Corporate Insolvency. Corporate Insolvency An Overview. Wednesday, 27 February 2019 Mark Tempest, Partner. Five Counties Conference 2019

Transcription

1 Corporate Insolvency Wednesday, 27 February 2019 Mark Tempest, Partner vwv.co.uk Offices in London, Watford, Bristol & Birmingham Lawyers & Parliamentary Agents 1 Companies failing Stores Employees 2019 (January) , ,594 46, ,383 12, ,504 26, , ,314 12, ,500 25, ,951 48, ,469 24, , ,536 26, ,793 74,539 Medium and large retail failures -Source: Centre for Retail Research 2 27 February

2 Types of corporate insolvency Voluntary arrangement Administration Liquidation 3 Voluntary arrangement - recent headlines Prezzo % rent reduction 57 sites, closed 92 Carpetright -rent reduction 113 stores, closed 81 New Look % rent reduction 393 stores, closed 60 BHS % rent reduction 80 of 164 stores Mothercare -up to 65% rent reduction 134 stores Carluccios -up to 65% rent reduction 103 sites, closed February

3 Voluntary arrangement Insolvency Act 1986 and Insolvency Rules 2016 Company voluntary arrangement (CVA) is a mechanism that allows a company: -To settle its unsecured debts by paying only a proportion of the amount that it owes to its creditors -To come to an arrangement with its creditors over the payment of its debts 5 Voluntary arrangement - procedure Appointment of insolvency practitioner as Nominee then Supervisor Proposal prepared and submitted to nominee Nominee reports to court within 28 days Creditors decision procedure -notice to creditors Proposal needs 75% support by value of creditors Of those voting against proposal - must be less than 50% of unconnected creditors 6 27 February

4 Voluntary arrangement - effect Binds all creditors, irrespective of whether voted against/didn t vote No moratorium as such (generally, save for small companies) Look to CVA wording for terms 7 Voluntary arrangement -challenge Grounds: Unfair prejudice e.g. treating creditors differently? Material irregularity -e.g. creditor s support bought By: Person entitled to vote in the decision procedure Creditor who would have been entitled to vote if notice had been received The nominee or a replacement nominee A liquidator or an administrator of the company 8 27 February

5 Administration -recent headlines Feather & Black -24 stores Toys R Us -105 stores MultiYork -50 stores Maplins -more than 200 stores Jaeger -46 store Warren Evans -14 stores Jones the Bootmaker -110 stores East -34 stores Poundworld -335 stores House of Fraser 58 stores HMV -133 stores Patisserie Valerie -193 stores Steamer Trading -38 stores Oddbins -45 stores Coast 24 stores 9 Administration Purpose Rescue the company as a going concern Protect creditors -achieve better result Realise property for secured creditor Statutory provisions Schedule B1, Insolvency Act 1986 and Insolvency Rules February

6 Administration Procedure Court order -application made by creditors, the company or its directors Court filing -by company, directors or floating charge holder Administrator -agent of company and officer of court 11 Administration -administrators duties Administrator must: Be a licensed insolvency practitioner Behave fairly and honourably Carry out functions in interests of creditors as a whole Perform functions as quickly and efficiently as is reasonably practicable Must manage the affairs of the company in accordance with proposals February

7 Administration administrator s powers Take control and possession of the company's property Sell or otherwise dispose of the company's property Take any necessary steps (such as carrying out works) which will assist him in realising the company's property Bring or defend legal proceedings on behalf of the company Carry on the company's business Take or surrender a lease of any property on behalf of the company Make any arrangement or compromise on behalf of the company 13 Administration -effect Interim moratorium Applies after notice of intention to appoint filed with the court or application issued Leave of the court required to bring action Final moratorium Applies after administrator appointed Leave of the court / consent of the administrator required to bring action February

8 Administration -moratorium The moratorium restricts: The ability of creditors, or the insolvent company itself, to commence insolvency proceedings against the company The right of a secured creditor to enforce security over the assets of the company The right of a creditor to repossess assets in the company's possession A landlord's right to forfeit a lease of property of which the insolvent company is a tenant The ability to commence any other form of legal process against the company or its assets 15 Administration -duration and termination Administrator's appointment automatically ceases after 12 months, unless: Administrator applies to court for order extending term Creditors consent to extension of one year or less Exit usually either via liquidation or dissolution February

9 Liquidation Purpose End contracts Realise assets & collect debts Distribute to creditors Dissolve company Statutory provisions Insolvency Act 1986 and Insolvency Rules Liquidation -procedure Compulsory liquidation Petition presented by creditor, directors etc Court hearing Official Receiver initially appointed Creditors may appoint an insolvency practitioner Voluntary liquidation Special resolution of shareholders Decision of creditors as to identity of liquidator February

