1.2.2. United Kingdom (England and Wales)

Unlike Germany, the United Kingdom (Lngland and Wales) does not have a unitary

regime of insolvency law, although most of the different procedures can be found in

the Insolvency Act 1 9 8 6 . ' ' Recent changes to the Insolvency Act 1986 aim to secure

the availability of alternatives to liquidation, in particular by accommodating the

rescue of the company.' However, the private interests of creditors inform the decision

as to deployment. In that sense, the insolvency law of the United Kingdom also reflects

the economic account of insolvency law.

A compulsory or (creditors) voluntary winding up are liquidation procedures leading

to the dissolution ot the company.'" All legal processes of unsecured creditors are

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E r o m S t r u g g l e t o C o - o p e r a t i on

staved but secured creditors remain free to enforce their rights.'1 A liquidator is

appointed who will realise the assets and distribute the proceeds to creditors in accordance

with their priority.

As an alternative to liquidation a company may attempt to conclude a compromise

with its creditors. The Scheme ot Arrangement procedure under section 425 Companies

Act and the company voluntary arrangement procedure of Part I of the Insolvency

Act 1986 are specifically designed to accommodate the conclusion of such compromises

between a company and its creditors. Unless it concerns a 'small company',

however, individual creditor action is not stayed in either case. This limits their use

as stand-alone proceedings and it has therefore been common to combine them with

the administration procedure discussed below. In case of a 'small company', its directors

may apply for a moratorium. The moratorium staysail creditor action, including

that of secured creditors. " During the moratorium the company is left in possession

and is allowed to continue trading. It may dispose ot property subject to security

rights, either with consent of the charge holder or with leave of the court. No redistribution

is however intended: the secured creditor will retain his priority in respect of

the proceeds, or the proceeds must be used to discharge the secured claim.'" Moreover,

the secured creditor may request relief which is likely to be granted if the secured

creditor stands to .suffer loss from the stay."

The administration procedure of the Insolvency Act 1986 establishes a framework

which allows for a genuine choice as to which mode ot deployment best serves the

interests of the company's creditors as a whole, particularly by keeping alive alternatives

to liquidation."" The procedure essentially invokes the appointment of an

administrator who will investigate the available alternatives and prepare proposals as

to deployment of the estate." In accordance with the statutory purpose of administra the Struggle over Jurisdiction

tion the administrator will seek to rescue the company as going concern; or, to obtain

a better result tor the creditors as a whole than would be likely if the company were

wound up; or, to realise property in order to make a distribution to one or more secured

or preferential creditors. - Though these objectives are listed in order of preference,

the administrator must act in the interests of the company's creditors as a whole."' In

other words, rescue of the company should not come at the creditors' expense.

In order for the administrator to have an opportunity to reorganise the debtor or sell

viable parts as going concern, a moratorium is provided for as of the moment of application

or filing of notice of intention to appoint."' The moratorium extends to all

creditors, including secured creditors, who may no longer enforce their rights without

the consent of the administrator or leave from the court." T h e administrator is given

the power, and the duty to manage the affairs, business and property of company.""

For these purposes the administrator may also dispose of the property subject to

security rights, though in case of fixed charges or hire-purchase only with leave of the

court." However, the idea is not to have the secured creditor pay for the reorganisation

of the debtor. First, secured creditor's rights are carried over to the proceeds and

minimum open-market value is guaranteed."" Second, secured creditors may ask the

court to have the moratorium lifted. In deciding whether to grant such relief courts

have held that administration should not be conducted for the benefit of unsecured

creditors at the expense of the secured creditors and result in substantive prejudice

of secured creditors."" It may therefore also be necessary for the secured creditor to

be compensated, in order to avoid him being granted relief from the moratorium.

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[ From Struggle to Co-operation

The administrator prepares the decision as to deployment. Within eight weeks of

appointment, the administrator must make a statement of proposals how to achieve

the purpose of administration. 1 Ifthe administrator's proposals concern the rescue

of the company or another alternative to liquidation s/he must summon an initial

creditors' meeting. Creditors mav, by simple majority in value ot those present or

represented, approve proposal with or without modifications or reject the administrator's

proposal. Approval of the proposal itself will however not necessarily resolve

the insolvency of the company. The final resolution of'insolvency', or the adjustment

of debt, will require further a rrangement. Typically this is achieved through a company

voluntary arrangement under Part 1 of the Insolvency Act or a scheme of arrangement

under section 425 of the Companies Act, which provide for their own voting

requirements.

The decision as to deployment should not have redistributional effects, other than

those consented to by the (majority of) creditors themselves. As said, the interests of

the company's creditors as a whole are decisive. Moreover, notwithstanding the moratorium

and the power to dispose of property subject to security rights, the (relative)

position of the secured creditor is maintained. Courts have made it clear that administration

should not be used for redistributional purposes. ' As far as rules of

distribution are concerned, the Enterprise Act 2002 has done away with the Crown

preference. ' The category of preferential debts, to be paid in priority over holders of

a floating charge, is now comprised of essentially sums clue to employees. 1 On the

other hand, the Enterprise Act 2002 also introduced the 'prescribed part', in accordance

to which a certain part of t he assets available is to be set aside for distribution

among unsecured creditors before distribution is made to holders ot a floating charge.