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UPDATES AND SUMMARIES OF KEY AREAS OF INSOLVENCY LAW AND PRACTICE

ALL NEW ADDITIONAL WEBCASTS

ABILITY TO TRADE?

LAW

PRACTICAL

RISK

TRADING ADMINISTRATIONS

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ABILITY TO TRADE –

THE FACTORS

WHAT OTHER KEY CONSIDERATIONS SHOULD WE HAVE BEFORE TRADING IN ADMINISTRATION??

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AS PREVIOUSLY CONSIDERED THE BUSINESS MAY BE LOSS MAKING AND

SHOULD THE DECISION STILL BE TAKEN TO TRADE THEN FUNDING WILL BE

REQUIRED

PRACTICAL: IS THE BUSINESS LOSS MAKING? DETAILED CASHFLOW FORECASTS WILL BE

REQUIRED FOR THE PERIOD OF TRADING TAKING ACCOUNT ALL COSTS OF THE

BUSINESS

NATURALLY YOU WILL NEED TO ASSISTANCE OF THE DIRECTORS, BOOKKEEPER,

ACCOUNTANT TO PUT THESE TOGETHER

FUNDING / FINANCES

RISK: DIRECTORS ARE LIKELY TO HAVE AN INTEREST IN

YOU TRADING THE BUSINESS AND ALSO MAY BE OVERLY

OPTMISTIC IN RESPECT OF THEIR BUSINESS.

BE CAREFUL TO ASSESS ANY BUSINESS THAT MAY BE

SEASONAL WILL SALES WILL FALL AT CERTAIN TIMES OF

THE YEAR

FUNDING / FINANCES

FUNDING / FINANCES

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IF THE BUSINESS MAKES A LOSS OVER THE TRADING PERIOD OR WILL AT

SOME STAGE OF TRADING IT IS LIKELY THAT THE ADMINISTRATOR WILL NEED

FINANCIAL SUPPORT [UNLESS THEY ARE WILLING TO FUND THEMSELVES]

PRACTICAL: THE ADMINISTRATOR SHOULD SEEK FUNDING TO COVER LOSSES MADE

THE ADMINISTRATOR COULD SEEK FUNDING FROM THE FOLLOWING SOURCES:

• IS THERE ANY CASH AT BANK? CONSIDER FUNDS FROM TRADE IN THE LEAD UP TO

ADMINISTRATION

• WILL THE BANK (CHARGEHOLDER) SUPPORT TRADE?

• WILL THE CHARGEHOLDER PROVIDE AN INDEMNITY FOR LOSSES?

• COULD YOU USE A CURRENT ACCOUNT WITH A TRADING OVERDRAFT FROM CURRENT

BANKERS?

• SEEK SIMILAR FROM OTHER BANKS

• SEEK FUNDING FROM OTHER FINANCIAL INSTITUTIONS

• WOULD THE DIRECTORS / MEMBERS / INVESTORS SUPPORT TRADING?

• WOULD A POTENTIAL PURCHASER FUND TRADE IF IT PRESERVED GOODWILL FOR A

SALE?

FUNDING / FINANCES

RISK: ENSURE FUNDING IS AT A REASONABLE RATE AND IS SUFFICIENT TO

SUPPORT TRADE. THE REAL RISK IS THAT YOU ARE INCURRING MORE DEBT AND

COST IN ORDER TO TRADE AND INCREASES THE SCRUTINY ON THE DECISION

FUNDING / FINANCES

RISK: NOTE WHETHER A LARGE PART OF THE BUSINESS’S SALES ARE

PAID BY CARD OR ONLINE.

THIS WILL BE SET UP TO BE PAID INTO THE COMPANY BANK ACCOUNT

WHICH IS LIKELY TO BE OVERDRAWN.

THIS COULD RESULT IN THE MONEY BEING LOST.

THE FUNDS WILL NEED TO BE REDIRECTED TO THE ADMINISTRATION

ACCOUNT

PRACTICAL: SPEAK WITH PDQ PROVIDER AND ASK FOR THE

FUNDS TO BE RE-DIRECTED. MAY BE DIFFICULT PRE-

APPOINTMENT AND MAY BE CHARGES FOR THIS.

THE LEGALITY OF THE BUSINESS IS A VITAL CONSIDERATION. AN

ADMINISTRATOR IS AN OFFICER OF THE COURT AND MUST COMPLY WITH

THE ETHICAL CODE E.G. PROFESSIONAL BEHAVIOUR, INTEGRITY.

