Buying and Selling Insolvent Companies and Businesses

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