INDEX [assets.cambridge.org]assets.cambridge.org/97805217/01822/index/9780521701822... ·...

INDEX

absconding debtors 10ABTA 650, 654, 668abuse of proceedings 31accountability

administration 442court powers 442–7creditors’ meetings 439judicial oversight 442–51pre-2002 Act 378–80

audit explosion 263benchmark 56, 65, 522–3CVAs 506–9debt/equity conversions 324directors 677–16

common law duties 681–94duties to creditors 683–94statutory duties 694–710

employee protection 772–5IP regulation 199–202, 206

discrete profession 203IS regulation 209–10reform 203, 208, 217, 219–20

legal services 205liquidations 568–70

Human Rights Act 569–70London Approach 316pre-packaged administrations

463–4receivers 354–5, 359rescues 250–1turnaround professionals 225–7

Accountancy Foundation 215accountants

conflicts of interest 187defining insolvency 150–1dominance 182, 184expectations gap 214rescue work 226

accountingannual accounts 168–9, 339compulsory liquidations 541receiverships 339response to scandals 261voluntary liquidations 535

administrationSee also administrators2002 Enterprise Act 18, 21

efficiency 392–426expertise 426–39financial collateral arrangements

385moratoria 384–5new procedure 180, 380–92old remedy 418preferential creditors 387–90termination 390–2US comparisons 384

accountability 442court powers 442–7creditors’ meetings 439judicial oversight 442–51pre-2002 Act 378–80

alternatives 395–7cram-down and supervision

418–22equity conversions 422–6

contracts 409employees 372–5, 415–16,

758–9Cork Report

implementation 21incentives 367public interest 180, 379rescue objective 15, 16timing of orders 371vision 363–5

837

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administration (cont.)costs 357creditors’ meetings 426

accountability 439avoidance 419, 438pre-2002 Act 370–1

CVAs and 492efficiency 392–426

administrators’ liabilities 415–17charges on book debts 410–15costs 393–5employee contracts 415–16judicial approaches 399liquidation substitution 396–7, 440non-domestic rates 417pre-2002 regime 366–78rescue funding 404–10rescue objective 393responsiveness 397–404returns to creditors 393–4super-priority funding 404–10,

429use statistics 392–3

enforcement of floating charges 257evaluation 392–451expertise

2002 Act 426–39co-ordination 427–9communication 429–34courts 433information flows 426–34pre-2002 Act 378stifling 434–5

fairness 378–80, 439–51financial collateral arrangements 385inclusive processes 429–35, 448–9information flows 426–34

courts 433, 448judicial oversight

accountability 442–51bias 449–50EA powers 442–7

moratoria 222002 Act 384–5interference with private rights

376interim moratoria 384–5leases 377–8, 385

pre-2002 Act 365–6, 375–8scope 376–8

nature of procedure 21–2, 180objectives 382–3, 388orders

costs 370floating charge holders 361grounds 147, 148, 371,

380, 382timing 371–2

PIP regime 400–2, 440–2pre-2002 Act 365–80

accountability 378–80blocking by receivers 368–9consultation of creditors 370–1costs 369–70directors’ attitudes 372effect on other procedures 365–6effectiveness 366–78employment contracts 372–5expertise 378fairness 378–80judicial approaches 372–6judicial role 370moratoria 365–6, 375–8powers of administrators 366powers of directors 366, 367stakeholders’ interests 376timing of orders 371–2

pre-packaged. See pre-packagedadministration

preferential creditors 387–90principles 364–5receivership and 22, 340, 365–6,

368–9, 386replacing administrative

receivership 22, 327, 360, 381rescue culture 180, 275, 428

pre-2002 Act 366–78rescue funding. See rescue fundingrescue rates 367ring-fencing floating charges 387–90termination 390–2

automatic termination 390average duration 393court orders 391–2liquidation 390–1rescue achieved 391

838 index






timescales 434–5, 444judicial oversight 450–1one year limit 390, 393timetables 255–6

winding up and 22, 443administrative

receivership. See receivershipadministrators

See also administrationaccountability 439appointment

companies 396–7conflicting choices 389court orders 443methods 381out-of-court 443

conflicts of interest 195duties

all creditors’ interests 125, 419,430, 442, 445–7

duty of care 444reporting unfit directors 717turnaround professionals 227–8unsecured creditors 382

judicial supervision 442–51irrationality 446–7

liabilities 415–17misfeasance 444officers of the court 196, 227, 383,

439, 446powers 25

2002 Act 383–4pre-2002 Act 366removal of directors 372

reasons for action 447Aghion, P. 422–6alarm stage 304–5ambulance chasers 201Animal Farm 36, 667annual accounts. See accountingArgenti, J. 172Armour, John 109, 267, 269, 314, 328,

346, 348–9, 393, 398, 414, 559,769, 770

Armstrong, M. 415asbestos litigation 460asset-stripping 719, 720asset test 147–8

Assets Recovery Agency 680assignment

leases 413litigation proceeds 556–9

Association of Chartered CertifiedAccountants (ACCA) 233

asymmetric information 86, 632ATOL 654audits

audit explosion 263–5auditors’ advisory role 156–7compulsory liquidations 541creative accounting 155–6response to scandals 261

Australiacontracting out of insolvency law

629derivative actions 709directors’ duties 682, 688–9group companies 588–9, 590litigation funding 556, 562preference rules 639rescue procedures 291, 292retention of title 643subordinated debt 622

Ayotte, Kenneth 282

Bacon, A. 410balance sheet test 147–8balance sheets, leasing and 127Bank of England

on alarm stage 304on bank overdrafts 122on equity financing 85ISA and 567liquidation accounts 567London Approach 307–17Northern Rock 136rescue role 251on SME funding 81, 153super-priority funding 405transfer of supervisory role to FSA

309, 312on venture capital 86

bankruptcycorporate insolvency and 9, 13, 17detention for debts 10, 11–12history 10–12, 13

index 839






banksSee also creditorsadministration

information flows 430–2power 442

bad debts 122bargain power 442, 632clearing banks 71hard-nosed practices 351informal rescue and 253, 299litigation funding 556, 561merchant banks 71modern credit landscape 19new rescue culture 295

credit derivatives 271–2strategies 265–8, 271, 273–4

new role 136overdrafts 81, 121–2

withdrawal 153, 165risk management 268–9shadow directors 301turnaround professionals and 226–7,

235uncompetitive equity financing 86

Barclays Bank 267, 268, 466bargaining power

asymmetries 36, 117banks 442, 632corporate borrowing 90, 117informal rescue 253insolvency actors 197–8retention of title and 646securities 632trade suppliers 126turnaround 229–30

Barratt, Matt 268Baum, Joel 157, 173BCCI 590, 616BDO Stoy Hayward 561Belcher, A. 244benchmarks

accountability. See accountabilityalternatives to pari passu 666efficiency. See efficiencyexpertise. See expertiseexplicit values approach to

insolvency law 52–63, 64–5,783–7

fairness. See fairnesslist 65nature of measuring 48–52procedure design 519–21, 524transparency 57–9, 786

Berg, A. 412BERR

See also Insolvency ServiceCode of Ethics 467winding up petitions 542–3, 545–8

Better Payment Practice Group 165,169, 171

Bewick, S. 769bias, administration 449–50bills of exchange 71, 123Bird, C. 312Black, B. 271, 298Blackstone, William 11, 12Blair government 247–8, 262,

359–60, 679bonding system 190bonds 83, 296book debts, charges on 410–15Brent Walker 321British and Commonwealth 160British Bankers’ Association

endorsement of rescue culture 247lobbying power 388London Approach 307receivership v administration 388,

397SME principles 350Statement of Principles 266–7, 347

British Business Angels Association(BBAA) 72

British Energy 419Broude, R. 285Brown, D. 501Brown, Gordon 248, 259, 653BSE crisis 164Buchler Phillips 186Buckley, F. 633business angels 71–2, 82business rates 417Byers, Stephen 437