THE ADMINISTRATOR WILL NEED TO BE AWARE OF THE INCREASED RISK

IN RESPECT OF THE MONEY LAUNDERING REGULATIONS.

TRADING MAY INCREASE THE AMOUNT OF CASH COMING INTO THEIR

HANDS AND MAY INCREASE THE RISK OF ENCOUNTERING CRIMINAL

ACTIVITY WHICH WILL REQUIRE A REPORT TO THE MLRO

IT IS ALSO IMPORTANT TO CONSIDER OTHER LEGAL RISKS SPECIFIC TO

THAT TYPE OF BUSINESS. HEALTH AND SAFETY AT WORK, FIRE

REGULATIONS, LICENCES, EMPLOYMENT LAW, ENVIRONMENTAL LAWS.

IT IS POSSIBLE THAT THE TRADING WILL BRING LEGAL RISKS SUCH AS A

NIGHTCLUB WITH UNDER-AGE ENTRY AND DRINKING ETC

ADMINISTRATOR WILL NEED TO ENSURE THAT ADEQUATE INSURANCE IS

IN PLACE OR IS ABLE TO BE OBTAINED

LEGAL / LICENCES

LEGAL

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PRACTICAL: ASSESS WITH THE MANAGEMENT TEAM THE RISKS OF THE SPECIFIC TYPE

OF BUSINESS.

DISCUSS THE AMOUNT OF CASH THAT PASSES THROUGH THE BUSINESS AND ENSURE

REPORTS ARE DONE TO MLRO

CHECK CURRENT INSURANCE IS SUFFICIENT – IF NOT OBTAIN OPEN COVER INSURANCE

LEGAL / LICENCES

RISK: NATURALLY TRADING A BUSINESS BRINGS ABOUT INCREASED RISK.

WHILE IT IS LIKELY TO BE CLEAR FROM THE OUTSET WHAT THE BUSINESS

DOES IT IS IMPORTANT TO CONTINUALLY ASSESS THE RISKS

THROUGHOUT THE CASE

LEGAL

TRADING A BUSINESS IN ADMINISTRATION IS NO DIFFERENT TO RUNNING ANY BUSINESS.

ONCE IT ENTERS ADMINISTRATION THE ADMINISTRATOR WILL BE REQUIRED TO MAINTAIN OR TAKE

OUT IN HIS/HER OWN NAME ANY LICENCES THE BUSINESS REQUIRES TO TRADE

LICENCES MAY BE REQUIRED TO OPERATE MACHINERY

PRACTICAL: ASSESS WITH THE MANAGEMENT TEAM WHAT LICENCES

THE COMPANY HAS. ASSESS WHETHER ANY OF THESE WILL BREAK ON

INSOLVENCY, SEEKING LEGAL ADVICE AS NECESSARY.

SEEK INDEPENDENT ADVISE FROM AGENTS, LAWYERS OR ANY OTHER

EXPERT IN THAT AREA REGARDING THE LICENCES REQUIRED AND

OBTAIN THEM

REVIEW THE LICENCES FOR BREAK CLAUSES AND ASSESS WHETHER

THEY NEED TO NE TAKEN IN THE ADMINISTRATOR’S NAME

CHECK FOR ANY LICENCES HELD BY EMPLOYEES THAT MAY CEASE TO

BE EMPLOYED

LEGAL / LICENCES

RISK: OPERATING WITH THE REQUIRED LICENCES IS A LEGAL REQUIREMENT

LICENCES

THE CASHFLOW STATEMENTS PROVIDED WILL DEPEND ON CUSTOMERS CONTINUING TO BUY AND USE THE

COMPANY’S SERVICES WHILE IT IS IN ADMINISTRATION.

CONTINUING TO TRADE THE COMPANY SHOULD ALLOW A SEAMLESS TRANSITION IN TERMS OF TRADING

AND CUSTOMERS ARE UNLIKELY TO NOTICE THE DIFFERENCE

HOWEVER, IF THE ADMINISTRATION RECEIVES A LOT OF PUBLICITY CUSTOMERS MAY BE WARY OF USING A

COMPANY IN FINANCIAL DISTRESS… PARTICULARLY IF THE SALES INCLUDE WARRANTIES, AFTER SALES

SERVICE ETC

PRACTICAL: ANALYSE THE AFFECT OF ADMINISTRATION WITH THE DIRECTORS. HOW LOYAL IS

THE CUSTOMER BASE?

CUSTOMERS / CONTRACTS

RISK: ADMINISTRATION AFFECTS THE BUSINESS’S REPUTATION AND

SALES DECREASE RESULTING IN LARGER LOSSES FROM TRADING

CUSTOMERS

ASSESS THE LEVEL OF PUBLICITY YOU ALLOW IN LIGHT OF HOW

CUSTOMERS WILL VIEW THIS.

