UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
creditor (or creditor class) with clear priority on who can give enforcement instructions and more limited value protections in the intercredi - tor agreement. The advantages of a pre-pack sale include: • minimised business disruption, especially in receivership; • pre-selection of a receiver or administrator and pre-agreed sale terms for a quicker, more economical process compared to a sale dur - ing trading administration; • a faster realisation of cash for secured credi - tors, potentially yielding better returns due to reduced trading disruption; • effective security enforcement implemen - tation, triggering the release clause in an intercreditor agreement, enabling business transfer and leaving behind “out-of-the-mon - ey” creditors; • directors benefiting from independent approv - al of credit bids by the administrator/receiver, reducing liability and minimising challenges from disgruntled creditors; • limiting adverse publicity, media specula - tion 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 con - nected 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 interest in assets in the posses - sion (but not under the full legal and benefi - cial 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 statutory provisions setting out the order of priority in which expenses are paid), in certain circumstances, 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 company in relation to: (i) contributions to occupational and state pension schemes; (ii) certain wages and salaries of em - ployees for work done in the four months before the insolvency date; (iii) holiday pay due to any employee whose contract has been termi - nated, 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 payment after the discharge of ordinary preferential debts and include claims by HMRC in respect of certain taxes (includ - ing VAT, PAYE income tax and employee NI contributions) which are held by the company on behalf of employees and customers as well as certain bank and building deposits that are not ordinary preferential debts. • Holders of floating charge security, accord - ing to the priority of their security. This would include any security interest that was stated to be a fixed charge in the document that created it but which, on proper interpretation
309 CHAMBERS.COM
Powered by FlippingBook