UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
Liquidation/Winding-Up Liquidation involves dissolving a company by realising and distributing assets to creditors and members 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 com - pany’s directors swear a statutory declaration as to the company’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. Liquidators can bring or defend legal proceed - ings on the company’s behalf, conduct the company’s necessary business, sell company property, execute documents and challenge antecedent transactions. Pre-Pack Sales Pre-pack sales involve selling a company’s busi - ness or assets to a third party or a lender owned vehicle immediately upon entering administration or receivership, with the sale arranged before the administrator’s or receiver’s appointment. Alter - natively, 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 consideration for the sale of the company/its assets to a lender-owned vehicle. Upon the sale, the debt/existing security is typically released by the security trustee under the terms of the inter - creditor agreement. A direct lending context is generally straightforward with only one secured
an administrator is in office, most of the powers of the board of directors are suspended. A statutory moratorium prevents enforcement of security or guarantees over the company’s prop - erty without the administrator’s consent or leave of the court. The same requirements for con - sent or permission apply to instituting or con - tinuing 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 (the “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 administration, but an administrator may require a receiver to vacate unless appointed under a “financial collateral 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 admin - istrator, who acts in the interests of all of a company’s creditors and has different statutory objectives. The receiver is entitled to a statutory indemnity for liabilities from asset realisations and may receive a contractual indemnity from their appointor.
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