ANALYSE THE TERMS OF BUSINESS TO ASSESS WHAT IS INCLUDED IN

SALES E.G. WARRANTIES

IT IS IMPORTANT TO ASSESS THE CURRENT ORDERBOOK TO ASSESS

CONFIRMED WORK IN PROGRESS (SHOULD HAVE BEEN CALCULATED IN

CASHFLOWS

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BEFORE COMMENCING TRADING THE ADMINISTRATOR WILL HAVE TO ASSESS WHETHER THERE IS ANY

MONEY DUE FROM CUSTOMERS THAT WILL BE INCLUDED WITHIN THE CASHFLOWS.

IT IS POSSIBLE SOME OF THESE CUSTOMERS / BOOK DEBTORS ARE ALSO CREDITORS AND WILL HAVE

RIGHT OF SET OFF

THE ADMINISTRATOR MAY ALSO ENCOUNTER OTHER MATTERS THAT WILL AFFECT CASHFLOW… SUCH AS

WORK THAT NEEDS TO BE CARRIED OUT WHERE YOU WILL RECEIVE LESS OR NO PAYMENT, FOR EXAMPLE:

• DEPOSITS – IF CUSTOMERS HAVE MADE PRE-PAYMENTS HAVE THEY BEEN HELD IN A SEPERATE BANK

ACCOUNT BY THE COMPANY?

IF THE DEPOSITS HAVE BEEN LOST THE ADMINISTRATOR WILL NEED TO DECIDE

WHETHER THESE WILL BE HONOURED

• WARRANTIES – HAS THE COMPANY ALREADY GIVEN WARRANTIES TO

CUSTOMERS? IF SO THE ADMINISTRATOR WILL HAVE TO DECIDE WHETHER TO

HONOUR THESE WARRANTIES

• AFTER SALES SERVICE – HAS THE COMPANY ALREADY CONTRACTED TO OFFER

AFTER SALES CARE? IF SO THE ADMINISTRATOR WILL HAVE TO DECIDE WHETHER

TO HONOUR THESE WARRANTIES

CUSTOMERS / CONTRACTS

CUSTOMERS

PRACTICAL: THE ADMINISTRATOR WILL NEED TO FULLY ANALYSE THE SALES ON THE

CASHFLOW AND DISCUSS WITH THE MANAGEMENT TEAM IF ANY DEPOSITS HAVE BEEN

TAKEN AND IF ANY WARRANTIES OR AFTER SALES SERVICE HAVE BEEN OFFERED.

CUSTOMERS / CONTRACTS

RISK: IT IS POSSIBLE THAT IF SOME OF THE ORDERBOOK ARE

CREDITORS THEN YOUR INITIAL OPENING CASH BALANCE WILL BE

AFFECTED OR SALES DURING TRADING WILL BE LESS THAN

PROJECTED.

THERE IS ALSO THE RISK OF THE ADMINISTRATOR / THE COMPANY

HAVING TO CARRY OUT WORK THAT HAS ALREADY BEEN PAID FOR OR

CONTRACTED FOR, IN ORDER TO SAVE THE REPUTATION OF THE

BUSINESS

CUSTOMERS

THE COMPANY MAY HAVE HAD VARIOUS CONTRACTS WITH CUSTOMERS THAT WILL NEED TO BE ASSESSED.

ARE THE CONTRACTS PROFITABLE?

THE CONTRACTS SHOULD BE OBTAINED AND REVIEWED – DO THEY HAVE CLAUSES THAT BREAK ON

INSOLVENCY? ARE THERE ANY PENALTY CLAUSES IN THE CONTRACT?

AS PART OF THE CONTRACT WILL THE CUSTOMER TAKE DELIVERY?

BE AWARE OF ANY GOODS THAT ARE OUT OF DELIVERY – ON PARTICULAR BE AWARE OF USING HAULIERS

THAT ARE OWED MONEY. THEY MAKE TAKE A LIEN.

PRACTICAL: ALL CONTRACTS SHOULD BE OBTAINED AND CAREFULLY

REVIEWED… BY A LAWYER AS NECESSARY.

ASSESS THE AFFECT OF ADMINISTRATION ON SAID CONTRACTS AND

CAREFULLY ASSESS WHICH CONTRACTS ARE REQUIRED AND WHICH

ONES SHOULD BE CANCELLED.

