Introduction to UK Corporate InsolvencyLloyds TSB Bank plc.ppt

Introduction to UK Corporate InsolvencyLloyds TSB Bank plc Jonathan Lawrence, Celia Hayward and Duncan Batty KL Gates 110 Cannon Street, London EC4N 6AR What is insolvency? When a corporate entity “is unable to pay its debts” (Section 123 Insolvency Act 1986) Tests Failure to pay a statutory demand Execution on a judgement is unsatisfied Unable to pay its debts as they fall due (“cash flow” test) Value of assets less than liabilities (“balance sheet” test) Threshold amount: ￡750 Relevance to Lenders? Likelihood of repayment of loans if borrower insolvent? Loan agreement contains safeguards: chiefly through events of default and acceleration LMA clause 28.6: Event of Default if relevant entity is unable to pays its debts as they fall due or value of its assets is less than its liabilities LMA clause 28.7: Event of Default if liquidator, receiver, administrator, administrative receiver, compulsory manager or similar officer appointed in respect of a relevant entity Consequence? LMA clause 28.20: following the occurrence of an Event of Default the lender/agent can declare all or any part of the amounts outstanding under the facility to be immediately due and payable Question: how does acceleration help the lender? Pre-insolvency: Protection for the Lender Most importantly through security Fixed charge Floating charge Security Trustee Effect? Enforcement and realisation 100% flawless? No… Deficiencies with taking security Floating charges and the “prescribed part” Statutory order of priority of proceeds Moratorium (with certain insolvency proceedings) Deficiencies in realisation Insolvency Procedures Liquidation Administration Administrative receivership and fixed asset receivers (e.g. LPA receiver) Compromise arrangements Background to the Enterprise Act 2002 Came into force on 15 September 2003 Promotion of “rescue culture” Abolition of Crown preference Creation of the prescribed part Receiverships, Administrations and Company Voluntary Arrangements in England and