Cadbury Code 259Canada 286, 613

840 index






Capper, D. 413car tax 605Carapeto, Maria 406Carruthers, B. G. 17Carruthers, I. 756cash flow

cash flow test of insolvency 147control 152–4late payment of debts and

165–71certainty

ethical vision and 45floating charges and 118–20quasi-securities and 131–3Quistclose trusts and 657–9

champerty 557Chancery Court, jurisdiction 13Chapman, Mike 200, 468charges

See also floating charges, securitieselectronic registration 634registration 635, 637

chattels, mortgages 75, 91cheques, receivership 333Chicago School 744chronological ranking 670civil servants, as insolvency

practitioners 221Clarke, L. 757class actions 708Clementi, David 313Clementi Report 204coal and steel levies 606collateralised debt obligations (CDOs)

134, 136Collins, H. 769, 774commercial morality

Cork Report 30, 46, 678public interest liquidations

544, 547commercial paper 84communication, administration

procedure 429–34communitarianism 40–3, 48,

51, 601companies

failure. See failuregroups. See group companies

insolvency law and companylaw 780

legal personality 13, 582legitimation of managerial power

49–55origins 12–13voluntary arrangements. See CVAs

Companies Investigation Branch (CIB)543, 710, 712, 716

Company Law Review SteeringGroup

directors’ duties 693, 747directors’ information 738directors’ qualifications 739disqualification of directors 751floating charges 637fraudulent trading 698group creditors 592–3phoenix companies 577, 704quasi-securities 131registration of charges 637retention of title 645, 648schemes of arrangement 483–4,

485, 487, 515transactions at undervalue 577–8

company voluntaryarrangements. See CVAs

compensation schemes 654,661, 668

competition, failure and 144, 157complaints

expectations gap 214Insolvency Ombudsman 198, 208,

213, 218procedures 200–1reform of procedures 212

concentrated creditor theory 110,397, 403

conditional fee arrangements 559–61conflicts of interest

accountants 187CVAs 506ICAEW Statement 195IP structure and 193–7judicial approaches 194–6ministerial Code of Conduct 193–4pre-packaged administration 460

constructive trusts 650–1

index 841






consumer creditorsadministration, proposals 419,

421–2compensation schemes 654, 661, 668Cork Report 73, 610, 654, 660, 661, 665pre-payments 73ranking 609–10, 626, 672–3receivership and 358risks 654, 667statutory protection 664–5trusts 654–6

efficiency 659–61fairness 663–4

turnaround professionals and 235contagion 137contractarianism

See also contractsbargain power 36broad-based contractarian approach

38–40, 48freedom to contract 632, 633view of companies 49–51vision of insolvency law 32–7, 48

contractsSee also contractarianismadministration 409, 418

employees 372–5, 415–16, 758–9contracting out of pari passu 628–30informal rescue arrangements 479liquidations and 533, 534, 540receivership, employee contracts

332–3, 335–6, 373securities, bargain justification

631–3subordination 621–4

Cook, G. 495, 496Cork, Kenneth

incompetence and insolvency 436rescue objective 16vision of administration 363–5

Cork Reportadministration

implementation 21incentives 367public interest 180, 379rescue objective 15, 16timing of orders 371

commencement of insolvency 691

commercial morality 30, 46, 678communitarian statements 41consumer creditors 73, 610, 654, 660,

661, 665CVAs 488directors 15–16disqualification of directors 678, 717eclecticism 46floating charges 17, 94, 117, 634–5group creditors 585group debtors 591–2implementation 16–18, 31, 524, 780Insolvency Ombudsman 213insolvency practitioners

qualifications 182–3, 191, 220,232–3, 234, 238–9

role 15, 178ISA regime 189–90liquidations 529–70

creditor participation model 596legal proceedings 550preferences 563public interest liquidations 541

objectives of insolvency law 29–32,63, 65, 677–9

overview 14–17preferences 572, 573–4preferential debts 15, 604

employees 612, 613fairness 611subrogated rights 613taxation 605, 606

public confidence 222receivership 330–1, 355, 358–9, 361remit 14rescue objective 16, 18, 30, 246, 254,

363retention of title 130, 645, 646, 647schemes of arrangement 483, 485,

486, 487securities and fixed fraction regimes

107, 109set-off 618–20trusts 648unsecured creditors 124utility debts 604watershed 28wrongful trading 661, 678, 698

842 index






corporate bonds 296corporate borrowing

See also specific mechanismsassessments 80

equity financing 85–7quasi-securities 125–33secured loans 87–120unsecured loans 120–5

bargaining power 90, 117categories of creditors 70–4

business angels 71–2consumers 73debenture holders 73employees 73government agencies 72–3institutional lenders 71shareholders 73tort victims 74trade creditors 71

choices 295efficiency benchmark 70insolvency reform and 69–70methods 74–9

quasi-securities 77–9securities 74–7third party guarantees 79, 84unsecured loans 77

new capitalism and 133rationalising 69rescue funding. See rescue fundingsubordinated borrowing 622

corporate failure. See failurecorporate insolvency. See insolvencycorporate veil 587–90corporation tax 605Cosh, A. 80courts

administrationaccountability and fairness 442–51bias 449–50EA powers 442–51informational difficulties 433, 448timescales 450–1

communitarian vision and 43conflicts of interests and 194–6development of insolvency law 18ethical vision and 45judicial bias towards creditors 279

liquidations, information powers 565new rescue culture and judiciary 276pre-packs and 474–6public interest liquidations 545–7removal of IPs 195–6schemes of arrangement 480–1voluntary liquidations, role 532wrongful trading 447

covenants, debt contracts 89, 265, 442Cranston, R. 465creative accounting 155–6credit

See also corporate borrowingalternative lenders 295–8commodification 19, 296, 517fragmentation 353globalisation 231insurance 270, 672market changes 295–8new forms. See new capitalism

credit crunch 154, 161, 680credit default swaps 271, 298credit derivatives

alarm stage and 304–5efficiency 140emergence 19, 28hedge funds 135–6lack of transparency 138–9, 298–9London Approach and 311–12Marconi rescue 298mechanism 133–4rescue culture and 271–2risk taking 136–8

credit opinions 171creditors

See also banksadministration, all creditors’

interests 125, 419, 430, 442,445–7

alternative lenders 295–8asymmetries. See bargaining powercategories 70–4

See also specific categoriesbusiness angels 71–2consumers 73debenture holders 73employees 73government agencies 72–3

index 843






creditors (cont.)institutional lenders 71shareholders 73tort victims 74trade creditors 71

concentrated creditor theory347–53, 397, 403

consumers. See consumer creditorsCork Report 15creditors’ bargain theory 32–7CVAs

unfair prejudice 509–12unknown creditors 507–8

defrauding. See fraud on creditorsdirectors’ duties to. See directorsexpertise 707influence over directors 747–8involuntary creditors 74, 99, 632–3,

634judicial bias towards 279liquidations and

approval of litigation 551fairness 570–96funding litigation 556group creditors 581–96oversight 548voluntary liquidations 531–2winding-up petitions 536–7

meetings. See creditors’ meetingsmonitoring. See monitoring creditpreferences. See preferential debtsranking. See pari passu; preferential

debts; ranking of debtssecured. See securitiestort victims. See tort creditorstrade. See trade creditorsunsecured. See unsecured creditorsvulnerability 666–7,

672, 673wealth maximisation objective 32–7,

61–2, 245–6, 601, 602creditors’ meetings

administration 426accountability 439avoidance 419, 438pre-2002 Act 370–1

CVAs 494, 507–8, 512liquidations

accountability 568–70transparency 568voluntary liquidations 530–1, 535

transparency, lack of 220, 568criminal law

bankruptcy and 10, 11–12directors’ liabilities 261, 737–8fraudulent trading 698

cross-border cases, London Approach311

Crown creditorsCVAs and 499–500non-vulnerable creditors 666–7preferential status

abolition 108, 248, 262, 387, 398reform 625remaining preferences 606–7

Crowther Report 117, 131, 648Cruickshank Report 86cultural change 437culture, rescue culture. See rescuecustomers. See consumer creditorsCVAs

accountability 506–9approval 179, 489

majority of creditors 512shareholders 512–14

assessment 514–16barriers 496binding agreements 489conflicts of interest 506Cork Report 16, 488costs 497creditors’ meetings 494, 507–8, 512Crown creditors 499–500DIP system 496efficiency as rescue mechanism