CUSTOMERS / CONTRACTS

RISK: IMPORTANT CUSTOMER CONTRACTS MAY BE GET CANCELLED DUE TO

A CLAUSE WITHIN THEM

THERE IS A RISK OF ENTERING INTO SOME LIABILITY IF CONTRACTS AREN’T

CANCELLED

CONTRACTS

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EMPLOYEES ARE A VITAL PART OF ANY BUSINESS AND WILL BE VITAL TO CONTINUED TRADE.

THE MAIN CONSIDERATIONS WILL BE:

• CO-OP – WILL YOU HAVE THE CO-OPERATION OF EMPLOYEES DURING TRADING – IN PARTICULAR ANY

KEY EMPLOYEES – ARE THE DIRECTORS VITAL TO TRADING? OR A HINDRANCE?

• ARREARS – WHAT IS THE LEVEL OF ARREARS? WILL THAT AFFECT CO-OPERATION

• TUPE – WHAT IS THE TUPE LIABILITY? CAN TUPE BE USED AS LEVERAGE TO KEEP STAFF EMPLOYED.

REMEMBER TUPE MEANS EMPLOYEES WILL TRANSFER BUT YOU ALSO MUST BE CAREFUL REGARDING ANY

REDUNDANCIES

PRACTICAL: MEET THE WORKFORCE AND SEEK CO-OPERATION. GET

COPIES OF EMPLOYEE CONTRACTS AND REVIEW FOR TUPE LIABILITY.

ASSESS WHETHER ALL STAFF ARE NEEDED AND MAKE DECISIONS

WITH DIRECTORS ABOUT REDUNDANCIES

EMPLOYEES

RISK: HUGE RISKS AROUND EMPLOYEES CONTRACTS, REDUNDANCIES,

PAYMENT OF WAGES, HEALTH AND SAFETY, TUPE (AS FOLLOWS)

EMPLOYEES

14

DAYSEND OF

TRADING

APPOINTMENT

NO REQUIREMENT TO PAY

LEGALLY ADOPT

EMPLOYEE

CONTRACTS…

…FOR QUALIFYING

LIABILITIES…

…WAGES, HOLIDAY,

SICK PAY, PENSION

CONTRIBUTIONS

PRE-

APPOINTMENT

MATTERS PAID

BY RPO

• AOP

• HP

• RP

• PILON

1ST

MEETING

WITH

EMPLOYEES

SALE OF BIZ

(TUPER) –

ALL EMPLOYEES

EMPLOYED MUST

TRANSFER…

ADMINISTRATOR

MUST CONSULT

REGARDING

TRANSFER

IF ANY EMPLOYEES

ARE MADE

REDUNDANT IT

MUST BE FOR:

• TECHNICAL

• ORGANISATIONAL

• ECONOMICAL

REASONS

IF ANY EMPLOYEES

ARE MADE

REDUNDANT

ADMINISTRATOR HAS

A DUTY TO CONSULT

WITH THEM

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KEY PROVISION

Employers have a duty to notify the

Secretary of State in writing of

proposed redundancies before any

dismissals take effect

DETAIL

Notification should be sent as soon as possible and is a separate requirement to consultation. Consequently, the date for giving notification may be different to the date the consultation commenced and so the time periods before redundancies take effect may not entirely overlap.

If proposing to dismiss 100 or more employees the notification must be sent at least 45 days before the first of those dismissals can take effect. If proposing to dismiss 20-99 employees the notification must be sent at least 30 days before.

It must state, where relevant, the date that consultation was started. Employee representatives should be given a copy.

Failure to provide the notification to the Secretary of State in accordance with the requirements is a criminal offence, punishable on summary conviction by a fine.

KEY PROVISION

The consultation should begin in

good time and with a view to

reaching agreement.

DETAIL

The consultation must begin once the redundancies have been proposed and before any decision to make redundancies has been made.

No dismissals can take effect until the consultation is complete and the minimum period has elapsed.

Consultation may also take longer to complete than the minimum period before dismissal can take effect.

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KEY PROVISION

Employers must consult with

appropriate employee

representatives

DETAIL

Where there is an employer recognised trade union consultation must occur with trade union representatives.

Otherwise, if no union is recognised, with the elected or appointed employee representatives who have authority from those employees to receive information and to be consulted about the proposed dismissals on their behalf.

KEY PROVISION

There are certain topics

consultation must cover

DETAIL

This includes:

• avoiding the dismissals

• reducing the numbers of employees to be dismissed

• mitigating the consequences of the dismissals

Consultation should be undertaken with a view to reaching agreement on these issues.

