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5520 results in Corporate Law

Page 114 of 276

  • 5 - Insolvency Practitioners and Turnaround Professionals

  • from PART II - The Context of Corporate Insolvency Law: Financial and Institutional
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 146-194

  • Summary

    Corporate insolvency processes are not mere bodies of rules: they are elaborate procedures in which legal and administrative, formal and informal rules, policies and practices are put into effect by different actors. Those actors, in turn, have cultural, institutional, disciplinary and professional backgrounds which influence their work. They also operate under the influence of a variety of economic, career and other incentives and are subject to a host of constraints ranging from legal duties and professional obligations to client and own-firm expectations. The Cork Report, in an oft-quoted statement, urged that the success of any insolvency system is very largely dependent upon those who administer it, and socio-legal scholars have emphasised how insolvency law is not applied in a mechanical way but is manoeuvred around or manipulated by means of administrative structures ‘designed and imposed by dominant actors’.

    This chapter looks at how insolvency law and turnaround processes are made operational by those actors who dominate such procedures: the insolvency practitioners (IPs) and turnaround professionals (TPs). In accordance with the discussion in chapter 2, it will be asked whether present practitioner and professional regimes can be supported as efficient, expert, fair and accountable. This will demand examinations of both the ways that these actors carry out their tasks and the ways that they are regulated.

    Insolvency Practitioners

    In the post-millennium era there has been a shift in the role of the IP in relation to troubled companies. This can be described as a move in direction from ‘undertaker to renovator’. Before the Enterprise Act 2002 and the rise of the ‘rescue culture’, the IP's contribution was focused on overseeing the orderly distribution of a company's assets to creditors. The modern role demands that the IP spend more time acting as restructuring advisor and manager. Changes in the loan market have further encouraged such a shift in roles. Corporate credit is now obtained routinely from a variety of sources rather than a ‘single bank relationship’, and actors such as the buyers of secondary debt often look to IPs, not to enforce debts formally, but to advise and assist in structuring deals.

  • 16 - Directors in Troubled Times

  • from PART V - The Impact of Corporate Insolvency
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 579-644

  • Summary

    The rules and processes that make up insolvency law operate as a set of incentives and constraints that influence how company directors behave at times of both good and bad corporate fortune. This chapter considers how those incentives and constraints operate and examines the assumptions and philosophies that underpin the role of the company director in insolvency law. The analysis offered here continues the approach set out in chapter 2 and asks whether current insolvency law deals with directors in a manner that renders directors appropriately accountable, makes the best use of directorial expertise, fosters efficiently produced outcomes and is consistent with the fair treatment of directors and parties affected by directorial behaviour. For the purposes of clarity of exposition, the issue of accountability will be considered first, since this involves a mapping out of the broad array of influences and constraints that insolvency law applies to directors – a mapping exercise that should provide a useful background to the discussions of expertise, efficiency and fairness that follow. As a preliminary matter, it is necessary to explore the meaning of ‘director’. In English law, whether a person is a director or not depends upon function and not formal designation. A de jure director is a properly appointed director. A de facto director performs the functional role of director, but without having being formally appointed as such. A shadow director is a person who exercises real influence over a majority of board members without any appointment to the board. The issue of who might be regarded as a de facto director was reviewed in HMRC v. Holland (Re Paycheck Services Ltd), when the Supreme Court emphasised that a director of Company A, which itself is a corporate director of Company B, does not automatically become a de facto director of Company B. For many of the matters discussed below, it matters little which category of director a particular individual falls into. Increasingly, liability is common. This trend is confirmed by section 89 of the Small Business, Enterprise and Employment Act 2015.

  • 4 - Corporate Failure

  • from PART II - The Context of Corporate Insolvency Law: Financial and Institutional
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 117-145

  • Summary

    This chapter looks at what constitutes corporate failure, who decides that a company has failed and why some companies fail. From the insolvency lawyer's point of view it is important to understand the nature and causes of corporate decline so that the potential of insolvency law to prevent or process failure can be assessed and so that insolvency law can be shaped in a way that, so far as possible, does not contribute to undesirable failures or prove deficient (substantively or procedurally) in processing failed companies.

    The purpose of insolvency law is not, however, to save all companies from failure. The economy is made up of a vast number of firms, each engaged in marketing and product innovations that are designed to improve competitive positions and each being challenged in the market by other firms. Business life involves taking risks and dealing with crises, and the price of progress is that only those able to compete successfully for custom will survive. An efficient, competitive marketplace will thus drive some companies to the wall because those companies should not be in business: they may be operated in a lazy, uncompetitive manner, their products may no longer be wanted by consumers and managerial weaknesses may be placing their creditors’ interests at unacceptable risk. The role of insolvency law in such cases is not to take the place of the market's selective functions but to give troubled companies the opportunity to turn their affairs around where it is probable that this will produce overall benefits or, where this is not probable, to end the life of the company efficiently, expertly, accountably and fairly.

