United Kingdom insolvency law

United Kingdom insolvency law

United Kingdom insolvency law deals with the insolvency of firms in the United Kingdom. The primary pieces of legislation are the Insolvency Act 1986 and the Enterprise Act 2002.

History

*Bankruptcy Act 1542
*Statute of Anne Bankruptcy Act 1705

Company law

However, there are insolvency practices ("Administrators") which aim to protect the creditors of the insolvent individual or company and balance their respective interests. Alternatives such as Company Voluntary Arrangements and Administration in the UK reflect this shift towards a rescue culture, a term popularised through the Cork Committee (1984).

When determining whether a gift or a payment to a creditor is an unlawful preference, both the date of the insolvency and the date of the bankruptcy – the liquidator or administrator will be able to recover money paid to a creditor as a preference if paid within six months (or two years if the creditor is a person connected to the company) preceding the date of liquidation and the company was insolvent at the time. In addition to unlawful preferences, liquidators and administrators in the UK may also challenge transactions at an undervalue, extortionate credit transactions, some floating charges and transactions defrauding creditors.

In the UK, the term bankruptcy is reserved for individuals; a company which is insolvent may be put into liquidation (sometimes referred to as winding-up).

*Insolvency Act 1986, as amended by the Enterprise Act 2002
*Liquidation
*Administration order, by the court in order to effect a rescue of the company
*Administrative receivership and receivership, initiated by floating charge holders.
*Creditor, Secured creditor, Unsecured creditor, Preferential creditor

*Trading while insolvent (UK)
*Wrongful trading, s.214 IA 1986, Fraudulent trading, s.213 IA 1986,
*Undervalue transaction

Definition of insolvency

Corporate insolvency is defined as either cash flow insolvency or balance sheet insolvency in the Insolvency Act 1986, Section 123, which reads in part: [cite web
url=http://bankrupt.com/lbr/UK86CompanyInsolvency4.html
title=UNITED KINGDOM - THE INSOLVENCY ACT 1986: COMPANY INSOLVENCY - COMPANIES WINDING UP: PART IV - WINDING UP OF COMPANIES REGISTERED UNDER THE COMPANIES ACTS
accessdate=2008-09-21]

123. Definition of inability to pay debts

(1) A company is deemed unable to pay its debts - ...

(e) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due.

(2) A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.

Cash flow insolvency has recently be re-interpreted [cite web
url=http://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/b2531ae2-cab6-4145-a0c2-3e249b223039.cfm
title=New Interpretation of English Insolvency Law: Re Cheyne Finance PLC
accessdate=2008-09-21] in "Re Cheyne Finance PLC" (regarding a structured investment vehicle) to not only consider whether "current" debts are unable to be paid as they fall due, but also consider whether "future" debts will not be able to be paid. This makes it possible for creditors to call for insolvency earlier.

Labour law

There are a number of provisions which deal with employees' rights upon insolvency, influenced by European Union law's harmonisation measures.

*EC Directive [http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31980L0987:EN:HTML 80/987/EEC] , amended by...
*EC Directive [http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002L0074:EN:HTML 2002/74/EC] (read this one)

*Employment Rights Act 1996 ss.166-170 and 182-190, which allows compensation for up to £270 per week in the event of an employer going insolvent and not being able to pay outstanding wages.

* [http://eur-lex.europa.eu/smartapi/cgi/sga_doc?smartapi!celexplus!prod!CELEXnumdoc&numdoc=61997J0125&lg=en C-125/97] "Regeling v. Bestur Van de Bedrifsvereiniging Voor de Metallnijverheid" [1999] IRLR 379
* [http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62005J0278:EN:HTML C-278/05] "Robins v. Secretary of State for Work and Pensions" [2007] IRLR 270

ee also

*Transfer of Undertakings (Protection of Employment) Regulations 2006
*Enterprise Act 2002
*Wrongful trading (s.214 Insolvency Act 1986)
*UK company law

Notes

External links

* [http://www.insolvency.gov.uk/ UK Government Insolvency Service]
* [http://www.europeanpayment.com Insolvencies in Europe - Consequences on bad-debt write-off rate in Europe (26 countries)]

*The Cork Committee, "Report of the Review Committee on Insolvency Law and Practice", Cmnd 8558 (1982). This report was followed by a White Paper in 1984, A Revised Framework for Insolvency Law, Cmnd 9175 (1984), and these led to the Insolvency Act 1986.


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