495–504expertise 191–2, 504–6fairness 509–14

approval of majority ofcreditors 512

approval of shareholders 512–14unfair prejudice 509–12, 513–14

forum approach 514gestation period 490–1initiating 488judicial challenges 494

844 index






leases 378, 490, 503–4, 510–12low uptake 496moratoria 24, 491–5, 498

1986 Act 490effects 493monitoring 508–9other insolvency procedures 492registration 493scope 498, 499securities and 493

nature of procedure 23–5, 179nominees’ scrutiny role 501–2overview 488–516pre-insolvency procedure 228–9reform 514–15rescue funding 497, 502–3rescue rate 345retention 515–16schemes of arrangement and 25secured creditors 490small companies 26statistics 367super-priority funding 406–7supervisors 26–7, 488–9, 494transparency 506–9unknown creditors 507–8utility supplies 504winding up and 495

Davies, Howard 134Davies, P. L. 356, 747Davies, Stephen 460, 469, 473Deakin, S. 314, 769, 770death penalty 11debentures

information 706mechanism 73preferences 124receivership and 123, 180–1, 331–2transparency of insolvency processes

219debt contracts, covenants 89, 265, 442debt restructuring 319–21debt trading, London Approach and

314–15decentralisation 318declarations of insolvency 149deferred claims 624–5

Delaware 458Dell, Edmund 14derivatives. See credit derivativesdetention for debts 10, 11–12Diamond Report

floating charges 117, 118quasi-securities 131, 132registration of charges 637retention of title 648securities 112

directorsSee also managementaccountability 508–9, 677–16administration

approaches 372, 427–9PIP regime 400–2powers 366, 367removal 372skills 435–8

asset-stripping 719, 720audit responsibilities 261Cork Report 14–17, 29–32CVAs and 497, 508–9disqualification. See disqualification

of directorsduties

common law duties 681–94fiduciary duties 303–4, 681,

682–3, 708group companies 584ignorance 738–9

duties to creditorsacademic opinion 684beneficiaries 685–8common law 683–94duty of care 682good faith 682, 684–5judicial discretion 753timing 688–94

employment status 755executive directors 743expertise 716–40

information 738–9training 154, 436–7,

739–40extravagance 158informal rescue and 299–304,

306

index 845






directors (cont.)liabilities

agency costs 742–4costs 741–4criminal law 737–8efficiency of system 740–50enforcement 743fairness 750–3false statements 261fraudulent trading 303, 680, 696–8ignorance 738–9impact of personal liability

regime 175judicial approaches 745phoenix companies 703–4preferences 704risk aversion 744–5wrongful trading 703

liquidationsdirectors as liquidators 194ex gratia payments 577public interest liquidations 709,

710–16transactions at undervalue 577–8

misfeasance 175, 684, 705–10, 748non-executive directors 743–4preferential debts 613–14reputational harm 294, 746rescue and 250, 273–4restraining orders 712–13, 715–16rogue directors 679statutory duties 694–710

general duties 694–6promoting success of companies

694–6discharge of bankrupts 11disqualification of directors

1986 Act 17burden of proof 732Companies House website 679company failure and disqualification

rules 174Cork Report 678, 717definition of insolvency and 148discretionary disqualification 717, 724disqualification undertakings 712,

718–19effectiveness 733

fairness 751–2plea-bargaining 733, 751

effectiveness 732–7evidence gathering 736extension of mechanism

increased powers 262, 717shadow directors 720–1volume of proceedings 438, 719

fairness 751–2hotline 719informal rescue and 304liquidators’ duties 181, 717mandatory disqualification 717,

724–5judicial approaches 750privilege approach 722–3, 727–32rights approach 721–2, 723–6, 735

overview 716–37periods of disqualification 736slow judicial process 711, 751–2

distressed companies 146distribution. See redistributional issuesdividends, liquidations 534–5, 577Doherty, J. 458Dun & Bradstreet 170Durrant, C. 332, 531, 650, 654

Early Growth Funds 72Ebert, R. 460eclectic approach 45–8Edington 371efficiency

administration2002 Act 392–426administrators’ liabilities 415–17charges on book debts 410–15costs 393–5cram-down and supervision

alternative 418–22employee contracts 415–16equity conversion alternative

422–6judicial approaches 399non-domestic rates 417PIP regime 400–2pre-2002 Act 366–78pre-packs 456–9rescue funding 404–10

846 index






rescue objective 393responsiveness 397–404returns to creditors 393–4super-priority funding 404–10, 429use statistics 392–3

benchmark 56, 61–2, 65, 519–21corporate borrowing 70

credit derivatives 140CVAs

Crown creditors 499–500nominees’ scrutiny role 501–2rescue funding 497, 502–3rescue mechanism 495–504

directors’ liability system 740–50disqualification of directors 732–7IP regulation 186–90

fragmentation 212reform 206–7

liquidations 549–67funding litigation 550–63information 564–5public interest liquidations

714–16transaction costs 566–7

new capitalism 136pre-packs 456–9quasi-securities 129–33, 641ranking of debts

chronological ranking 670consumer prepayments 659–61pari passu 601–2preferential debts 607–11trusts bypassing pari passu 657–63

receivership 340–53rescue operations 249securities 93–106, 631

adjustable priority rule 114–17case against 99–106, 141–2case for 93–9competitive distortions 101concentrated creditor theory 110facilitating capital raising 93–5floating charges 118–19incentive to inefficient finance

99–102investigation and monitoring

95–9, 102–6, 174ring fencing 109–10

transfer of undertakings 767–72turnaround professionals 222–5unsecured loans 123–5

overdrafts 122trade credit 122–3

EIM Turnaround Practice 268Ellis, Martin 458, 465, 466–7, 472, 476employees

administration 379, 415–16consultation 772–5contracts

administration 372–5, 415–16,758–9

receivership 333, 335–6, 373creditors of companies 73employee status 754–5

directors 755holiday pay 605, 606, 757, 758legal protection 416, 756–67

fairness 775–8morale 294, 769payment from National Insurance

Fundadvantages 757definition of insolvency 148mechanism 612–13rescue and 768transfer of undertakings

771–2, 777pre-packaged administration 455preferential debts

2002 Enterprise Act 606administration 416directors 613–14effect 756efficiency 608–11fairness 612–14, 775pension contributions 606ranking 124rationale 667

ranking of claims 36rescue and 250–60TUPE. See transfer of undertakingsunsecured creditors 756

Enron 137, 261, 263Enterprise Directorate 72environmental protection 264–5Epley, L. 460

index 847






equitable charges 76, 87equitable tracing 76, 642equity financing

assessment 85–7debt/equity conversions

administration 442alternative to administration

422–6informal rescue 321–4

SMEs 82, 86, 87Erskine Report (1840) 12estate agents 661ethical ranking 670–1ethical vision 44–5, 48Eurobonds 83, 296European Court of Human Rights, fair

hearing 569European High Yield Association

418–22, 451, 524–5European Investment Bank 72European Union

Acquired Rights Directive 760confirmation of winding up orders

532financial collateral arrangements

385–6impact on UK insolvency law 13–14Insolvency Regulation 360

Eurotunnel 321, 324Experian 166expertise

administration2002 Act 426–39co-ordination 427–9communication 429–34courts 433information flows 426–34pre-2002 Act 378stifling 434–5

benchmark 56, 65, 521–2creditors 707CVAs 191–2, 504–6debt/equity conversions 324directors 716–40employee protection 772insolvency practitioners 191–2, 354liquidations 567–8

training 597

London Approach 315–16, 521pre-packaged administration

459–61, 465–6receivership 353–4rescue judgements 249turnaround professionals 231–7

export credits guarantees 79

factoringassessment 128judicial encouragement 129late payment of debts and 169–70quasi-securities 78–9SMEs 81UK growth 128

failureanticipation and prevention 192causes 151–65

ascertaining 30assessment 171–7catastrophic mistakes 160competition 144external factors 161–71governance structure 159high gearing 153–4, 162–3, 176inadequate financing 154industrial disputes 164internal factors 152–60lack of information 155–7, 176lack of management skills 158late payment of debts 165–71marketing errors 158mismanagement 154–60, 174–7,

