Insolvency

Pre-pack is a shortened form of the phrase ‘pre-packaged administration’. A pre-pack is a deal to sell the assets of a failed company, agreed prior to insolvency, which is completed almost immediately after the appointment of administrators (or occasionally receivers).

A post pack is a form of sale process normally undertaken as part of an administration where the administrator still benefits from having a pre-negotiated guaranteed outcome on appointment, but a marketing process is run following the appointment to determine if a better outcome for creditors can be achieved from a sale to a different party.

An administrative receiver is appointed under a floating charge or debenture which covers the whole or substantially the whole of the company's assets, including its goodwill. Insolvency changes introduced in September 2003 have restricted the ability of floating charge holders to appoint administrative receivers to situations where the debenture was taken out pre 15 September 2003.

A CVA is effectively a 'deal' between a company and its creditors for repaying in full, or in part, the liabilities of that company. It involves a renegotiation by a company of the payments due to its creditors (often involving them accepting less than the full amount due to them) or some other form of financial restructuring. The 'deal' requires the approval of 75% of creditors present and voting at a meeting summoned to approve the proposals.

Liquidation is used in situations where the company cannot meet one of the tests for administration or where the company cannot be salvaged and instead the business needs to be closed and the assets realised. There are two main types of liquidation: A creditors voluntary liquidation where the company asks the creditors to appoint a liquidator; and a compulsory liquidation where creditors force the liquidation of the company through a court process.

A Scheme is a compromise or arrangement under Part 26 of the Companies Act 2006 between a company and its creditors (one or more classes of them), which becomes legally binding on all creditors (or the relevant class or classes) if the necessary majority of creditors vote in favour and the Court approves it.

A Restructuring Plan is another form of creditor compromise. It requires the sanction of the court following two court hearings to examine class composition, jurisdiction and fairness amongst other considerations: First to convene creditor meeting(s) (the Convening Hearing); and second, to sanction the Plan (the Sanction Hearing). A company looking to use the Plan must have encountered or be likely to encounter financial difficulties, with the Plan designed to address those difficulties.

The threshold for a class to approve a Plan is 75% in value of those present at a class meeting. It also has the ability to cross-class cram down, which means the court is able to sanction a Plan even if there is a dissenting class (or classes), provided that (i) none of the members of the dissenting class(es) would be any worse off under the Plan than they would be under the relevant alternative and (ii) at least one class that has a genuine economic interest in the relevant alternative has voted in favour.

A fixed charge receivership is where a receiver is appointed by a secured lender who holds a fixed charge. The appointment of the receiver and their powers are set out in the security documents and the deed of charge. There is also a concept of a Law of Property Act Receiver. An LPA receiver is appointed over property and is normally appointed pursuant to Section 101(1) of the Law of Property Act 1925 (the LPA) which gives a mortgagee of land the remedy to appoint a receiver over that land.  

This is a US reorganisation process. The key feature is that the company remains in control of business and operates as a going concern in the ordinary course. There is an automatic stay of all claims and litigation. The company has 120 days from the date of bankruptcy filing to file a plan of reorganisation, which in essence is a compromise and refinancing plan. The company can reject contracts and leases that have unfavourable economic terms.