KEY PROVISION

There is certain information employers

must provide to employee

representatives in writing

DETAIL

Including:

• the reasons for the proposals;

• the numbers and descriptions of employees whom it is proposed to dismiss as redundant;

• the total number of employees of any such description employed by the employer at the establishment;

• the proposed method of selecting the employees who may be dismissed;

• the proposed method of carrying out the dismissals,

• including the period over which the dismissals are to take effect; and the proposed method of calculating the amount of any redundancy payments to be made

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KEY PROVISION

Mitigating circumstances

DETAIL

If in any case there are special circumstances rendering it not reasonably practicable for the employer to comply with any of the above requirements they shall take all such steps towards compliance with that requirement as are reasonably practicable in the circumstances.

Insolvency in itself has been determined by case law not to be such a special circumstance, but it may be, in an individual case, that there are other circumstances that make it not reasonably practical to comply during an insolvency.

KEY PROVISION

Protective Awards

DETAIL

When an employer fails to adequately consult they are liable to pay a Protective Award up to a value of 90 days pay per employee, dependent upon the seriousness of the employer’s default in complying with the legislation.

In the case of an insolvent company, sums under a Protective Award may be recoverable as arrears of pay from the National Insurance Fund, subject to statutory caps.

WHAT DO THESE CASES HAVE IN COMMON?

• Woolworths• Ethel Austin• Comet• USC• AEI Cables

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WOOLWORTHS AND ETHEL AUSTIN

•Further consideration of S188 Trade Union and Labour Relations (Consolidation) Act 1992

•Inform and consult affected employees under s188 “Where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less”

•Consideration of “at one establishment”

•Administration and liquidation of Ethel Austin and Woolworths

•Protective awards made only to employees at stores with 20 or more employees

•USDAW appealed

WHAT DO YOU THINK HAPPENED ON APPEAL?

WOOLWORTHS AND ETHEL AUSTIN

•EAT held “at one establishment” should be disregarded

•Employees at smaller stores also entitled to collective consultation and protective award

THE WOOLWORTHS CASE

‘an establishment’ means the smaller part of a larger business and not the whole business’

Importantly it was said that it is the local employment unit where the redundant employees are assigned to work.

In the Woolworths’ case this means each store.

The consultation obligations would therefore not be triggered at stores with fewer than 20 employees even if 20 or more employees are being proposed as redundant across several stores.

WHAT DOES THIS MEAN FOR YOU?

This relieves the financial burden for businesses needing to downsize or restructure and erases the additional cost of employing staff during longer consultation periods.

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European Court of Justice

• Has now confirmed that you need only consult with employees if you are proposing to make redundancies at a particular “establishment”

• Establishment means “a distinct entity”

• Clarity that each establishment means… each office, factory, shop etc.

• If you have more than 20 employees but not more than 20 at anyone one establishment you need not consult with them

EMPLOYMENT LAW VS INSOLVENCY LAW

DISCUSSION POINT

What are the issues?

Why is consultation difficult in views of the laws?

• The two laws do not interact• Employment law is clear and must be followed• Not flexible, to allow insolvency law to be complied with• Not practical in respect of urgency in insolvency situations• In fact, almost impossible

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WHY IT IS DIFFICULT TO CONSULT

• What if business is completely shot to pieces?• Little funds, no prospect of funding, trading impossible• No funds or time to pay employees while a full consultation is carried out• In a pre-pack scenario the sale is shortly after appointment so little time• an IP's duty is to creditors, rather than any one group of employees • If you need employees (particularly talented ones) to trade for a period, the minute they

find out about redundancies they may leave.• Conflict between legal duty to maximise realisations and their legal duty to consult with

employees

THE INSOLVENCY SERVICE VIEW

The duty to maximise returns to creditors "does not negate" the duty to abide by employment law requiring them to consult with employees before making collective redundancies.

"In practice, there are circumstances in an insolvency which may require difficult decisions to be made quickly, but it is still important that as much meaningful consultation with employees as is possible is done so that all potential options are explored," an Insolvency Service spokesperson says.

IPs are being encouraged to consult as much as possible when making redundancies. It also appears that the standard required to be reached is high.

CASE STUDY… & QUIZ

COMET – ADMINISTRATION

An employment tribunal found the employees at Comet, had not been consulted on the potential for redundancies as legally required, with the court awarding a protective 70-to-90 day pay-out.

How much was the total pay-out, which effectively was borne by the taxpayer?

£26m

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The Administrators faced possible criminal sanctions!!!!!!!!!!!