318, 435–8poor financial control 152–4,

173–4poor leadership 159regulatory compliance 163–4responses to change 157–8short-term financing 153, 165SMEs 158taxation 164transaction costs 173, 177

definition of insolvency 146–9,688–94

decision makers 149–51distress 146financial ratios 146

848 index






insolvency law and 173–7meaning 145–51social costs 246

fair hearingdisqualification undertakings 751independent tribunals 196liquidations 569–70, 598

fairnessSee also bargaining poweradministration 439–51

PIP regime 440–2pre-2002 Act 378–80

benchmark 56, 65, 523–4concepts 59–60CVAs 509–14

approval of majority of creditors512

approval of shareholders 512–14unfair prejudice 509–12, 513–14

debt/equity conversions 321–4directors and 750–3employee protection 775–8IP regulation 192–9

asymmetries 197–8conflicts of interest 193–7, 198–9reform 208

liquidations 570–96avoidance of floating charges

580–1fair hearings 569–70, 598group creditors 581–96preferences 571–5undervalue transactions 575–9

London Approach 316–17pre-packs 453, 460–3, 466–7preferential debts 611

employees 612–14, 775ranking of debts

chronological ranking 670consumer creditors 673pari passu 602preferential debts 611retention of title 645–8

receivership 355–8rescues 250–1securities 120, 631–5

bargain argument 631–3improving 635–41

involuntary creditors 633, 634notice argument 634–5, 640power asymmetries 632value argument 633–4, 638–40

set-off 620–1subordination 622–4trusts bypassing pari passu 663–5turnaround professionals 227–31

false statements 261Farepak 653–4Federation of Small Businesses 165,

168–9, 706–7Ferguson, Nick 225Ferran, E. 341Ferris Report 187, 188financial collateral arrangements 385financial control

high gearing 153–4inadequate financing 154insolvency and 152–4, 173–4short-term financing 120, 153, 165

Financial Market Law Committee 615financial services, regulation 205–6Financial Services Authority

injunctions 545–8powers, errant directors 711, 712regulatory model 204transfer of supervisory role to 309, 312winding up petitions 543, 544–5, 710

fixed charges 91, 94, 258, 757Fletcher, D. 410Fletcher, Ian 491, 697flexibility, Cork principle 30floating charges

advantages 636–7avoidance 148

liquidations 580–1charges on book debts 410–15comfort zone 256–7concentrated creditor theory 110conflicts of interest and 196–7Cork Report 17, 94, 117, 634–5crystallisation 92debt restructuring 319demise theory 361dilution 118–19efficiency 94, 118–19enforcement

index 849






floating charges (cont.)administration 360, 381receivership 20, 257, 327–8,

331–3, 636fixed charges or 258liquidations and, late execution 549mechanism 76, 91, 92new rescue culture 253old insolvency culture 273power of charge holders 346, 356–7pre-2003 rush 328ranking of claims 124retention of title and 127, 647rethinking 117–20, 637–8ring fencing 108–9, 255, 275, 387–90

administration 387–90, 398, 403liquidations 605, 607

UK practice 283uncertainties 118–20unfairness 634–5

Flood, J. 192, 505, 506Flynn, Desmond 469, 472Forensic Insolvency Recovery Service

(FIRS) 680, 720forum approach 43–4, 46, 48, 514France

contract termination 418employee protection 776–7payment terms 167rescue procedures 290, 291–2retention of title 648

Franks, J. 285, 329, 346, 350, 356,357, 404

fraudSee also fraud on creditorsdeath penalty 11management 158public interest liquidations 541, 546trading. See fraudulent trading

fraud on creditorsclass actions 708directors’ liabilities 704enforcement 705–10information 705–7liquidations 549, 578–9litigation funding 708, 709,

710–16transactions at undervalue 578–9

fraudulent tradingcredit crunch and 680criminal liability 698dishonest intent 696–8disqualification of directors 737–8informal rescue and 303statutory provisions 696–8

Freedman, J. 743Frisby, S. 267, 269, 329, 343, 348–9,

351, 394, 432, 456, 461, 463,765, 772, 778

Frug, G. E. 54, 55, 56

Gapper, J. 286gearing, high gearing 153–4, 162–3,

176, 319Germany

banks 323group creditors 587objectives of insolvency law 33payment terms 167rescue procedures 290–1, 292

Gilson, S. 428globalisation of credit 231Godefroy, J. 467golden handshakes 577Goode, Roy 58, 118, 624, 630, 638Goodhart, W. 664governance

concentrated creditor governanceand receivership 347–53

decentralisation 318informal rescue 318structures 159

government agencies 72–3Grantham, R. 687Gregory, R. 406Griffiths, A. 495, 496group companies

Cork Report 585, 591–2group creditors and liquidations

581–96consolidation 587–90, 593–5discretion 587–8, 591, 595–6duties of dominant shareholders

593elective regime 592–3subordination 586–7, 593

850 index






meaning 581rationale 582–3wrongful trading 590–1

guarantees 79, 84

Hahn, D. 401, 441Halliday, T. C. 17Harmer Report 562, 588Harris, S. 455Harrison Willis 151Hart, O. 422–6Hedge Fund Working Group 139hedge funds

debate 296–7definition 296growth 135–6informal rescue and 295–8, 307litigation funding 556, 561popularity 136rescue and 139, 253, 271

Hicks, A. 738hire purchase

assessment 127dilution of floating charges 119mechanism 78tax relief 127

history of insolvency law 10–19HMRC 72, 499–500Hoffmann, Lord 444, 735holiday pay 605, 606, 757, 758Hood, Nick 440Horn, J. 157Hotchkiss, Edith 285Howells, Kim 679–80, 718Hsu, A. 328, 346, 348, 393Hu, H. 271, 298Hudson, J. 172Hughes, A 80human rights 196, 569–70, 598, 751Hunt of Wirral, Lord 762Hunter, M. 277, 437hybrid financing 136

IATA 654independent business reviews (IBRs)

267, 268–9Independent Insurance 159industrial disputes 164

industrial tribunal awards 416, 757,769, 771

inflation 162informal rescue

actors 295–9agreement on recovery plans 306–17alarm stage 304–5assessing prospects 299–304asset reductions 318–19contracts 479cost reductions 319debt/equity conversions 321–4debt restructuring 319–21decentralisation 318evaluation stage 305–6formal and informal routes 251–3,

294, 418implementation 317–24London Approach 299, 307–17managerial reforms 317–18stages 299–324structural changes 318success rates 317, 325, 330

informationSee also transparencyadministration 426–34

court challenges 433, 448asymmetric information 86, 632directors 738–9liquidations, efficiency 564–5poor information and insolvency

155–7, 176preferences 705–7quasi-securities 131–2, 635secured creditors’ obligations

112–14transfer of undertakings 761

INSOL 315, 405, 740insolvency

See also failure1986 Act 16–19bankruptcy and 9, 13, 17causes 151–65

ascertaining 30complete process 28, 518, 524cultural change in attitudes to 437declarations 149definitions 146–9, 688–94

index 851






insolvency (cont.)balance sheet test 147–8cash flow test 147decision makers 149–51

distress and 146law. See insolvency lawmodels. See visions of insolvencyprocedures. See procedures

Insolvency Creditors Association 548Insolvency Ethical Guide 186insolvency law

challenges 28failure and 173–7history 10–19legitimation 52–63models. See visions of insolvencyobjectives 9personal and corporate 9, 13, 17tasks 27

Insolvency Ombudsman 198, 208, 213,218

Insolvency Practices Council (IPC)206, 215–17, 474

insolvency practitionersaccountability 199–202, 206

discrete profession 203IS regulation 209–10reform 203, 208, 217, 219–20

accountants’ dominance 184assessment 220–1authorisation 183bonding system 190categories of procedures 179–80charges 186–8civil servants as 221complaints procedures 200–1, 212conflicts of interest 193–7, 198–9Cork Report

qualifications 182–3, 191, 220,232–3, 234, 238–9

role 15, 178duties of care 196expertise 191–2, 354fairness 192–9judicial removal 195–6ministerial Code of Conduct 193–4monitoring 200–1new rescue culture 274–5

numbers 183overview 179–221part-time work 201, 202post-Cork 19professional ethics 467, 502qualifications 183, 191–2