10 Liquidation liquidator s duties Liquidator must: Be a licensed insolvency practitioner Act in good faith Carry out functions in interests of creditors as a whole Exercise powers with reasonable skill and care, and for proper purposes only 19 Liquidation liquidator s powers Disclaiming onerous property or contracts Bringing or defending legal proceedings on behalf of the company Carrying on the business of the company as far as is necessary for its beneficial winding up Selling the company's property and executing documents in the name of the company Challenging antecedent transactions February

11 Liquidation -effect Compulsory liquidation Automatic stay on making of winding-up order - no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court... Voluntary liquidation No automatic stay but court may order that proceedings be stayed 21 Liquidation -duration and termination Lasts as long as it takes for liquidator to perform functions Exit via dissolution of company and striking off register at Companies House February

12 Mark Tempest Partner vwv.co.uk Offices in London, Watford, Bristol & Birmingham Lawyers & Parliamentary Agents 23 Tenant Insolvency and Landlords Remedies Ambuja Bose, Partner vwv.co.uk Offices in London, Watford, Bristol & Birmingham Lawyers & Parliamentary Agents February

13 Coming Up. 1. Landlords remedies against tenants 2. Limitations on remedies due to insolvency situations 3. Issues that arise with administrations 4. Company Voluntary Arrangements notable cases 5. Possible Alternatives 25 Landlords Remedies Forfeiture by court proceeding by peaceable re-entry need a forfeiture clause need a forfeiting event (rent arrears, insolvency event) need a section 146 for a non-rent breach relief from forfeiture Court action for judgement Commercial Rent Arrears Recovery (CRAR) February

14 Landlords Remedies Liquidation Administration Automaticmoratorium Receivership Administrative receiver may be appointed by a chargeein relation to the whole of a company s assets. LPA Receiver may be appointed by a chargee in respect of a fixed charge. Their powers derive from the Law of Property Act CVA(prior to approval) Small companies can be granted a moratoriumlasting initially for 28 days when the CVA proposal is being considered by creditors CVA (approved) Forfeitureby proceedings? Voluntary (solvent) liquidation Yes, but liquidator or other creditor can apply for an injunction. Compulsory liquidation Once order made no, unless permission is granted by the Court or liquidator. No, unless permission is granted by the Court or administrator Yes Yes, unless a moratorium is in place No, unless terms of CVAare breached Forfeitureby peaceable reentry? Voluntary Yes Compulsory possibly! NB Christina Sharples case No, unless permission is granted by the Court or administrator Yes Yes, unless a moratorium is in place No, unless terms of CVAare breached Money Claim Voluntary Yes but liquidator/ creditor can apply to stay proceedings. Compulsory -Once order made no, unless permission is granted by the Court No, unless permission is granted by the Court or administrator Yes Yes, unless a moratorium is in place No, unless terms of CVAare breached Commercial Rent Arrears Recovery - CRAR Voluntary Yes Compulsory If already started before the presentation of the petition for winding-up it will be stayed, and if commenced afterwards it will be void. Once a winding up Order has been made, the landlord can seek permission of the Court to exercise CRAR. No, unless permission is granted by the Court or administrator Yes Yes, unless a moratorium is in place No, unless terms of CVAare breached Disclaimer A liquidator maydisclaim onerous property on notice 27 Issues in Administrations Can I bring the Lease to an end? surrender Do I have to agree an assignment? SSRL Realisations Ltd (In Administration) 2015 EWHC 2590 (Ch) February

15 Will the landlord get leave? Re Atlantic Computer Systems plc [1992] (Ch) 505 Issues in Administrations Can I claim rent during the administration? expenses properly incurred Exeter City Council v Bairstow[2007] EWHC 400 Jervis v Pillar 2014 EWHC Civ CVAs- notable cases Prudential Assurance Co Ltd v PRG Powerhouse Ltd [2007] EWHC 1002 (ch) Thomas v Ken Thomas Ltd [2006] EWCA Civ 1504 Wright and Rowley v Prudential Assurance Company Limited [2018] EWHC 402 (Ch) February

16 What is the position with Rent Deposits, Guarantors and Former Tenants? Other Avenues to Explore Liquidation can draw down rent deposit can pursue guarantors/former tenants Administration can draw down of rent deposits on terms of deed but may be challenged can pursue guarantor or former tenant or divert rent from a subtenant but this may be challenged CVAs draw down of rent deposit depends on terms of deed pursuing guarantors or former tenants depends on terms of the CVA 31 Any Questions? February

17 Ambuja Bose Partner vwv.co.uk Offices in London, Watford, Bristol & Birmingham Lawyers & Parliamentary Agents February