CASE STUDY… & QUIZ

WOOLWORTHS – ADMINISTRATION

How much was paid out in protective awards, according to the Insolvency Service

£18.2m

TOTAL £50m

20 CASES

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WHAT CAN YOU DO TO PROTECT YOURSELF?

• File the required form (HR1) with BIS. This will notify them of redundancy proposals as and when appropriate. Always consider the circumstances but you may wish to give this notice earlier than you previously would have.

• Seek professional advice. Instruct Lawyers to assist with the consultation process

• Can you actually carry out meaningful consultation? In view of your duty to preserve assets? If you are not closing immediately, build in the time to do as much consultation as you can.

• Ascertain if there are trade union representatives and elected employee representatives and if so provide the statutory information to them.

• If non of the above consider electing an employee representative

• Consult fully, considering all relevant matters. If you know the company is closing it would seem nonsensical to consult on ways to avoid redundancies, reducing redundancies or mitigating the consequences of dismissals.

• Continue to provide regular and informative updates regarding redundancies. Timings and quantity.

• If a selection process is carried out to make redundancies, make sure that process is disclosed.

• Ensure consultation is genuine and 'meaningful' rather than simply going through the motions

• You may not be able to consult for the full amount of time but be able to show that you carried out good quality consultation with the resources available and as early as possible.

• Consider practical options… could staff be re-trained?

HAVING SUFFICIENT STOCK ON HAND WILL BE VITAL TO TRADING THE BUSINESS

IS THERE ANY STOCK ON HAND?

IF SO IS ANY OF IT SUBJECT TO RETENTION OF TITLE?

IF THERE IS NOT SUFFICIENT STOCK CAN WE GET SUPPLY? ARE ANY OF THE SUPPLIERS OWED MONEY? IF

SO WE MAY NEED TO MAKE RANSOM PAYMENTS

IF THERE ARE ISSUES WITH CURRENT SUPPLIES COULD THE ADMINISTRATOR

AGREE ALTERNATIVE SUPPLY CONTRACTS?

PRACTICAL: ARRANGE TO MEET YOUR AGENT ON SITE AS EARLY AS

YOU CAN TO ASSESS STOCK LEVELS AND ASSESS ROT ISSUES.

GET DIRECTORS ASSISTANCE ABOUT WHICH STOCK MAY BE THIRD

PARTY

REVIEW AND CONSIDER EXISTING SUPPLY CONTRACTS – COULD YOU

AGREE NEW TERMS?

STOCK / SUPPLIERS

RISK: SUPPLIERS REFUSING SUPPLY, OR INSISTING ON RANSOM PAYMENTS, CASH

ON DELIVERY, SHORTER PAYMENTS TERMS OR OTHER UNFAVOURABLE TERMS

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THE MORATORIUMADMINISTRATOR

CANNOT USE OR SELL GOODS

CREDITOR

CANNOT TAKE ANY ACTION OVER GOODS

CONSENT

CREDITOR OR COURT ADMINISTRATOR OR COURT

Re Atlantic Computers

PROPRIETORY

CREDITOR

ALL CREDITORS

ALLOW REPOSSESSION

UNLESS THERE IS A

MATERIALLY GREATER

LOSS TO THE GENERAL

BODY OF CREDITORS

PRACTICAL CONSIDERATIONS

INITIAL STEPS

• IDENTIFY STOCK• SEGREGATE STOCK• PROTECT STOCK• RECONCILE STOCK TO INVENTORY

RESOLUTION

• DOCUMENTATION… OBTAIN & REVIEW• ARREARS? ASCERTAIN LEVEL• LEGAL ADVICE• NEEDED? SOURCE ELSEWHERE?• NEGOTIATE… CAN WE USE STOCK…PAY FOR IT• ARREARS, DO NOT PAY

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HOW WE REMEMBER AT NTI

INITIAL STEPS

• IDENTIFY STOCK (SEE BLUE MONKEY GAMING)• SEGREGATE STOCK• PROTECT STOCK• RECONCILE STOCK TO INVENTORY

R I P S

RESOLUTION

• DOCUMENTATION… OBTAIN & REVIEW• ARREARS? ASCERTAIN LEVEL• LEGAL ADVICE• NEEDED? • SOURCE ELSEWHERE?• NEGOTIATE… CAN WE USE STOCK…PAY FOR IT• ARREARS, DO NOT PAY, UNLESS VITAL TO PURPOSE

NEIL ARMSTRONG

L A N D S

D

A

N

G

E

R

BEST PRACTICE

EAL WITH PROMPTLY

OT USE THE MORATORIUM AS A BARGAINING TOOL

IVE REASONS

NSURE REPLY IN WRITING

E ATLANTIC COMPUTERS

CT RESPONSIBLY

[DEAR IP]