Cork Report 182–3, 191, 220,232–3, 234, 238–9

ranking of expenses claims 124regulation

efficiency 186–90, 206–7, 212fairness 192–9fragmentation 201, 205, 211–12,

217–18reform 202–20self-regulation 184–5, 186,

199–200, 232–3, 234, 568transparency 206, 207

regulatory reformaccountability 203, 208, 219–20amalgamating professional bodies

211–12departmental regulation 209–10discrete profession 202–3efficiency 206–7fairness 208fine-tuning professional

regulation 210–20, 221independent regulatory agency

203–9independent review board 215–20monitoring capacity 212monitoring large processes 218ombudsman 198, 208, 213, 218proposals 202–20single regulator 202–3transparency 206, 207

Statements of Insolvency Practice(SIPs) 185–6

structureevaluation 186–202evolution 182–6

Insolvency Review Working Partyaccountability 201–2amalgamation of RPB regulation 212independent oversight board and

215–17Insolvency Ombudsman 213–15

852 index






Insolvency Service1993 inspection of IPs 200accountability 201on administration, costs 394–5annual reports 209Companies Investigation Branch

(CIB) 543, 710, 712, 716costs 189CVAs 497, 512disqualification of directors 751on expert tribunals 408Framework Document 184functions 184Insolvency Ethical Guide 186Inspector General 184, 209monitoring IPs 216monitoring of complaints 201powers 185public interest liquidations 547on receivership

accountability 355consumers 358proposals 360unfairness 356–7

regulatory reform proposals 209–10rescue mechanisms 345–7RPB reports to 200schemes of arrangement 485supervision function 184transaction costs 566–7

Insolvency Service Review Groupadministration 380CVAs 499–500preferential debts 611super-priority funding 406–8

Insolvency Services Account (ISA)189–90, 562–3, 567

Insolvent Debtors Court 12Inspector General 184, 209Institute of Chartered Accountants of

England and Wales (ICAEW)184, 194, 195, 497

Institute of Directors 693, 739, 751institutional lenders 71insurance

companies, preferential debts 606conditional fees arrangements 560–1credit insurance 270, 668, 672

credit opinions 171moral hazard 111tort claims 110–12

interest rates, policies 162interpretive communities 211Intrum Justitia 167investigation costs 95–9, 102–6, 174investment banks 295–8Ireland 290, 291, 588irrationality, administrators 446–7Italy 167, 648

Jackson, Thomas 32–3, 34, 35–6, 38,56, 348

Japan 290Jenkins Report 745Joint Insolvency Committee (JIC) 185,

206, 207, 217, 472Joint Insolvency Examining Board

(JIEB) 183, 211Joint Insolvency Monitoring Unit

200–1joint stock companies 12Jones, G. 225–6, 664junk bonds 84Justice 13, 32, 47, 64, 213

Katz, A. 396, 455, 472, 562, 699, 710Keay, A. 536, 610, 611, 612, 700Kent, Penn 314King, Mervyn 137Korobkin, Donald 38–40, 46, 55,

57, 60

Large, Andrew 139late payment of debts 165–71Laughton, Chris 298Law Commission

directors’ information 738electronic registration of charges 634floating charges 637–8PMSIs 639quasi-securities 131–2retention of title 126, 648securities 637

Law Society 205, 492, 495,501–2

lease-back 78, 107, 116–17

index 853






leasesadministration and 377–8, 385assignment 413CVAs 378, 490, 503–4, 510–12

leasing 127–8, 129legal personality 13, 582legal proceedings

liquidations, funding 550–63, 700powers of receivers 333stay, compulsory liquidations 538

legal servicesaccountability 205price controls 205regulation 204–5

gaps 205maze 204self-regulation 204transparency 205

self-regulation 206Legal Services Board 205, 215liens 75, 76, 377Lightman, Gavin 187, 342, 444Liquidation Committees 532,

540, 551liquidations

See also liquidators2005 UK rate 145accountability 568–70administration and 22, 390–1

pre-2002 365–6substitution 396–7, 440

categories 23, 529collectivity principle 529compulsory liquidations 23

accounts 541ban on property disposal 538commencement 538contracts 540control of liquidators 540disclaiming onerous property 540expedited process 541functions of liquidators 540–1other insolvency procedures and

538petitions 536–8powers of liquidators 539–40process 536–42registration 541

stay of legal proceedings 538termination 541

concepts 548–9, 596–8Cork Report 548–9, 550, 596creditors’ meetings 530–1, 535,

568–70CVAs and 492, 495efficiency 549–67

funding litigation 550–63information 564–5transaction costs 566–7

expenses, ranking 602–4expertise 567–8fairness 570–96

avoidance of floating charges 580–1avoidance of transactions 570–1fair hearings 569–70, 598group creditors 581–96preferences 571–5undervalue transactions 575–9

financial collateral arrangements 386Human Rights Act and 569–70litigation funding 550–63

assignment of proceeds 556–9conditional fee arrangements

559–61Cork Report 550creditors 556external funders 556–9ISA funds 562–3law reform 561preferences 708, 709, 710–16priority 553–5public interest litigation 552–3,

556, 562realisation of assets 551–3wrongful trading 700

moratoria 529nature of procedure 22–3, 181origins of law 12petitions 536–8

administration and 443grounds 147, 148, 537petitioners 536–7service 537

public interest liquidationsaccountability of directors 709,

710–16

854 index






alternatives 543burden of proof 711, 714Cork Report 541costs 547divergent approaches 714–15effectiveness 714–16fault 546FSA approaches 544–5FSA powers 543grounds 541judicial approaches 545–7, 711ministerial approaches 543, 545–8ministerial powers 542–3numbers 541petitioners 541–3process 541–8tensions 543–8value 710

public interest role 552–3, 556receivership and 344training 597transactions defeating creditors 549transparency 219, 237–20, 568voluntary liquidations 23

appointment of liquidators 530–1contracts 533, 534court directions 534creditors’ meetings 530–1, 535creditors’ role 531–2creditors’ voluntary winding up 529duties of liquidators 534–5judicial role 532liquidators’ powers 532–4members’ voluntary winding up 529onerous property 533–4process 529–35registration 535Statement of Affairs 530termination 535trigger 529–30

winding up orderscourt discretion 539effect 539grounds 147, 148, 537

liquidatorsSee also liquidationsappointment, voluntary liquidations

530–1

considerations 181control, compulsory liquidations 540directors 194disclaiming onerous property 533–4duties

reporting unfit directors 181, 717statutory duties 59voluntary liquidations 534–5

fees 568fiduciary position 535functions 26

compulsory liquidations 540–1independence 195interim liquidators

compulsory liquidations 538, 539public interest liquidators 547

joint liquidators 531officers of the court 196, 539powers

compulsory liquidations 539–40voluntary liquidations 532–4wrongful trading 698–9, 748–9

public bodies under HRA 569qualifications 531, 567termination of office 535, 541

litigation funding, liquidationsassignment of proceeds 556–9conditional fee arrangements

559–61Cork Report 550creditors 556ISA funds 562–3law reform 561overview 550–63preferences 708, 709, 710–16priority 553–5public interest litigation 552–3,

556, 562realisation of assets 551–3third parties 556–9wrongful trading 700

Lloyds TSB 165loan stock 73loans. See corporate borrowingLondon Approach

accountability 316Bank of England role 251, 308–9co-ordination 299, 307

index 855






London Approach (cont.)costs 309–10credit derivatives 311–12cross-border cases 311debt trading 314–15expertise 315–16, 521fairness 316–17formalising 314–15lack of moratorium 310, 314limitations 309–17mechanism 251new capitalism and 311–14, 517–25,

781numbers 309overview 307–17phases 308tenets 308trade creditors 310–11value 308–9, 315

LoPucki, L.M. 58, 458Lovallo, D. 157

MacIntyre Hudson 167, 168management

bank control 267characteristics of bad managers

159–60expertise, London Approach 315–16external scrutiny 265extravagance 158family members 158financial control 152–4fraud 158governance structure 159information 155–7legitimation 49–55marketing errors 158mismanagement 154–60, 174–7,

