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insolvency & reconstructions
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| acquiring insolvent businesses |
Advising a company on the impact of insolvency is not just a matter of knowing the letter of the law: sensible advice only comes from experience of the processes involved. We have a detailed knowledge of both company and insolvency legislation and the distinct roles played by the insolvency practitioner, the company’s directors, the creditors and the courts. Our lawyers have extensive experience of advising on insolvency law and in particular on the law relating to liquidations and administrations.
The concepts of solvency and insolvency pervade every aspect of corporate law and the solvency of a company is a fundamental pre-requisite to various corporate transactions. And yet, insolvency is, in many ways, an elusive concept. Indeed it is not always apparent whether a company has become insolvent at all and yet this is a basic prerequisite for the initiation of insolvency proceedings. Similarly, certain types of transaction, if carried out by an insolvent company, may be open to challenge and may also expose the directors of that company to personal liability. Furthermore, the solvency of a company will dictate the types of insolvency procedure available to the board, its creditors and shareholders.
We act for companies which may be experiencing financial difficulties, the directors of potentially insolvent companies who may be concerned about their own personal positions and organisations which may be considering the acquisition of an insolvent company’s business as a shrewd means of building market share. We also act for administrators and liquidators themselves.
Although often referred to under the general heading of insolvency law, these practice areas are not just relevant to companies which may be experiencing financial difficulties. The liquidation process can also be used to great advantage in order to give effect to a reconstruction or a demerger, splitting up two or more parts of a business which need to go their separate ways. Again, our experience here gives us an edge in resolving matters quickly and cost-effectively.
At White & Black, we advise on the main procedures available to companies under the so-called “rescue culture”, namely: Administration – this is where an attempt is made to rescue or reorganise a company under the protection of a statutory moratorium. The company is put into administration and an administrator is appointed. This may be achieved via a court order or by the filing of certain papers at court by the Company’s Directors.
Company voluntary arrangement - this is used to avoid or to supplement other types of insolvency procedures and involves a company and its creditors entering into an agreement regarding the treatment of the company’s debts. This is then implemented and supervised by an insolvency practitioner.
White & Black advises on most aspects of corporate insolvency law and practice, including:
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| administrations & receiverships | |||
| company liquidations & dissolutions | |||
| corporate restructuring | |||
| demergers & spinoffs | |||
acquiring insolvent businesses
Although buying an insolvent business at a knock-down price can be a very shrewd and cost-effective way of acquiring assets or building market share, there is usually a much greater risk for the buyer when compared to a transaction involving a solvent seller. The insolvency practitioner will only be prepared to sell the assets “as seen”, without the benefit of any warranties as to condition of the assets, recoverability of book debts or even as to the ownership of the assets. You’ll need lawyers who can advise you what to look out for, what due diligence needs to be done, what constitutes market practice and (perhaps more importantly) what does not.
Time is very often of the essence in this type of transaction. Administrators are usually keen to sell on the business as quickly as possible in order to preserve as much value as possible. We can respond quickly and give you the best chance of completing the deal.
We can advise on the following:
- asset purchase agreements where the seller is an insolvent company;
- due diligence – what you need to focus on and what you may have to take a view on;
- directors’ personal liability – what happens if any directors of the buyer are also directors of the insolvent company? What happens if the buyer intends to use the name of the insolvent company?;
- responding to enquiries from Administrators;
- hive-downs to achieve a sale by share purchase and utilise trading losses;
- the validity of transactions; and
- retention of title claims.
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administrations & receiverships
The administration process involves an attempt being made to rescue or reorganise a company under the protection of a statutory moratorium. The company is put into administration and an administrator is appointed. This may be achieved via a court order or by the filing of certain papers at court. In situations where there is a reasonable prospect of maintaining the business of a company, the administration process has became the most common route for handling the assets of insolvent companies. The use of receiverships has much diminished since the last recession with the abolition of most administrative receiverships. Whilst receiverships are still used, this tends to be by lenders realising specific assets which are the subject of a charge over real estate.