    It can also be argued, however, that insolvency laws and processes should be able to look beyond the immediate position of the company and should be sufficiently accessible to democratic influence to allow consideration of factors beyond the narrow confines of the firm or the strictly economic. Corporate failures may lead to the breaking up of teams with experience and expertise; to wasted resources and to runon effects such as the unemployment of staff; harm to customers and suppliers; general impoverishment of communities and losses of confidence in commercial, financial, banking and political systems.

  • 3 - Insolvency and Corporate Borrowing

  • from PART II - The Context of Corporate Insolvency Law: Financial and Institutional
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 55-116

  • Summary

    The issues attending corporate insolvency law are closely linked to those surrounding corporate borrowing. It is the creation of credit that gives rise to the debtor–creditor relationship and makes insolvency possible in the first place. Credit can be obtained by companies in a variety of ways, as we will see in this chapter, and the various modes of obtaining debt bring with them different arrangements for dealing with repayments. These arrangements will be relevant when dealing with companies that can no longer repay all their creditors.

    To ask whether the legal framework of corporate insolvency law is acceptable demands, accordingly, some examination of the arrangements that the law recognises for obtaining credit in order to raise corporate capital. If corporations or creditors in an insolvency face problems that arise from the multiplicity and complexity of arrangements for obtaining credit and the ensuing difficulty of resolving the respective claims of different types of creditor, the best way to reform insolvency arrangements might well be to rationalise the legal methods available for raising capital and obtaining credit rather than to tinker with the insolvency rules that apply to the various credit devices.

    Insolvency arrangements can be assessed with reference to the factors outlined in chapter 2 but the link with credit should always be borne in mind and companies should be seen in both their healthy and their troubled contexts. It would be undesirable, for instance, to reform and improve insolvency arrangements if the result was to prejudice mechanisms for providing healthy companies with the credit arrangements that they need for effective action in the marketplace. The arrangements that best meet the needs of healthy, trading companies, it should be recognised, are not those that necessarily produce the smoothest-operating insolvency regimes and, in designing credit arrangements (with their attendant insolvency implications), the objective should be to maximise the sum of benefits to those involved with both healthy and troubled companies. (Here ‘benefits’ refers to procedural and democratic as well as financial advantages).

  • 2 - Aims, Objectives and Benchmarks

  • from PART I - Agendas and Objectives
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 26-52

  • Summary

    Openness concerning the aims and objectives of corporate insolvency law is necessary if evaluations of proposals, or existing regimes, are to be made. Without such transparency it is possible only to describe legal states of affairs or to make prescriptions on the basis of unstated premises. As will be argued in this chapter, however, it may not be possible to set down in convincing fashion a single rationale or end for corporate insolvency law. A number of objectives can be identified and these may have to be traded off against each other. It is, nevertheless, feasible to view legal developments with these objectives in mind and to argue about trade-offs once the natures of these objectives have been stipulated.

    This chapter will suggest an approach that allows and explains such trade-offs but it begins by reviewing a number of competing visions of the insolvency process that are to be found in the legal literature. A starting point in looking for the objectives of modern English corporate insolvency law is the statement of aims contained in the Cork Committee Report of 1982.

    Cork on Principles

    The Cork Committee produced a set of ‘aims of a good modern insolvency law’. It is necessary, however, to draw from a number of areas of the Cork Report in order to produce a combined statement of objectives relevant to corporate insolvency. Drawing thus, and paraphrasing, produces the following exposition of aims:

  • (a) to underpin the credit system and cope with its casualties;

  • (b) to diagnose and treat an imminent insolvency at an early, rather than a late, stage;

  • (c) to prevent conflicts between individual creditors;

  • (d) to realise the assets of the insolvent which should properly be taken to satisfy debts with the minimum of delay and expense;

  • (e) to distribute the proceeds of realisations amongst creditors fairly and equitably, returning any surplus to the debtor;4

  • (f) to ensure that the processes of realisation and distribution are administered honestly and competently;

Corporate Insolvency Law
  • Perspectives and Principles
  • 3rd edition
  • Vanessa Finch, David Milman
  • Published online:
    06 August 2018
    Print publication:
    19 October 2017
  • This new edition of Corporate Insolvency Law builds on the unique and influential analytical framework established in previous editions - which outlines the values to be served by insolvency law and the need for it to further corporate as well as broader social ends. Examining insolvency law in the fast-evolving commercial world, the third edition covers the host of new laws, policies and practices that have emerged in response to the fresh corporate and financial environments of the post-2008 crisis era. This third edition includes a new chapter on the growing issue of cross border insolvency and deals with a host of recent developments, notably; the consolidation of the rescue culture in the UK, the rise of the pre-packaged administration, and the substantial replacement of administrative receivership with administration. Suitable for advanced undergraduate and graduate students, professionals and academics, Corporate Insolvency Law offers an organised basis for rising to the challenges of an ever-shifting area of the law.