318, 435–8poor leadership 159psychological bias 157receivers 332, 336reforms, informal rescue 317–18responses to change 157–8skills 158, 175

management buyouts 83, 318, 460Mandelson, Peter 247Marconi 272, 298, 419

Maunder, C. 487Maxwell insolvency 186–7, 195, 218McCormack, G. 409, 552, 571measuring 48–52mergers and takeovers 480mezzanine financing 83–4Miller, P. 149Milman, David 332, 482, 495, 496, 531,

550, 561, 563, 564, 585, 650,654, 671, 700

misfeasanceadministrators 444assignment of proceeds 559directors 175, 684, 705–10, 748

Mitterand, François 776Moffat, G. 654, 657Mokal, R. 58, 602monitoring credit

costs 95–9, 102–6, 348credit derivatives 137procedures 256purposes 352–3securities and 95–9, 102–6, 174

Moore, J. 422–6moral hazard 111, 137moratoria

administration 22, 365–6, 375–8, 384–5CVAs. See CVAsinterference with private rights 376receivership and 344schemes of arrangement and 485–6United States 177, 279

mortgageschattels 75, 91land 91

Moss, G. 279–80, 342Moulton, Jon 467–8, 474Mumford, M. 396, 455, 472, 562,

699, 710My Travel 419

Nabarro Nathanson 186National Audit Office (NAO) 719,

720, 734national insurance

contributions 612–13, 757employee payments. See employees

National Westminster Bank 324

856 index






new capitalismSee also credit derivativesassessment 133dispersal of equity 419efficiency 136fragmentation of interests 517impact 19, 84, 781–2lack of transparency 138–9London Approach and 311–14new rescue culture and 271–2risk taking 136–8

New Zealanddirectors’ duties 682, 689group debtors 587–8, 591litigation funding 562, 710rescue procedures 291, 292subordinated debt 622

Nolan, R. 623non-consensual securities 76non-domestic rates 417Northern Rock 136Norway 167notes, medium-term 84

Obank, Richard 312Office of Fair Trading 610, 654, 660, 719Official Receivers

disqualification of directors 717functions 182interim liquidators 538, 539, 547liquidators 23officers of the court 209

Ogus, A. 609–10, 660ombudsmen

Insolvency Ombudsman 198, 208,213, 218

Parliamentary Ombudsman 209Orbis 455Otty, L. 268overdrafts

assessment 121–2efficiency 122recall 121SMEs 81withdrawal 153, 165

Pandit, N. 495, 496Paradigm Dominance Game 58

pari passualternatives 666–74

chronological ranking 670ethical ranking 670–1policy grounds 672–3size ranking 671–2

application, unencumbered assets600

bypassing 630–1property v personal rights 630quasi-securities 641–8retention of title 641–8securities. See securitiestrusts 648–65

confused operation 668–9contracting out 628–30efficiency 601–2exceptions. See pari passu

exceptionsfairness 602limited role 667–9principle 599rationale 601–2, 628strong and weak versions 599

pari passu exceptionsdeferred claims 624–5judicial discretion proposal 626–7liquidation expenses 602–4overview 602–27post-liquidation expenses 603–4preferential debts. See preferential

debtsrevisiting 625–7set-off. See set-offstatutory super-priority 661–2subordination 621–4

Parliamentary Ombudsman 209Parry, R. 550, 561, 564PAYE 605pensions

contributions, preferential debts606, 756

insolvency and pension rights 766–7transfer of undertakings 765–6

Pensions Regulator 766–7personal insolvency. See bankruptcypersonal rights, v property rights 630philosophy. See visions of insolvency

index 857






phoenix companies 174, 461, 577–8,680, 703–4

plant and machinery, charges over 414pledges 75, 637Plevin, M. 458, 460Pollard, D. 756Posner, R. 595Power, M. 149, 156, 263Pratten, C. F. 156pre-insolvency

CVAs 228–9early warning signals 266–7management control 267new culture 254–72twilight zone 222, 781

pre-packaged administrationaccountability 463–4advice on 234conflicts of interest 460control strategies 465–9

evaluation 456–65expertise 465–6fairness 466–7judicial oversight 474–6legislative reforms 476–7managerial solutions 465–6, 472–3professional ethics 466–7, 473–4regulatory solution 467–9, 474–7

efficiency 456–9evaluation 456–64expertise 459–61, 465–6fairness 453, 460–3, 466–7growth 18, 454–6legal risks 458meaning 453returns 463speed 457, 459transfer to connected parties 461transparency 463–4, 465United States 454–5victims 462vulture funds and 457

preferencesadministration 440balance sheet test 148burden of proof 572class actions 708Cork Report 572, 573–4

directors’ liabilities 704enforcement 705–10

information 705–7liquidations 534, 549, 571–5

funding litigation 554, 555litigation funding 708, 709, 710–16meaning 571statutory presumption 564strengthening rules 639–40subjectivity 563–4, 571, 572–4

preferential debtsadministration 387–90

employees 416coal and steel levies 606Cork Report 15, 604

employees 612, 613fairness 611subrogated rights 613taxation 605, 606

Crown debtsabolition 108, 248, 262, 387, 398,

606–7reform 625

CVAs and 179efficiency 607–11employees

2002 Enterprise Act 606administration 416directors 613–14effect 756efficiency 608–11fairness 612–14, 775pension contributions 606ranking 124

fairness 611list 605–6meaning 604pari passu exceptions 604–14ring-fenced part 606–7, 608statutory super-priority 661–2

Prentice, D. 571, 626Price Waterhouse 315, 349private equity groups

corporate rescue and 139growth 135–6new source of credit 295–8popularity 136short-termism 297

858 index






proceduresbenchmarks. See benchmarkscategories 179–80, 330changes 517–18design, efficiency 519–20packages 518, 524rescue rates 345

professional bodies. See self-regulationproperty disposal, liquidations and

538, 549, 570–1Proturn 268public confidence, Cork Report 222public interest

administration 180, 379communitarian vision 42Cork principle 30, 180, 379creditors and 218disqualification undertakings

718–19, 723, 727–32insolvency processes and 53, 64IP regulation 210liquidation litigation, funding 552–3,

556, 562liquidations. See liquidationsreceivership and 358visions of insolvency 601

public policyadministration 380contracting out and 629control of directors 712–13, 753CVAs 512–13debt/equity swaps 322enterprise culture 780objectives of insolvency law 31ranking of debts 672–3receivership 356, 359–60regulation of directors 679rescue culture 247–8, 747super-priority funding 406–9

publicity, corporate troubles 251–2purchase money security interests

(PMSIs) 638–9

quality assurance 263quasi-securities

See also specific mechanismsassessment 125–33bypassing pari passu 641–8

dilution of floating charges 119efficiency 129–33, 641lack of transparency 635mechanisms 77–9, 641ROT. See retention of titlesecurities and 130–1uncertainties 131–3

R3 (Association of Business RecoveryProfessionals)

administrationnew procedure 390rescue rates 368returns for unsecured creditors

432causes of failure

lack of funding 405mismanagement 318

CVAs 498, 500early rescue intervention 248informal rescue

cost reductions 319debt restructuring 319success rates 325

lobbying, non-domestic rates 417pre-packaged administration 456on receivership 360regulation of IPS and 204, 206renaming 185rescue funding 502rescue rates 345standards 216

