insolvency Act 1986 (the “IA86”), dispose of its property, including assets under a floating charge. While an administrator is in office, most of the powers of the board of directors are sus - pended.
A statutory moratorium prevents enforcement of security or guarantees over the company’s property without the administrator’s consent or leave of the court. The same requirements for consent or permis - sion apply to instituting or continuing legal processes. The moratorium does not extend to security arising under a “financial collateral arrangement” (generally, a charge over cash or financial instruments such as shares, bonds or tradeable capital market debt instru - ments and credit claims) under the Financial Collateral Arrangements (No 2) Regulations 2003 (FCAR). Fixed Charge Receivership An FCR may be appointed pursuant to the Law of Property Act 1925 over assets secured by a fixed charge or more commonly following a default under the terms of a security document that augments the statutory powers. A receivership may run parallel to liquidation or admin - istration, but an administrator may require a receiver to vacate unless appointed under a “financial collat - eral arrangement” under the FCAR. The receiver’s primary duty is to realise assets for the appointor, taking reasonable care to obtain the best price, in contrast to an administrator, who acts in the interests of all of a company’s creditors and has dif - ferent statutory objectives. The receiver is entitled to a statutory indemnity for liabilities from asset realisa- tions and may receive a contractual indemnity from their appointor. Liquidation/Winding-Up Liquidation involves dissolving a company by realis - ing and distributing assets to its creditors and mem - bers according to statutory priority under the IA86. A winding-up takes two forms: • court-ordered compulsory liquidation; and • members’ or creditors’ voluntary liquidation. In a members’ voluntary liquidation, the company’s directors swear a statutory declaration as to the com - pany’s solvency over the following 12 months. In a creditors’ voluntary liquidation, the primary ground is the company’s insolvency and inability to pay its debts.
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