UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
subsidiaries must be carefully managed, with filing obligations monitored according to juris - diction. 6.7 Claims Against Secured Lenders Post-Enforcement The value at which secured assets are disposed of is a key focus for potential challenge. Lend - ers typically protect against these claims by appointing an insolvency officeholder to trans - act. Administrators are subject to the “Statement of Insolvency Practice 16” or “SIP 16”, while fixed charge receivers are not, but both adhere to similar standards in practice. Valuation invariably requires market testing usu - ally involving: • a comprehensive sale process run by an M&A adviser, though an abbreviated/desktop process may suffice if urgent or if recent value evidence exists, such as a recent company- led sale process; and • if feasible, an independent, robust process including a range of financial and trade buy - ers. Receivers, administrators and/or security trus - tees may require a fairness opinion or valuation report from an independent accountancy firm or investment bank, even if not required by the intercreditor agreement. Lenders should not influence the process and are not obligated to delay a sale for junior stakeholders to recover more. Other potential liabilities include: • environmental fines or clean-up costs imposed during insolvency. These may rank as insolvency expenses, taking priority over secured creditors’ claims. Secured creditors
usually incur liability only when enforcing real estate security as mortgagees in possession; • when an insolvency officeholder sells part or all of an insolvent company’s business, employees generally transfer to the pur - chaser with their employment liabilities under the Transfer of Undertakings (Protection of Employment) Regulations 2006. Dismiss - als may result in unfair or wrongful dismissal liabilities for both seller and purchaser; and • if a lender acts as a mortgagee in possession of shares in a borrower company and exer - cises voting rights, the lender may be liable for pension scheme deficits due to being con - nected with an employer in an occupational pension scheme. 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 objective is not reasonably practicable to achieve); or • realising property for secured or preferential creditors (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
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