Rajak, H. 757ranking of debts

alternatives to pari passu 666–74benchmarks 666chronological ranking 670ethical ranking 670–1policy grounds 672–3

pari passu. See pari passupreferential debts. See preferential

debtsunsecured loans 124–5vulnerability and 666–7,

672, 673rating agencies 294Ratners 321Rawls, John 33, 38, 39, 56

index 859






receiversSee also receivershipaccountability 354–5, 359agents of companies 334agents of mortgagees 334, 339appointment 25, 26, 328–9, 331–3control 334death 340duties

common law 336–9duty of care 336–8, 341–4, 354fiduciary duties 358judicial list 338reporting unfit directors 717statutory duties 339–40to creditors 181, 334, 442

expertise 353–4functions 329, 334officers of the court 26powers 333–4

implied 333management of company 332, 336

private professional interests 344qualified IPs 20, 340–53removal 340, 344reports 339resignation 340

receivershipSee also receivers1986 Act 331–402002 abolition 177, 192, 254, 275,

327–8, 358–61, 381, 432administration and 22, 340, 365–6,

368–9, 386circumstances triggering 331–2contracts and 332–3

employment contracts 333, 335–6,373

Cork Report 330–1, 355,358–9, 361

court jurisdictionappointment of receivers 329directions 333

creation 331CVAs and 492debentures and 180, 331–2development 20, 328–31effect 332–3

efficiency 340–53concentrated creditor theory

347–53, 397returns 351

enforcement of floating charges 20,257, 327–8, 331–3, 636

expertise 353–4fairness 355–8focus on administrative receivership

330institutional supporters 341Law of Property Act 1925 20, 395–6liquidations and 344nature of procedure 20–1, 180–1, 328no moratorium 344ordinary receivership 20–1, 328–31other insolvency procedures and 332pre-packs 465primary objective 347public interest and 358rescue and 344–7, 354

statistics 345statistics 367

1998 3492006 361post-2002 Act 392rescue 345

survival 327, 360termination 340

administration 22, 64, 340, 365–6,386

redistributional issuescommunitarian vision 41rescue 245–6securities and 108–9visions of insolvency 601wealth maximisation model 36–7,

61–2redundancy pay 416, 757, 762, 771–2refinancing, advice 234Regional Venture Capital Funds 72regulation

financial services 205–6insolvency and regulatory

compliance 163–4insolvency practitioners. See insolvency

practitionerslegal services 204–5

860 index






pre-packaged administration 467–9,474–7

self-regulation. See self-regulationturnaround professionals 236–7

rehabilitation. See rescueReilly, Michael 272reluctant creditors 74, 113reporting

See also accountingbest practice 260–1boilerplate reviews 259new requirements 258–61Operating and Financial Reviews

(OFRs) 258payment practices 168–9

rescueSee also turnaround professionalsaccountability 250–1administration and

2002 Act 392–426effectiveness 393objectives 382–3pre-2002 Act 366–78pre-packs 456–7priority 180, 275, 428

companies v businesses 244, 289comparative approaches 276–92

Australia 291, 292England 278France 290, 291–2Germany 290–1, 292Ireland 290, 291Japan 290New Zealand 291, 292South Africa 289–90Sweden 291, 292United States. See United States

conflicting interests 248, 251CVA mechanism

efficiency 495–504success rate 345

early intervention 224, 248efficiency 249expert judgements 249fairness 250–1finance. See rescue fundingformal v informal routes 251–3,

294, 418

hedge funds and 139informal. See informal rescueinsolvency law objective 41nature 243–4objective of insolvency law 35outcomes 244pre-pack administrations 456–7rationales 245–51receivership and 344–7, 354redistributional issues 245–6rescue culture 18–19, 192

audit explosion 263–5bank strategies 265–8, 271, 273–4Cork Report 16, 18, 30, 246, 254, 363directors’ approaches 273–4early warning signals 266–7emergence 221–2, 246–8Enterprise Act (2002) 254IP approaches 274–5judiciary 276management control 267new capitalism and 271–2overview 253–76philosophical change 254–72public policy 247–8, 747recasting actors 273–6reporting requirements 258–61risk management 259–62, 263–5,

268–9stakeholder confidence 269turnaround finance 269turnaround professionals 276unsecured creditors 275

rethinking 517–25statistics 223–4

1993 367–8post-Enterprise Act 346receivership 345

timescales 244timing 234TUPE and 770–1

rescue fund trusts 661–3rescue funding

charges on book debts 410–15CVAs 497, 502–3raised profile 269super-priority funding 404–10, 429,

503, 661–2

index 861






research and development 157reservation of title. See retention of titlerestraining orders 712–13, 715–16resulting trusts 650retention of title

assessment 125–7bypassing pari passu 641–8clauses 642–5

all-monies 644–5, 646Cork Report 130, 645, 646, 647enforcement, small traders 198Europe 130fairness 645–8fiduciary relationship 642–4floating charges and 127, 647growth in value 646in rem rights 642invisibility 645–6, 647–8Law Commission 126legal requirements 176mechanism 78obstacles 133pre-packs and 458transaction costs 130uncertainties 132unequal availability 646unequal bargain power 646

risk aversion 744–5risk management 254, 259–62, 263–5,

268–9risk taking, new capitalism 136–8Rolls Royce 160, 163, 379Rowley, C. 609–10, 660Royal Bank of Scotland 167, 267,

324, 345Rumney, Graham 200Rusch, L. J. 56Rustling, G. 462

Saatchi and Saatchi 321sale and lease back 78, 107, 116–17, 128sale and repurchase 78schemes of arrangement

advantages 481–2Companies Act (1948) 364Companies Act (2006) 479–88Cork Report 483, 485, 486, 487court approval 480–1

CVAs and 25disadvantages 483–6flexibility 481group reorganisation 482managerial initiatives 486minority interests 483–4no moratoria 485–6notifications 484overview 24–5, 479–88popularity revival 486procedure 480–1reform 487–8registration 485retention 515–16use 480

Schermer, B. S. 42Scottish Law Commission 738Secretary of State

Code of Conduct 193–4control of directors 712–13disqualification of directors 717disqualification undertakings

751–2licensing of IPs 193oversight of IPs 212

securitiesSee also quasi-securitiesadvantages 88–91assessment 87–120bypassing pari passu 89, 631–41

bargain argument 631–3notice argument 634–5, 640property v personal rights 630reform proposals 635–41value argument 633–4, 638–40

categories 74–7consensual 87CVAs and 179, 490

moratoria 493definition 377–8efficiency 93–106, 631

adjustable priority rule 114–17case against 99–106, 141–2case for 93–9competitive distortions 101concentrated creditor theory 110facilitating capital raising 93–5floating charges 94, 118–19

862 index






incentive to inefficient finance99–102

investigation and monitoring95–9, 102–6, 174

ring fencing 109–10fairness 120, 631–5

bargain argument 631–3involuntary creditors 633, 634notice argument 634–5, 640power asymmetries 632reform 635–41value argument 633–4, 638–40

fixed charges 91, 94or floating charges 258wide drafting 757

floating charges. See floating chargesimproving 106–20, 635–41

abolition 106–7adjustable priority rule 114–17fixed fraction regimes 107–10information 112–14no secured lending on existing

assets 114, 638priority 107rethinking floating charges

117–20tort insurance 110–12

liquidations, excessive protection563–4

London Approach and 311non-consensual 87operation of law, by 76pre-packs 455pressures 747purchase money security interests

(PMSIs) 638–9quasi-securities and 130–1

securitisation 84, 134–5self-regulation

insolvency practitioners 184–5, 186accountability 199–200Cork Report 232–3, 234fine-tuning RPB regulation

210–20, 221fragmentation 201, 205, 211–12,

217–18independent review board 215–20liquidations and 568

monitoring capacity 212Ombudsman proposals 213, 218

legal services 206monitoring and investigation 200–1pre-packs 466–7, 473–4RPB reports 200turnaround professionals 231–4

Selkirk, Rod 135Selvam, V. 619Seneviratne, M. 201Serious Fraud Office 542set-off

Cork Report 618–20deferral 625fairness 620–1mandatory rules 617–21mutuality condition 615–16pari passu exception 614–21reform 625scope 616–17

shadow directorsdefinition 590–1, 720–1informal rescue and 300–3wrongful trading 105, 590–1

sham companies 755shareholders

accountability to 50administration and 379–80, 419–21creditors of companies 73CVAs, approval 512–14dividends and liquidations 534–5,

577insolvency and 519insolvency ranking 85liquidations, dividends 534–5rescue and 250US Chapter 11 procedures 282, 288

short-term financing 120, 153, 165Shuchman, Philip 44–5signalling theory 103Signet 321Sikka, P. 216Simmons, M. 751small and medium

companies. See SMEsSmall Business Service (SBS) 72Small Firms Loan Guarantee Scheme

