Provided they have all been registered properly under s.860 CA:

Fixed charge or a mortgage beats a floating charge over the same asset
If more than one fixed charge over same asset, it is priority of creation date
If more than one floating charge over same asset, it is priority of creation date

Registration

A charge must be registered at CH (s.860(7)) within 21 days of creation (s.870(1)) and is available for public inspection (s.869(7)) and kept in company’s registers (s.876)
Company’s responsibility to register the charge (s.860(1)), but in practice it is the lender who does it to reflect their interest (s.860(2))
The original charging document and particulars of the charge should be sent along with the fee
A mortgage or fixed charge over land should also be registered at the LR

Late Registration

The court may grant the power for a late registration where the failure to register was accidental or inadvertent (s.873)
The charge registered late is valid from date of registration, not creation

No Registration

Void against administrator, liquidator or creditor (s.874)
Consider a negligence suit against the solicitor
It is still valid against the company and the debt becomes repayable immediately (s.874(3))

It is a contractual promise not to give any more security over the asset without the creditor’s consent
It will be entered into Form MG01 when the charge is registered to ensure 3^rd Ps have actual knowledge
If more security is given anyway: if the new fixed charge holder has actual knowledge of the negative pledge given to a floating charge holder, then he will lose his priority over them

Powers of Secured Creditors

Creditor wants to ensure they are in the best position to recover their money if Co. gets into financial difficulty and therefore they want to secure the debt against the debtor by charging the debtors property by means of:

Fixed Charge

A charge that attaches immediately to a fix asset belonging to Co. (premises, machinery)

Created by deed.

LPA Receiver

If not in the deed, the power to appoint a receiver is implied by s.101 LPA 1925
They act solely for the charge-holder
Act as agents of the company (s.109(2))
They take possession of the asset and sell it for the charge-holder
Any surplus is returned to the company
If the asset is not valuable enough, the rest becomes an unsecured creditor

Floating Charge

A charge that attaches immediately to a group of assets belonging to Co. which may change from day to day (stock, debtors but usually the whole undertaking i.e. everything Co owns.)

Administrator

Sch B1, Para 59-73 IA give them widest statutory powers
Act as agents for the company (s.109(2))
They will take over the running of the company and try to rescue.
They act in the interests of all the creditors equally

Floating Charge

(created pre-15/09/03)

Administrative Receiver or Administrator

ss.29-41, 39-49 IA gives them wide statutory powers
Act as agents of the company (s.44 IA)
Act solely for the charge-holder
Take over running the company and sell charged assets to repay the charge-holder

Powers of Unsecured Creditors

Petition for the company’s liquidation by either statutory demand or execution of judgment
Suggest a CVA
Apply to court to put the company into administration

Challenging Antecedent Transactions

Always do a timeline of the transaction!
To protect the public, a liquidator, creditor or secretary of State may apply to disqualify a director.

UNFIT TO RUN A COMPANY

Definitions	Transaction that puts creditor, surety or guarantor in a better position on insolvency & Co. desired this	Any creation of a floating charge where there was no fresh consideration	A Co. transfers asset for no consideration or less than value of asset.
Step	Preferences s.239	Avoidance of Floating Charge s.245	Transaction at Undervalue s.238
Is it a suspicious transaction?	Either no consideration was given or a creditor has been put in a better position
Who can challenge it?	Liquidator or Administrator with the court’s consent (s.239(1) and (2))	None required because the charge is automatically void	Liquidator or Administrator with the court’s consent (s.238(1) and (2))
When can it be challenged?	After the company has become insolvent
Is it within the definition?	The person is one of the Co.’s creditors, a guarantor for the Co.’s debts or liabilities (s.239(a)) A transaction that has put a creditor in a better position on liquidation (s.239(b)) The company desired this. This is presumed if with a connected person Company was insolvent at the time of the transaction or became insolvent because of it (s.240(2))	The company was insolvent at the time of the grant of charge or became insolvent because of it (s.245(4)) If charge in favour of a connected person, no need to prove insolvency	Company transfers an asset to another party for no consideration (s.238(4)(a)) or significantly less than the asset’s true value (s.238(4)(b)) Company was insolvent at the time of the transaction or became insolvent because of it (s.240(2)) Insolvency is presumed if a connected person
Is it within the relevant time? s.240 Relevant time = time when the creditor presented his petition for winding up the Co.	There is a Connected Person Transactions two years before the onset of insolvency (s.240(1)(a)) No Connected Person Transactions six months before the onset of insolvency (s.240(1)(b))	There is a Connected Person Transactions two years before the onset of insolvency (s.240(1)(a)) No Connected Person Transactions twelve months before the onset of insolvency (s.240(3)(b))	There is a Connected Person Transactions two years before the onset of insolvency (s.240(1)(c)) No Connected Person Transactions six months before the onset of insolvency (s.240(1)(d))
Is it with a connected person? s.245 & s.439	s.249 IA: a person is “connected” if: they are a D or shadow D of the company or an “associate” of such a person an associate of the company (i.e. if employed by the company) s.435 IA: a person is an “associate” of an individual if they are: The individual’s husband, wife or civil partner; or A relative (brother, sister, uncle, aunt, nephew, niece, half-blood and step and adopted and illegitimate; former husband or wife) of the individual or (a) The husband, wife of civil partner of a relative of the individual or (a)
Effect of the connected person?	Rebuttable presumption that there was a desire to prefer	Rebuttable presumption that the Company was insolvent at the time of the transaction or became insolvent because of it
Defence	None	None	Made in good faith to benefit the company for the purpose of carrying on the business (based on reasonable grounds) – s.238(5)
Court orders	The transaction is voidable (s.241(1)) and the court can either (a) return the proceeds to the company or (b) return the property to the company or order a discharge of a security

EXTORIONATE CREDIT TRANSACTION (s.244 IA) – very difficult to prove that it was grossly extortionate

Step	Wrongful Trading (s.214 IA)	Fraudulent Trading (s.213 IA & s.993 CA)	Misfeasance (s.212 IA)
Who can apply?	Liquidator with court’s consent	Civil: Liquidator with consent Criminal: the CPS	Official Receiver, Liquidator, Creditor or Contributory
When can it be challenged?	After liquidation has begun	Civil: after liquidation begun Criminal: any time	After liquidation has begun
Who is the claim brought against?	Directors and former directors, shadow Ds or anyone participating in management decisions.	Anyone knowingly carrying on a business with the intention to defraud	Officer, old liquidator, administrative receiver (i.e. anyone managing it)
What must be shown	s.214(2) on B.o.P (a) company is insolvent (b) before liquidation, person knew or ought to have known that they were going into liq (c) he was a D at the time	The person took the actions with the intention to defraud creditors (very difficult to show)	Breach of trust or fiduciary duty to the company (s.212(2))
Defence	s.214(3): D took all the reasonable steps to minimise the loss and was reasonable prospect of liquidation (took professional advice & kept full minutes, etc. see note WS 1)	Rebut allegation of knowledge (e.g. if one D was acting fraudulently and the other Ds didn’t know, the ignorant Ds are not liable (Knowingly s.213(2) + actual dishonesty (case law)	Relief (not a defence): if honest, reasonable and fair to be excused having regard to: D taking prof advice Kept full minutes, etc.
Court orders	s.214(1): D makes a personal...

#10296 - Insolvency Ii - Finance and Capital Markets

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