  • 12 - Rethinking Rescue

  • from PART III - The Quest for Turnaround
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 442-450

  • Summary

    These are interesting times for corporate rescue. On the one hand, a new emphasis on rescue has developed over the last decade or so and turnaround has emerged as a main priority in dealing with troubled companies. The ‘rescue culture’ has been evident in legislation and in endorsements by the UK Government and also the judiciary. At the EU level, rescue has also become a major focus of attention. In the UK, the banks have instituted new intensive care regimes and a new group of turnaround specialists has come onto the scene to assist in the process of dealing with corporate troubles at an ever-earlier stage in their development. In parallel, increasing attention is being paid to the management of risks to corporate welfare. On the other hand, the advent of ‘the new capitalism’ and the commodification of credit have produced a fragmentation of interests in troubled companies and a new set of pressures that favour exiting from relationships with distressed firms rather than doctoring such companies. This fragmentation has reduced the role of the ‘London Approach’ and has given rise to new challenges in securing agreements to informal turnaround proposals.

    Against this background, considerable changes have been made to insolvency procedures in recent times. The phasing out of administrative receivership to the point of near extinction has been accompanied by a remodelling of administration, and a moratorium for small companies has been added to the CVA procedure. The Crown's status as preferential creditor has been removed and the ‘prescribed part’ has been introduced in order to provide greater economic protection for unsecured creditors. Holders of floating charges have not only largely lost the right to appoint administrative receivers but have been made to bear the cost of giving unsecured creditors the benefit of the prescribed part. As for fixed charge holders, membership of this club has been restricted after Spectrum Plus and the courts’ new inclination to treat chargesover book debts as floating rather than fixed. The use of the ‘pre-packaged’ administration has led to new levels of concern regarding the undermining of statutory procedures and the substitution of closed agreements for traditionally more transparent processes. This has produced a regulatory response primarily through selfregulation, with the threat of direct statutory intervention lurking in the background.

  • 13 - Gathering the Assets: The Role of Liquidation

  • from PART IV - Gathering and Distributing the Assets
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 453-510

  • Summary

    Liquidation is the end of the road for the troubled company. It involves its winding up and the gathering in of the assets for subsequent distribution to creditors. On the commencement of liquidation the principle of collectivity takes effect and this is reflected in a moratorium on hostile actions and the restraining of uncompleted executions. Liquidation, nevertheless, raises issues of efficiency, expertise, accountability and fairness as much as processes involving prospects of rescue. This chapter explores those issues as well as the conceptual underpinnings of liquidation. Liquidations are encountered in three main forms: voluntary, compulsory and public interest, and to set the scene, it is necessary to review the varieties of liquidation and the legal framework that supports the liquidation process.

    The Voluntary Liquidation Process

    A voluntary liquidation of a solvent company is termed ‘a members’ voluntary winding up’ and, where an insolvent company is involved, this is then known as ‘a creditors’ voluntary winding up’. This distinction flows from the Insolvency Act 1986 sections 89 and 90 which provide that if the directors have made a statutory declaration of solvency under section 89, a members’ voluntary liquidation occurs, but that the liquidation is a creditors’ voluntary liquidation in the absence of such a declaration.

    Both types of voluntary liquidation are, however, triggered by the actions of the company's members. These members can initiate a winding up by passing a special resolution in favour of a voluntary liquidation. Resolutions must be advertised in the Gazette within fourteen days of passing (on penalty of a fine where the officers of a company are in default).

    After 6 April 2017 creditor involvement in a CVL no longer has to come by means of a physical creditors’ meeting. The Insolvency (England and Wales) Rules 2016 (SI 2016/1024) have come into force to institute new procedures. The effect of sections 122 and 126 and Schedule 9 of the Small Business, Enterprise and Employment Act 2015, coupled with Part 15 of the new Insolvency Rules is that, in a CVL, a physical creditors’ meeting will not be mandatory but can be replaced by a virtual decision or even by ‘deemed consent’ pursuant to s. 246ZF of the 1986 Act.

Page 114 of 276