(SFLG) 72, 86, 503

index 863






SMEsadministration, use of procedure 393bank overdrafts 81, 153CVAs, moratoria 491–5definition of small company 491enforcement of reservation of title 198equity financing 82, 86, 87late payment of debts and 165–71marketing errors 158receiverships 349, 350sources of funds 80–3typical failures 172

Smith, Travers 200, 751social security contributions 605, 757Social Security Select Committee 218Society for Practitioners in Insolvency

(SPI)age of failing businesses 172CVAs 498establishment 185informal rescue, cost reduction 319mismanagement as cause of failure

154, 318rescue finance 405, 502

Society of Turnaround Professionals/IFTCode of Ethics 233, 271establishment 268functions 231membership 232

South Africa 289–90special purpose vehicles (SPVs) 134–5,

403Spencer, J. 644stakeholders

administrationCork Report 180, 379judicial approaches 376pre-2002 Act 378–80proposals 418–19, 422

broad-based contractarianism 38–40communitarian vision 40–3creditors’ bargain theory and 34, 37developing confidence 269directors’ duties on insolvency 693employees 775–6forum vision 43–4interests 64new business culture 263

professional ethics and 473receivership and 181, 355–8shadow directors 301

Statements of Affairs 530statutory super-priority 661–2Stein, J. 159–60Stokes, Mary 49–51, 54subordination

group debts 586–7, 593pari passu exceptions 621–4

super-priority funding 404–10, 429,503, 661–2

Sussman, O. 329, 346, 350, 356,357, 404

Sweden 291, 292syndicated loans 83

Takeover Panel 486takeovers and mergers 480taxation

company failure and 164impact on equity financing 86non-preferential debts 606PAYE 605relief on hire purchase 127relief on leasing 127, 129

Taylor, Joynson and Garrett 738Thatcher government 17Third World debts 122Torous, W. 285tort creditors

adjustable priority rules and 115insurance against claims 110–12involuntary creditors 74, 99,

609–633level of protection 667ranking 609securities and 99

torts, receivers 336–8, 341–4, 354total quality management 263toxic shocks 134trade credit

See also trade creditorsassessment 122–3efficiency 122–3mechanism 71monitoring costs 98rescue periods 229

864 index






trade creditorsadministration 419, 421–2credit insurance 672insolvency practitioners and 219level of protection 667London Approach and 310–11power 610–11pre-packaged administration 455,

462preferences and 707quasi-securities and 131, 645ranking 626receivership and 357rescue and 231risk spreading 608securities and 100, 632

trade unions 773–4transaction costs

failure and 173, 177liquidations 566–7

transfer of undertakings1981 Regulations 7602006 Regulations 761–5collective agreements 773consultation 773–4definition of insolvency proceedings

762, 770efficiency 767–72employees’ protection 760–6employment immediately preceding

763–4ETO defence 764–5expertise 772fairness 775–8pension rights 765–6pre-packs and 458rescue and 770–1variation of terms 763

transparencycredit derivatives and 138–9,

298–9CVAs 506–9liquidations 219, 237–20, 568new capitalism 138–9pre-packs 463–4, 465quasi-securities and 635regulation of IPs 206

reform 207, 219–20

regulation of legal services 205turnaround professionals 230–1values of insolvency processes 57–9

tribunals 408trusts

advances for particular purposes651–4

bypassing pari passu 648–65constructive trusts 650–1consumer prepayments

efficiency 659–61fairness 663–4recognition 654–6

Cork Report 648efficiency 657–63equitable doctrines 648express trusts, conditions 649–50fairness 663–5in rem rights 649Quistclose trusts

efficiency 662–3fairness 663recognition 651–4uncertainties 657–9

recognition 649–56rescue fund trusts 661–3resulting trusts 650twilight trusts 657, 661

turnaround finance. See rescuefunding

turnaround professionalsaccountability 225–7administrators, duties 227–8Code of Ethics 233, 271efficiency 222–5expertise 231–7fairness 227–31growth 230, 268, 270independence 225, 231new rescue culture 276overview 221–37qualifications 233regulation issues 236–7self-regulation 231–4services 224, 234, 237transparency 230–1

Turnbull Report 259twilight zone 222, 781

index 865






UK High Technology Fund 72uncertainty. See certaintyUNCITRAL 31, 595undervalue transactions

administration 440balance sheet test 148burden of proof 564class actions 708defrauding creditors 578–9directors’ liabilities 704

enforcement 705–10fairness 575–9good faith 577information 705–7liquidations 534, 549litigation funding 555, 708, 709,

710–16phoenix companies 577preconditions for actions 577–8

unfair dismissalconsultation and 772–3payments 416, 757, 769, 771

unfair prejudice, CVAs 509–12, 513–14United States

alternatives to floating charges 120asbestos litigation 460banks, ban on equity securities 323business judgement rule 476Chapter 11 procedures 278–89, 384

abuse 286–7, 502competitive advantage 285–6contract termination 418costs 284–5criticism 283–9delay 283–4, 285–6fault 279–80IP role 282–3judicial oversight 282–3, 284managerial changes 287–8, 428moratoria 279secured creditors 281–2shareholders 282, 288small companies 285super-priority funding 405, 406,

407voting 291

conditional fees agreements 560credit derivatives 271–2

equitable subordination 624form and substance of arrangements

116group creditors 586, 589hedge funds 295insolvency model 39junk bonds 84moratoria 177, 279pioneering attitudes 280pre-packs 454–5, 457, 458, 460,

468–9, 477preference rules 639registration of charges 637reluctant creditors 113rescue processes 249retention of title 647, 648securities, information 112sub-prime mortgage crisis 154

unjust enrichment 674unsecured creditors

See also unsecured loansadministration

average returns 432disenfranchising 397equity conversion alternative 424,

426expertise 438information 432pre-2002 Act 379

administrators’ duties 382approaches to protection 668fairness and 120, 631–5influence over directors 747information 112–14liquidations and

approval of litigation 551litigation funding 552

non-adjusting creditors 115pre-packs and 463preferential debts and 607–11receivership and 357rescue and 231, 275retention of title and 645–6security ring fencing 107–10, 255,

275, 387–90, 398, 403, 605, 607unsecured loans

See also unsecured creditorsassessment 120–5

866 index






bank overdrafts 81, 121–2Cork Report 15efficiency 123–5floating charges and 117–20mechanisms 77ranking 124–5securities and. See securitiesshort-term financing 120trade credit. See trade credit

utilitarianism 670–1utility suppliers 419, 504, 604

values. See benchmarksVAT 605venture capital 71, 82–3Verrill, L. 295Viguerie, S. 157Vilaplana, V. 456visions of insolvency

See also benchmarksbroad-based contractarian approach

38–40communitarian vision 40–3, 48, 601confusion 780–3contractarian vision 32–7, 48Cork principles 29–32, 63, 65, 677–9creditors’ bargain theory 32–7, 48,

602creditors’wealth maximisation 32–7,

48, 61–2, 245–6, 601eclectic approach 45–8ethical vision 44–5, 48explicit values approach 52–63,

64–5, 783–7extra-economic factors 145forum vision 43–4, 46, 48models 32–48, 600–1operation of competition 144public policy 31redistribution 36–7, 41, 61–2, 601rehabilitation 35

voluntary arrangements. See CVAs

vulnerable creditors 666–7, 672, 673vulture funds 457

Waddington, David 760Wallace, Phil 211Walters, A. 201, 328, 343, 346, 348, 393,

552, 559Walton, P. 464, 467, 468, 610, 611, 612warning signals 266–7Warren, E. 45–6, 47Webb, D. 350Welby, R. 552Wheeler, S. 132, 198, 568, 569, 570,

734–5, 748whistleblowing 496Williams, R. 734Wilson Pitts 468–9winding up. See liquidationsWinterborne, P. 561WorldCom 261, 263Worthington, S. 649Wray, C. 225wrongful trading

agency costs 742–4assignment of proceeds 558, 559Cork Report 661, 678, 698damages 549defence 699disqualification of directors 717,

737–8effect of rules on failure 175, 176–7efficiency of system 741–50enforcement by liquidators 698–9,

748–9fairness of system 752funding litigation 554, 555, 700group companies 590–1informal rescue and 300–3judicial approaches 447, 700–3shadow directors 105, 590–1statutory provisions 703

rare use 700

index 867






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