Providing legal services in a downturn

1. Providing legal services in a downturn An introduction to English insolvency procedures

2. Legal services in a downturn – the key challenge • What is “insolvency law”, really? • The same, but different • Insolvency Act 1986/Insolvency Rules 1986: mechanisms and processes • Helping your clients adapt, whilst adapting yourself

3. The components of valuable advice • The commercial context • What is insolvency? • How do businesses decline? • The legal framework • The insolvency processes in England and Wales • How they work in practice

4. What is insolvency? • An economic circumstance, not a legal concept – and a destination, not a start point • Cash-flow or commercial insolvency • In the Matter of Cheyne Finance PLC (in receivership) [2007] EWHC 2402 (Ch) • Balance sheet insolvency

5. The business decline curve

6. “Under-performance” • Decline in gross profitability? • Market perception – an unreliable indicator? • Obvious with hindsight: • Woolworths • MFI • The relaunch • The new project

7. “Distress” • Inability to fund anything other than immediate operations • Refinancing • Management changes • A more contentious approach • Payment profile changes

8. “Crisis" • “Managing for cash” • Erratic payments/service delivery • Suppliers put the company “on stop” • Creditor pressure

9. Insolvency processes in England and Wales • Administration • Receivership (and administrative receivership) • CVA’s (and schemes of arrangement) • Liquidation

10. Administration • A quick history lesson: the Enterprise Act, the “rescue culture” and the end of “Crown preference” • The statutory purpose of administration • Rescuing the company as a going concern • A better return to creditors than a liquidation • A better return to one or more secured or preferential creditors

11. Appointing administrators • The “court route” • Who can use this route? • How does it work? • The “out of court route” • Undisclosed and difficult to detect – opaque? • Who can use this route? • How does it work?

12. Moratorium on creditor action • When does it come into effect? • What is the effect of the moratorium? • Lifting the moratorium by court application or administrator’s consent. • Re Atlantic Computer Systems Plc [1990] EWCA Civ 20 • Innovate Logistics Limited (in administration) v Sunberry Properties Limited [2008] EWCA Civ 1261

13. The administrator • Acts as agent, not principal, so contracts are with the insolvent company • Officer of the court • Dealing with company in administration – “buyer beware”, supplier take care.

14. Pre-packs • What is a pre-pack? • Why is it controversial? • Why do a pre-pack?

15. Receivership • Adminstrative receivership – no appointments under charges after 15 September 2003 • Fixed charge receivership/LPA Receivership

16. The receiver • Private appointment: duty to appointor, not to all creditors • Silven Properties Ltd v RBS [2003] EWCA Civ 1409 • Contractual agency

17. CVA’s • An agreement between company and creditors backed with the force of statute • Creditors bound, even though they knew nothing about it • 75% by value, 50% in number to approve. • Tenant portfolio management – Stylo and JJB

18. Liquidation • Solvent liquidation: members’ voluntary liquidation • Insolvent liquidation • Creditors’ voluntary liquidation • Compulsory liquidation • (In passing, solvent insolvent liqudations!!)

19. Compulsory liquidation • Process • Statutory demand? • Winding up petition • Voidable dispositions of property • Effect • Shutdown • Termination of employment contracts

20. Creditors’ voluntary liquidation • Process • Company resolution • Creditors’ meeting to ratify choice of liquidator • Effect • Usually shut-down – personal liability for contracts deters liquidation trading

21. Sources of information • Official notices: • Companies House • London Gazette • Winding up registry • Unofficial sources: • The press • Internet forums

22. Internal information • Payment profiles • Client relationship