Reports to creditors

Historically we have suggested to clients that it is a good idea to send creditors a brief report of the outcome of any general meeting of creditors held in compulsory liquidations and bankruptcies. We said this because the next statutory requirement to report to the creditors may not arise for a considerable time after the meeting. However, there is now a requirement under the 2010 Rules for annual progress reports to be issued to creditors in such cases commenced on or after 6 April 2010. Having discussed this with the ICAEW and IPA we would now advise you not to issue the extra report.

Outstanding remuneration in bankruptcies and compulsory liquidations

Since in most bankruptcies and compulsory liquidations you will not achieve a 100% recovery of time costs when you are being remunerated on a time cost basis you will have a first charge any subsequent realisations made. Whilst in the vast majority of cases there will be no additional realisations by the OR acting as trustee or liquidator ex officio, just occasionally there will. To ensure that creditors are aware as to what happens in such situations, i.e. to ensure that you are being transparent, we would suggest that you include a standard phrase in your final reports to make it clear that if there are any further realisations then your outstanding remuneration would be paid first.

To help make sure that the OR does not overlook you should further realisations be made then you should also consider making reference to your outstanding remuneration in your letter accompanying the notice of the final meeting that you send to the OR.

Pensions Database

As a follow up to my recent article do not forget to undertake a database search on the previous names of the company. Experience from clients has shown that directors will often forget to notify the pension authorities of the change of name of the company or the PPF will not update their database with the name change such that a search on the current name of the company will give a false negative result.

Chargeholder can participate in the prescribed part

The recent decision in Re PAL SC Realisations (2007) Ltd means that a chargeholder who formally surrenders their security and hence becomes an unsecured creditor for the value of their debt can participate in any distribution of the prescribed part. Such action will be attractive to second and subsequent floating or fixed chargeholders in cases where there is an expected shortfall as against the first chargeholder in administrations and liquidations.

In cases where you are making a distribution of the prescribed part, then in order to ensure that you do not leave yourself open to a claim for negligence by a secured creditor to whom you have not made a distribution then you should formally give notice of intended dividend by way of a distribution of the prescribed part to secured as well as unsecured creditors to ensure that you are made aware of instances where the secured creditor has surrendered their security.

Pensions Regulator has super-priority

The recent decision in Nortel Networks and Lehman Brothers means that any financial support directions issued by the Pension Protection Fund (PPF) once a company is in administration will rank as an expense of the administration, and not as a provable debt. The effect of this decision is to give the PPF super-priority as a creditor ranking above all other creditors. In all likelihood this case will go to appeal, and if that is unsuccessful then hopefully the Insolvency Service will provide a quick legislative fix, just as they did when the Paramount Airways decision on employee’s rights threatened the “old” administration regime.

However, until the decision is either overturned or a legislative fix is provided then its effect is to mean that the Administrator’s remuneration ranks behind the PPF’s financial support directions such that an Administration does not become an attractive proposition for an IP to recommend. Consequently it makes it imperative to check for the existence of a company pension and to ascertain its financial position prior to considering Administration as the best option and to take legal advice on how to proceed.