IN ORDER TO TRADE THE BUSINESS THE PREMISES WILL BE NEEDED. CONTINUED TRADE WILL NEED TO BE

AGREED BY THE LANDLORD…

NOTE THE LANDLORD CANNOT FORFEIT THE LEASE, TAKE LEGAL ACTION, TAKE ASSETS BY CRAR,

REPOSSESS ETC… BECAUSE OF THE MORATORIUM

IN ORDER TO TRADE AN AGREEMENT WILL NEED TO BE MADE WITH THE LANDLORD AND AGREEMENTS

MADE RE THE PAYMENT OF RENT (SEE LATER)

THE LANDLORD MAY BE MORE SUPPORTIVE WHEN YOU DISCUSS THE SALE OF THE BUSINESS AND

BRINGING THEM A NEW TENANT

PRACTICAL: MEET THE LANDLORD AND DISCUSS THE STRATEGY.

EXPLAIN THAT RENT IS PAYABLE AS AN EXPENSE AND THAT YOU MAY

BE ABLE TO SECURE THEM A NEW TENANT.

BEFORE THE MEETING CONFIRM THE LEVEL OF ARREARS AS THIS IS

LIKELY TO INFLUENCE THE LANDLORD’S DECISIONS

LANDLORD / LEASES

RISK: LANDLORD BECOMES DIFFICULT TO DEAL WITH AND APPLICATIONS

TO COURT NEEDED TO USE THE PREMISES OR ASSIGN THE LEASE (SEE

EARLIER)

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JERVIS V PILLAR DENTON RE GAMESTATION, 2014

THE ABOVE CASE KNOWN AS THE GAMESTATION CASE IS WIDELY DEEMED AS THE COMMON SENSE

APPROACH FOLLOWING THE RULINGS IN GOLDACRE AND LUMINAR LEISURE. THE CASE SOUGHT TO BRING

ABOUT A FAIR APPROACH TO THE TREATMENT OF RENT AS AN EXPENSE IN AN ADMINISTRATION TO BOTH

LANDLORDS AND ADMINISTRATORS ALIKE.

GAMESTATION: THE FACTS

IT WAS HELD THAT:

• WHERE RENT FALLS DUE PRIOR TO THE COMMENCEMENT OF THE ADMINISTRATION, THOSE

EXISTING ARREARS ARE NOT PAYABLE AS AN EXPENSE OF THE ADMINISTRATION;

• THE RELEVANT OFFICE HOLDER MUST MAKE PAYMENTS AT THE RATE OF RENT DUE UNDER THE

LEASE FOR ANY PERIOD DURING WHICH HE/SHE RETAINS POSSESSION OF THE PREMISES FOR THE

BENEFIT OF THE WINDING UP OR ADMINISTRATION;

• THAT RENT WILL BE TREATED AS ACCRUING FROM DAY TO DAY, AND THOSE PAYMENTS ARE

PAYABLE AS AN EXPENSE. THE DURATION IS A QUESTION OF FACT AND IS NOT DETERMINED

MERELY BY REFERENCE TO WHICH RENT DAYS OCCUR BEFORE, DURING OR AFTER THAT PERIOD.

LANDLORD / LEASES

S

L

I

M

E

ecurity

and registry

nsurance

ortgages

nvironment / H & S

WHAT IF THE PROPERTY IS FREEHOLD?

IS THE PROPERTY SECURE? WHO HAS KEYS? CHECK LOCKS, ALARMS, CHECK SPRINKLERS ETC

ARE THERE ANY RESTRICTIONS ON SALE? ARE THERE ANY OTHER CHARGES?

IS THE PROPERTY INSURED AND IS IT ADEQUATE?

ASSESS CHARGES ON PROPERTY AND SEEK REDEMPTION STATEMENTS – CONSENT NEEDED TO SELL

ARE THERE ANY CONCERNS OR RISKS IN RESPECT OF THE PROPERTY?

AN ADMINISTRATOR HAS A DUTY TO COMPLY WITH ALL LAWS TO INCLUDE HEALTH AND SAFETY AND

ENVIRONMENTAL LAWS.

WHEN TRADING A BUSINESS THE EMPLOYER WILL HAVE A RESPONSIBILTY TO ENSURE THE PREMISES IS A

SAFE PLACE TO WORK FOR ALL EMPLOYEES.

THE ENVIROMENTAL RISKS THAT THE COMPANY MAY HAVE SHOULD ALSO BE CONSIDERED.

