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A look ahead
I’m going to talk about:
– Current trends
– Pre-packs
– The European dimension
– Company law reform
A look ahead…current trendsInsolvency stastics from the DTI - companies
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1997 1998 1999 2000 2001 2002 2003 2004 2005
Liquidations Total
Compulsory Liquidations
Creditors' Voluntary Liquidations
Receivership Appointments*
Administrator Appointments**
In Administration (Enterprise Act 2002)**
Company Voluntary Arrangements
Corporate insolvencies total
A look ahead…current trendsInsolvency stastics from the DTI – companies in administration
Corporate insolvencies
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1997 1998 1999 2000 2001 2002 2003 2004 2005
Liquidations Total
Compulsory Liquidations
Creditors' Voluntary Liquidations
Receivership Appointments*
Administrator Appointments**
Voluntary liquidations plus new administrations
Company Voluntary Arrangements
Corporate insolvencies total
A look ahead…current trendsInsolvency stastics from the DTI – personal insolvency
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Years 1997 1998 1999 2000 2001 2002 2003 2004 2005
Total Bankruptcy Orders Individual Voluntary Arrangements *
A look ahead – current trends
Conclusions– Insolvencies are rising
– Personal bankruptcies increasing rapidly– So too are IVA’s – so the new law alone is not the cause
– Trend less clear for corporate insolvencies– New administration procedure becoming popular– Replacing voluntary liquidations– Administrations to become as significant as liquidations?
– DTI propose a new lightweight IVA– SIVA ≈ compulsory voluntary arrangement
A look ahead…pre-packs
– Business sale– Terms agreed pre-appointment– Sale soon after appointment– Usually back to management– Controversial – = risky
A look ahead…pre-packs
– A new irregular verb:– I prepack– You phoenix– They are abusing the process
A look ahead…pre-packs
For:– Minimum disruption to the
business– Management most likely
to offer the best price– Reduces risks:
– Funding trading– Finding a buyer– Losing the business while
trading
Against:– Third party buyers lose the
chance to bid more– Management will bust the
business again if they don’t change
– Rogues use it to walk away from their obligations
– Stakeholders – particularly creditors – are disregarded
– Litigation risk– Centrebinding is back!
A look ahead…pre-packs– Legal challenges include:
– Statutory control:– Unfair harm
– Inefficiency
– Misfeasance
– Statutory – end the administration– ‘Improper motive’
– ‘Excessive’ remuneration– 25% of creditors must support
– Creditors pay costs unless judge decides otherwise
– General legal principles– Conspiracy
– Tresspass
– Complaints to professional bodies
Pre-pack sales – how administrators may protect themselves!
– Record their reasons for the administration – And the proposed sale
– Purchaser
– Price
– Terms
– Assets (including intangibles)
– Show some thought about the credibility of the directors– Consult the key creditors
– Funders
– Major suppliers
– The Crown
– Bale out if they’re hostile!
Pre-pack sales – protection for administrators– Administrators should record everything
– Their reasons– The information they had– Their objectives
Pre-pack sales – the future
– Public and official concern– John Moulton (!) – Insolvency Service– R3?
– Possible reactions:– New professional guidlines?– New legislation?
– Force consultation with creditors?
– Centrebinding
– New forms?– Disclosure on consent to act?
A look ahead – the European dimension
The ‘compare and contrast’ slide
German companies
GmbH AG
Capital needed
€25,000 €50,000
Liability Limited Limited
Set-up costs €900 €1,500
A look ahead – the European dimension
The ‘compare and contrast’ slide
German companies UK
GmbH AG Limited
Capital needed
€25,000 €50,000 £1
Liability Limited Limited Limited
Set-up costs €900 €1,500 €85
A look ahead – the European dimension
– Increasing popularity of UK companies on mainland Europe
– Continentals have to recognise limited liability of UK companies (EU reg on insolvency proceedings)
– UK companies:– Cheaper to form– Don’t need minimum capital
– Exports UK legal and business concepts and professional advice
A look ahead – company law reform
“Company law will be reformed to encourage greater levels of investment and enterprise.”
Queen's Speech
17 May 2005
Company law reform bill
Company security regulations
A look ahead – company law reform
Company Law Reform BillCompany Security Regulations
(from the Law Commission’s recommendations)
Deregulation of private companies
Auditors’ liability
Directors’ duties codified
Notice filing rules – notices sets priority
Registration of discounting and factoring agreements
A look ahead – company law reform
Company Law Reform Bill– To become the Company Law Reform Act 2006– Restates and amends some of Companies Act
1985– Deregulation of private companies– Auditors’ liability– Directors’ duties codified
A look ahead – company law reform
Company Law Reform Bill– Deregulation of private companies
– AGM’s voluntary– Modern constitutions– Corporate directors banned– Small and medium companies needn’t file accounts– Bigger companies count as small
– (t/o £4.8m; balance sheet £2.4m; 50 employees)
– Company secretaries voluntary
– Executive power to amend primary legislation
A look ahead – company law reform
Company Law Reform Bill– Auditors’ liability
– Auditors can limit their liability by agreement– Limit must be fair and reasonable– Shareholders must approve it– The limit must be renewed annually
A look ahead – company law reform
Company Law Reform Bill– Directors’ duties codified
– Replace current equitable and common law rules– But interpreted and applied in the same way– Consequence of breach follow old rules
A look ahead – company law reform
Company Law Reform Bill– Directors must:
– Keep within their powers– Promote the success of the company– Exercise independent judgement– Use reasonable skill, care and diligence– Avoid conflicts of interest– Not accept benefits from third parties– Disclose personal interests
A look ahead – company law reform
Company Security Regulations– To be the Company Security Regulations 2006?– Replaces s395 Companies Act 1985
– Notice filing system– Applies to discounting and factoring agreements
A look ahead – company law reform
Company Security Regulations– Notice filing system
– Current rules– Register mortgages within 21 days– Strict time limit– Unregistered mortgages are void– Applies to
– Mortgages of land– Mortgages of goods (ships, aircraft, etc)– Mortgages of some intangibles (debtors, IPR, etc)
– Does not apply to asset finance (discounting, factoring, leasing, HP, retention of title, etc)
A look ahead – company law reform
Company Security Regulations– Notice filing system
– New rules– Registration of security will be voluntary– But unregistered security has lowest priority– And unregistered security is void on insolvency
– Applies to– Fixed charges and mortgages– Floating charges– Debtor finance (discounting and factoring agreements)
– Does not apply to leasing, HP, retention of title
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