We have recently been asked to refresh the memories of those not involved too closely with the world of insolvency as to what some of the terms used actually mean, which procedures apply to individuals and which to companies. For those for whom “Belly Up” is insufficient please read on…
What is Insolvency?
most commonly taken to be the inability to pay debts when they become due. For companies, insolvency is also where assets are exceeded by liabilities, including contingent and prospective.
What are the Insolvency procedures?
For individuals
- Bankruptcy (“BKY”);
- Individual Voluntary Arrangements (“IVA”).
For companies (including partnerships/Limited Liability Partnerships (“LLP”))
- Compulsory Liquidation (winding up by the court (“WUC”);
- Administrative Receivership (not partnership/LLP);
- Administration;
- Company Voluntary Arrangement (“CVA”) (or partnership VA (“PVA”));
- Creditors’ Voluntary Liquidation (“CVL”);
- Members’ Voluntary Liquidation (whilst for solvent companies is regulated by Insolvency Act 1986 (“IA86”)).
Who does what & when?
- The Official Receiver (“OR”) – a civil servant in The Insolvency Service and officer of the court to which they are attached, administers early stages of Bankruptcy and Compulsory Liquidations, reports evidence of criminal offences and unfit conduct re directors. Where there are no significant assets the OR is likely to become Trustee/Liquidator. Where there are assets an Insolvency Practitioner (“IP”) may be appointed. All other insolvency procedures (except the very rare “fast-track VAs” (the OR acts)) are handled by IPs;
- IPs – work in the private sector, most often they are accountants or solicitors. They are required under IA86 to be authorised by a recognised professional body (“RPB”).
What do all these titles mean?
Trustee/Trustee in Bankruptcy – OR or IP appointed to take control of Bankrupt’s assets and to sell them and share the proceeds among creditors.
Interim Receiver – the court can appoint the OR as Interim Receiver of an individual’s property (to protect and secure it) after the presentation of a bankruptcy petition but before a bankruptcy order is made.
Special Manager – the Interim Receiver may appoint a Special Manager to assist in the securing and protection of assets belonging to an individual who is subject to a bankruptcy petition. The Special Manager may be an expert in the debtor’s business or in respect of the debtor’s assets – he/she need not be insolvency qualified.
Receiver and Manager (“R&M”) – the OR becomes R&M on making of a Bankruptcy Order – until the appointment of an IP as trustee, or not, the OR as R&M secures and protects the estate.
Receiver – most commonly applied to Administrative Receivers – IP appointed by the holder of a debenture that is secured by a floating charge over the whole or substantially the whole of the company’s assets. Here the IP’s task is to realise those assets on behalf of the debenture holder (has to account to preferential creditors first in respect of floating charge realisations – not necessary in respect of fixed charge realisations). The term “Receiver” can also mean a person appointed by the court or with power to receive rents and profits of property – this kind of Receiver need not be an IP.
Nominee – of IVA, CVA & PVA – an IP who carries out the work towards a meeting of creditors to consider a VA. Since 1 April 2004 the OR could be nominee in fast-track VA.
Supervisor – the IP appointed to supervise the carrying out of VA. Will be OR in fast-track cases.
Liquidator – the OR or an IP appointed to administer a liquidation – the OR is only going to be appointed in the case of a Compulsory Liquidation, an IP may be appointed to replace the OR in respect of a Compulsory and is required to be appointed in respect of Creditors’ or Members’ Liquidations.
Administrator – an IP appointed by the court under an administration order or by a floating-charge holder or the company or its directors filing the necessary notice at court.
Compare and contrast – corporate procedures
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Administrative receivership |
Administration |
CVA (also PVA & IVA) |
Creditors’ Voluntary Liquidation |
Members’ Voluntary Liquidation |
| Purpose: |
To recover money owed to secured creditors. |
To rescue as a going concern a company or partnership facing financial problems; or to achieve a better result for the creditors of the company as a whole than would be achieved in an immediate winding up; or to realise property for the secured or preferential creditors. |
To allow a company (and partnership or individual) with financial problems to reach a binding agreement with creditors. |
To allow an insolvent company to put itself into liquidation and wind up the affairs of the company without the need for a court order. |
To allow a solvent company to put itself into liquidation and wind up the affairs of the company (e.g. where no one left to run a family business).
Also used re tax-planning. |
| Proposed/begun by: |
A floating charge holder having a pre 15 September 2003 floating charge. |
The appointment of an Administrator by court order or where a floating-charge holder, the company or its directors file the necessary notice at court. |
The directors, (partners), Liquidator, Administrator, (the individual partners or debtor(s)). |
The shareholders (though creditors’ choice of Liquidator will prevail). |
The shareholders. |
| Handled by: |
Administrative Receiver. |
Administrator. |
Nominee (who usually goes on to become the Supervisor). |
Liquidator. |
Liquidator. |
| Creditors notified: |
Within 28 days of appointment (unless court otherwise directs). |
As soon as is reasonably practicable – and on all documents. |
When the notice of creditors’ meeting is issued. |
Within 14 days of the members’ meeting. |
Modest obligations - ensure creditors all settled within a year. |
| Meeting of creditors: |
Held within 3 months or longer if court allows (unless Liquidation intervenes). |
Held within 10 weeks (unless court otherwise directs). |
Timing is specified in the Nominee’s proposal or by Liquidator or Administrator. |
Within 14 days of the members’ meeting. |
N/A. Debts must be paid secured or compounded within 12 months or else becomes CVL. |
What are the likely future developments?
Following the Enterprise Act 2002, the use of Administrative Receiverships has fallen greatly and will continue to fall as the number of older debentures (upon which appointments can be made) diminish. Administrations are filling the “Administrative Receivership gap” and are also being used to replace some Liquidations – though their use in some circumstances is called into question by some recent research – just over 50% of cases were deemed to have been used appropriately leaving the conclusion that the balance were not.
Questioning why this might be, there have been many developments in Bank security and a general hardening of attitudes towards payment of liquidators’ fees out of floating charge asset realisations (which generally cover all assets not subject to a fixed charge). This may contribute towards persuading IPs to recommend the procedure which will secure their being better able to recover their fees.
Also following the Enterprise Act 2002 the number of both Bankruptcies and IVAs has rocketed. A current consultation document proposes a new form of “Simplified” IVA (“SIVA”) along with proposals that IPs may be licensed solely in respect of Voluntary Arrangement (CVA/PVA & IVA) in addition to ongoing moves to authorise practitioners to work solely in the personal insolvency arena to provide more appointment-takers to increase capacity.
The proposed SIVA will be for those with undisputed unsecured debts of below £75k. The majority required to approve will only be 50% of those voting by value and no modifications will be possible. Upon approval creditors will need to lodge their claims within 90 days.
However, following moves by certain institutions, notably Capital One, to harden their attitude towards IVA proposals there is a risk that more people will ignore the predominantly 5 year IVA in favour of a 12 month, or shorter, Bankruptcy with a lower likelihood of prolonged (and certainly no more than 3 years) contributions being required to be paid for the benefit of creditors. It will be interesting to see where the pendulum might come to rest.
BRI are the region’s leading independent insolvency experts and we pride ourselves on offering the best advice and support regardless of the fee outcome. If you have any queries on any issue arising from this briefing or on any insolvency related matters, please contact a member of the BRI Management Team. All intial BRI meetings are FREE OF CHARGE, completely independent, confidential and without obligation.
Important Note: This Briefing has been prepared as background information for the general professional adviser and is not a comprehensive statement of the law – we recommend that expert advice be taken on specific issues arising in practice.
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