UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
Liquidators can bring or defend legal proceedings on the company’s behalf, conduct the company’s neces - sary business, sell company property, execute docu - ments and challenge antecedent transactions. Pre-Pack Sales Pre-pack sales involve selling a company’s business or assets to a third party or a lender owned vehicle immediately upon entering administration or receiver - ship, with the sale arranged before the administrator’s or receiver’s appointment. Alternatively, a secured lender may appoint a receiver for the same purpose. Pre-pack sales are frequently used to implement restructurings through share and/or asset sales in conjunction with a security enforcement. A lender may “credit bid” its outstanding debt as con - sideration for the sale of the company/its assets to a lender-owned vehicle. Upon the sale, the debt/exist - ing security is typically released by the security trustee under the terms of the intercreditor agreement. This can be more complicated in capital structures with various classes of secured and unsecured debt, but is typically reasonably straightforward in a direct lending context, where there is often only one secured credi - tor (or creditor class) with clear priority on who can give enforcement instructions and more limited value protections in the intercreditor agreement. The advantages of a pre-pack sale include: • minimised business disruption, especially in receiv - ership; • pre-selection of a receiver or administrator and pre-agreed sale terms for a quicker, more economi - cal process compared to a sale during trading administration; • a faster realisation of cash for secured creditors, potentially yielding better returns due to reduced trading disruption; • effective security enforcement implementation, triggering the release clause in an intercreditor agreement, enabling business transfer and leaving behind “out-of-the-money” creditors; • directors benefiting from independent approval of credit bids by the administrator/receiver, reducing
liability and minimising challenges from disgruntled creditors; • limiting adverse publicity, media speculation and potential damage to the business’ goodwill; and • potential preservation of employment. Recent updates to the pre-pack administration legal framework impose greater scrutiny on connected party transactions. However, this should not unduly impact secured creditors. 7.2 Waterfall of Payments The general priority on insolvency is as follows (in descending order of priority). • Holders of fixed charge security (but only to the extent the value of the secured assets covers that indebtedness) and parties with a proprietary inter - est in assets in the possession (but not under the full legal and beneficial ownership) of the debtor (but only with respect to the assets in which they have a proprietary interest). • Expenses of the insolvent estate (there are statu - tory provisions setting out the order of priority in which expenses are paid), in certain circumstanc - es, specific moratorium debts may rank ahead of expenses. • Ordinary and secondary preferential creditors: (a) ordinary preferential debts include (but are not limited to) debts owed by the insolvent com - pany in relation to: (i) contributions to occupational and state pension schemes; (ii) certain wages and salaries of employees for work done in the four months before the insolvency date; (iii) holiday pay due to any employee whose contract has been terminated, whether the termination takes place before or after the date of insolvency; and (iv) certain bank and building society deposits eligible for compensation; and (b) Secondary preferential debts rank for pay - ment after the discharge of ordinary preferential debts and include claims by HMRC in respect of certain taxes (including VAT, PAYE income tax and employee NI contributions) which are held by the company on behalf of employees
265 CHAMBERS.COM
Powered by FlippingBook