At White & Black we advise directors on their duties and responsibilities in the event of a company approaching the zone of insolvency. We also advise clients on the steps required to place a company into administration and on buying the assets of a company in administration. You can read more on this under the heading “Acquiring Insolvent Businesses”.
company liquidations & dissolutions
At the end of a company’s life, it’s important to ensure that its affairs are properly wound up with the minimum of fuss and cost. Liquidating a company is actually a far more complicated process than forming a company and, from the perspective of the directors and shareholders, it’s vital that the correct procedure is followed.
White & Black can advise you on the correct approach to take when winding up a company’s affairs and distributing its assets. We can advise you on the following:
- can you take advantage of the “dissolution” procedure under the Companies Act, or will you need to go through a more formal liquidation process?
- what do you need to do in order to ensure that shareholders will not face a claim at a later date for the recovery of the company’s assets?
- is there any advantage to the company reducing its share capital prior to dissolution?
Recent guidelines published by the Treasury Solicitor have highlighted the risk of a company’s assets passing to the Crown when the company is dissolved, meaning that shareholders can find themselves being asked to repay money they have received on a dissolution if the correct procedure has not been followed. At White & Black, we are intimately familiar with the legislation here and we can help you to reach a conclusion which protects directors’ and shareholders’ positions and gives certainty to all concerned.
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Corporate restructuring can take many forms. At its most basic, it involves the consolidation of a group, or the division of a company into group companies. These simple restructurings are usually driven by the basic aim of ensuring that the corporate structure reflects underlying commercial activities. More commonly however, corporate restructuring is associated with some wider purpose such as a return of funds to shareholders, a tax planning scheme or a scheme to reschedule company debt. Whichever you are considering and whether you’re looking to prepare a business for sale, divide up an existing business between different groups of shareholders or just simplify an existing group structure in order to increase business efficiency, White & Black can assist you in achieving your aims.
We have experience of innovative restructuring exercises as well as extensive knowledge of the more well-known processes, and we will work with your existing tax and accounting advisers in order to produce a restructuring plan which is cost-effective, tax-efficient and delivered on time. In particular, we can advise on the following:
reorganising as a precursor to a sale or an acquisition;
- “direct dividend” demergers;
- “three-cornered” demergers;
- section 110 liquidation schemes;
- indirect reductions of capital; and
- part 26 Companies Act 2006 schemes.
A corporate re-structure will often take the form of a reconstruction. These typically involve the transfer of all or part of the undertaking of one company to another company which then carries on that undertaking in succession to the first company. Again, it is common for both companies to have substantially the same shareholding structure and this is often driven by tax considerations. On occasions,
reconstructions are undertaken as part of a “scheme of arrangement”. These schemes are now regulated under the Companies Act 2006, the relevant provisions of which came into force in April 2008. Such schemes require court approval but are incredibly flexible and can accommodate virtually any type of compromise or arrangement between a company and its creditors and shareholders or indeed any internal reorganisation, merger or demerger provided the requisite shareholder / creditor approval is obtained.
A demerger may take a variety of forms. In its most obvious incarnation, the shareholders in the demerged legal entities are identical to the shareholders in the original company and may well hold their shares in identical proportions to those before the demerger. In other cases, known as “a partition” a division or trade of a company will be transferred to another company whose shares are issued to shareholders of a particular class. The remaining business or other trade is then transferred to another company whose shares are issued to the remaining shareholders.
These schemes often involve a group re-organisation, a formal Companies Act scheme of arrangement, a reduction of share capital, the payment of a dividend in specie and an offering of new shares.
At White & Black we can advise on a variety of different structures for a demerger or spin-off including:
- a three cornered demerger;
- a section 110 liquidation scheme;
- a Part 26 Companies Act 2006 scheme; and
- direct dividend structure.