Buying and Selling Insolvent Companies and Businesses:.

Buying and Selling Insolvent Companies and Businesses aims to be a comprehensive guide to its readers, being useful to insolvency practitioners and other professionals involved in insolvency, including lawyers, accountants, company directors and company secretaries. It is also of use to potential investors and their advisers as well as being of interest to students who may wish to specialise in insolvency. The new third edition has been updated to include: - Corporate Insolvency and Governance Act 2020 which brought in a new moratorium procedure and restructuring plan as permanent measures in response to COVID-19 - the impact of Brexit on insolvency laws - the impact of the significant rise in the use of company voluntary arrangements - the new Pensions bill, which will have an impact on advisors to insolvent companies Foreword to second edition Preface Foreword to first edition About the authors Table of Statutes Table of Statutory Instruments Table of EC and International Material Table of Cases Downloadable precedent/Licence agreement 1 What is Corporate Insolvency? Introduction Insolvency law Insolvency Act 1986 Insolvency (England and Wales) Rules 2016 The Recast Insolvency Regulation and Brexit Other primary legislation Other secondary legislation Judge-made law Statements of Insolvency Practice The insolvent entity Partnership Limited Liability Partnership Unregistered companies Formal insolvency processes Administration Company voluntary arrangement Part A1 Moratorium Scheme of arrangement Restructuring Plan Receivership Liquidation Informal arrangements Introduction The process Common features of a workout Causes of company failure Statistics Common features Loss of market Failure to deal with tax affairs Failure of management General trends Warning signs 2 Pre-pack Administrations Introduction Benefits of pre-packs Criticism of pre-packs Case law Re T&D Industries plc Re Transbus International Ltd DKLL Solicitors v Her Majesty’s Revenue and Customs Re Kayley Vending Ltd Re Hellas Telecommunications (Luxembourg) II SCA Clydesdale Financial Services Limited and others v Smailes and others The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 Statement of Insolvency Practice 16 Statement of Insolvency Practice 13 Other matters The appointment process Employees The Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) Landlords VAT National Security and Investment Act 2021 (‘NSAI 2021’) Challenging a pre-pack Insolvency Practitioner’s Complaints Gateway The Pensions Regulator and the Pension Protection Fund Future developments 3 Purchasing Vehicles and Insolvency Act 1986, s 216 Introduction Shares or assets? Method of sale The sale process Hive-down Introduction Hive-down agreement Hive out Insolvency Act 1986, ss 216 and 217 Introduction What is a prohibited name? Criminal liability Civil liability Permission of the court Excepted cases Conclusion 4 Due Diligence Introduction Essential due diligence Let the buyer beware What to investigate Title to the target’s shares Who owns the company’s shares? Registration of trusts and their beneficial owners Title to the target’s assets Capacity of the seller Consents/approvals required Unknown or understated liabilities Arrangements infringing competition law Connected party transactions Forms of due diligence Accountants’ report Legal due diligence report Physical inspection Seller’s disclosure letter and documents Summary Appendix Due Diligence Checklist 5 Raising Funds Valuation and price Payment terms Fixed cash terms Variable cash terms Deferred consideration Shares Loan notes Raising cash Bank funding Other funders Challenger banks Invoice financing Private equity/venture capital and debt funds Asset financing Stock financing Government-backed schemes Business angels Crowdfunding Peer-to-Peer (‘P2P) Lending Directors’ loans Equity finance 6 Secured Creditors Security interests Charge Mortgage Lien Pledge Other forms of ‘security’ – quasi-security Retention of title Set-off Invoice discounting or factoring Finance leasing and sale and leaseback Hire purchase and conditional sale Commercial Rent Arrears Recovery Introduction What can a landlord exercise CRAR for? Procedure What goods can CRAR be exercised over? What is the effect of an insolvency proceeding on CRAR? Recovery from a sub-tenant Measures introduced in response to the Covid-19 pandemic Creditors with the right to distrain Validity of security Terms of the security interest Perfection Priority Corporate benefit Financial assistance The rights of a secured creditor Introduction Enforcement of security Receivership Administration Financial Collateral Arrangements (No 2) Regulations 2003 Assignment of security interests The position of an invoice discounter/factor The position of a secured creditor Introduction Classes of assets Assets held on trust Order of priority of payment Administrators and secured creditors 7 Goodwill, Intellectual Property Rights and Data Protection Act Issues Goodwill Goodwill, VAT and transfer as a going concern Intellectual property rights Data protection law 2.12 Merger, acquisition, and business re-organisation 2.12 Merger, acquisition and re-organisation Data protection clause example Summary Appendix Insolvency Service Guidance on ‘Re-use of company names’ 8 Excluded Assets Introduction Book debts Books and records The company’s books and records The office-holder’s books and records Business name Cash Claims Customer contracts Intellectual property rights Premises Third-party assets Retention of title assets Shares ‘Catch all’ clause 9 Employees Introduction General provisions of TUPE Specific TUPE provisions where the seller is insolvent Introduction ‘Relevant insolvency proceedings’ Relevant insolvency proceedings – non-transfer of certain debts Relevant insolvency proceedings – permitted variations to contracts Relevant insolvency proceedings – dismissal of employees ‘Bankruptcy proceedings or any analogous insolvency proceedings’ Bankruptcy/analogous insolvency proceedings – no transfer of employees or automatic unfair dismissal Information and consultation Introduction The information to be given The obligation to consult ‘Special circumstances’ defence for failure to inform or consult Liability for claims Where the seller is insolvent Employee liability information Collective redundancies Overlap between TUPE and collective redundancy consultation TUP and payments from the NIF Liquidation Administration Debts covered under the statutory scheme Debts due as at the appropriate time Debts that transfer TUPE checklist 10 Pension Schemes Introduction Workplace pensions TUPE Pension issues on the transfer of the business Defined benefit schemes Defined contribution schemes Future arrangements Exceptions to the general rule Existing pension scheme Bulk transfer payments The Pensions Regulator Introduction Powers Financial Support Directions and Contribution Notices Clearance statements New criminal offences Other powers Pensions issues on insolvency Winding up the scheme Notice obligations Scheme transfer to the PPF Nortel and Lehman Brothers 11 How to Deal with Existing Customers and Work in Progress Advance protection Rights to vary contracts Other contract terms Other credit issues After a customer goes out of business Bona vacantia Purchase agreement and assignment of contracts Work in progress Practical steps to take if a customer is in difficulties Checklist of practical immediate steps The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 and Debt Pre-Action Protocol Acquiring the customer’s business and contracts – Insolvency Service Guidance ‘Your role as a creditor Buying a business – taking over a project Summary 12 How to Deal with Suppliers Assigning and novating supplier contracts Tactics Negotiation with suppliers 13 Leasehold Premises Introduction Administration Part A1 Moratorium Receivership Liquidation Disclaimer Company voluntary arrangement (‘CVA’) Informal restructuring Commercial Rent Arrears Recovery (‘CRAR’) Forfeiture Introduction Forfeiture on insolvency Method of forfeiture Relief from forfeiture in cases of insolvency Assignment Introduction Assignment by the company Assignment by an administrator Assignment by a liquidator Assignment by a receiver Assignment by a mortgagee The assignment Licence to occupy Surrender Introduction Form of surrender Other options available to the tenant Other remedies available to the landlord Commercial Rent (Coronavirus) Act) 2022 Appendix Precedents A. Business and asset sale agreement B. Assignment of intellectual property rights C. Novation of contract D. Sample retention of title clauses E. Debenture F. Guarantee and indemnity G. Guaranteed Liabilities H. Certificate confirming independent legal advice Index