IS THERE SOME SORT OF MANUFACTURING PROCESS THAT COULD CAUSE ENVIRONMENTAL CONCERNS?

PRACTICAL: THE ADMINISTRATOR WILL NEED TO CONSIDER RISKS

AND IT IS SENSIBLE TO GET REVIEWS CARRIED OUT.

• INSURER’S REPORT

• HEALTH AND SAFETY REPORT

• ENVIRONMENTAL REPORT

ENVIRONMENT / HEALTH AND SAFETY

RISK: NON-COMPLIANCE WITH LAW – CAN’T CONTRACT OUT OF

NEGLIGANCE

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AN ADMINISTRATOR WILL NEED ONGOING SUPPLY OF UTILITIES. THE BUSINESS CANNOT TRADE WITHOUT

HEAT, LIGHT, ELECTRICITY AND WATER.

THE LAW IS ON THE ADMINISTRATOR’S SIDE AND STATES THAT UTILITY COMPANIES MUST SUPPLY IF THE

ADMINISTRATOR IS WILLING TO SIGN AN UNDERTAKING TO GUARANTEE PAYMENT.

THIS IS KNOWN AS A SECTION 233 UNDERTAKING

PRACTICAL: GET ALL DETAILS OF UTILITY SUPPLIES – TAKE METER

READINGS AND ENSURE THAT SUPPLY WILL CONTINUE.

DO NOT PAY PRE-APPOINTMENT ARREARS.

UTILITIES

RISK: UTILITY COMPANIES HAVE STARTED TO GET CLEVER

AND AGREE BUT PUT THE ADMINISTRATOR ON A NEW,

MORE EXPENSIVE TARIFF.

Continuity of supply of essential services to Insolvent Businesses…

…WHAT IS CHANGING?

The Government has announced plans in 2014 to extend the scope of s233 and s372 IA 1986 to include the supply of IT goods or services to distressed businesses being restructured or rescued out of formal Insolvency.

This will prevent suppliers of IT, water, gas, electricity and communications services cutting off supply or increasing their charges on account of Insolvency where IPs are working to find a viable solution to rescue the business.

Safeguards will be introduced for suppliers affected by these changes to ensure they are paid for services provided during the Insolvency such as:

• Seeking a personal guarantee from the IP in respect of the cost of services provided during the Insolvency period

• Termination of supply if charges in respect of the insolvency supply remain unpaid for 28 days

• The right to apply to court to terminate the contract on grounds of hardship

The changes will be subject to Parliamentary scrutiny and came into force in October 2015.

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MORE HELP FOR THE OFFICEHOLDER

RE SAHAVIRIYA STEEL INDUSTRIES UK LTD, OFFICIAL RECEIVER V SAHAVIRIYA STEEL INDUSTRIES PUBLIC COMPANY LTD

SECTION 233 OF THE INSOLVENCY ACT 1986 HAS EXTRA-TERRITORIAL EFFECT

DEPENDING ON THE TYPE OF BUSINESS THERE MAY A BE EQUIPMENT / MACHINERY THAT WILL BE

REQUIRED FOR THE ONGOING TRADE OF THE BUSINESS.

EQUIPMENT MAY BE SUBJECT TO HIRE PURCHASE. THIS PUTS YOU IN A SIMILAR SITUATION TO THAT OF AN

ROT CREDITOR OR A LANDLORD (WHICH WE COVERED EARLIER)

CAN WE GET PERMISSION TO USE? THEY CANNOT REPOSSESS. CAN AN AGREEMENT BE MADE TO PAY THE

ONGOING RENT WITH THE INCENTIVE OF A POSSIBLE NEW TENANT.

MACHINERY MAY NEED HEALTH AND SAFETY CHECKS AND MAY ALSO NEEDLICENCES TO OPERATE.

THE OWNER WILL NEED TO AGREE TO NOVATE AGREEMENTS TO THE PURCHASER

PRACTICAL: ASSESS ANY THIRD PARTY GOODS. GET COPIES OF ALL

CONTRACTS AND REVIEW. HOW MUCH IS THE COST TO PAY ONGOING RENT?

DISCUSS AND NEGOTIATE WITH OWNER FOR ONGOING USE

HAVE H&S CHECKS DONE ON MACHINES AS NECESSARY

EQUIPMENT

RISK: APPLICATIONS TO COURT MAY BENEEDED TO USE EQUIPMENT

AND / OR TO ASSIGN THE CONTRACTS AS PART OF THE SALE

www.ntinsolvency.com or richard@ntinsolvency.com