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Table of contents :
Foreword to second edition
Preface
Foreword to first edition
About the authors
Table of Statutes
Table of Statutory Instruments
Table of EC and International Material
Table of Cases
Downloadable precedent/Licence agreement
1 What is Corporate Insolvency?
Introduction
Insolvency law
Insolvency Act 1986
Insolvency (England and Wales) Rules 2016
The Recast Insolvency Regulation and Brexit
Other primary legislation
Other secondary legislation
Judge-made law
Statements of Insolvency Practice
The insolvent entity
Partnership
Limited Liability Partnership
Unregistered companies
Formal insolvency processes
Administration
Company voluntary arrangement
Part A1 Moratorium
Scheme of arrangement
Restructuring Plan
Receivership
Liquidation
Informal arrangements
Introduction
The process
Common features of a workout
Causes of company failure
Statistics
Common features
Loss of market
Failure to deal with tax affairs
Failure of management
General trends
Warning signs
2 Pre-pack Administrations
Introduction
Benefits of pre-packs
Criticism of pre-packs
Case law
Re T&D Industries plc
Re Transbus International Ltd
DKLL Solicitors v Her Majesty’s Revenue and Customs
Re Kayley Vending Ltd
Re Hellas Telecommunications (Luxembourg) II SCA
Clydesdale Financial Services Limited and others v Smailes and others
The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021
Statement of Insolvency Practice 16
Statement of Insolvency Practice 13
Other matters
The appointment process
Employees
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’)
Landlords
VAT
National Security and Investment Act 2021 (‘NSAI 2021’)
Challenging a pre-pack
Insolvency Practitioner’s Complaints Gateway
The Pensions Regulator and the Pension Protection Fund
Future developments
3 Purchasing Vehicles and Insolvency Act 1986, s 216
Introduction
Shares or assets?
Method of sale
The sale process
Hive-down
Introduction
Hive-down agreement
Hive out
Insolvency Act 1986, ss 216 and 217
Introduction
What is a prohibited name?
Criminal liability
Civil liability
Permission of the court
Excepted cases
Conclusion
4 Due Diligence
Introduction
Essential due diligence
Let the buyer beware
What to investigate
Title to the target’s shares
Who owns the company’s shares?
Registration of trusts and their beneficial owners
Title to the target’s assets
Capacity of the seller
Consents/approvals required
Unknown or understated liabilities
Arrangements infringing competition law
Connected party transactions
Forms of due diligence
Accountants’ report
Legal due diligence report
Physical inspection
Seller’s disclosure letter and documents
Summary
Appendix
Due Diligence Checklist
5 Raising Funds
Valuation and price
Payment terms
Fixed cash terms
Variable cash terms
Deferred consideration
Shares
Loan notes
Raising cash
Bank funding
Other funders
Challenger banks
Invoice financing
Private equity/venture capital and debt funds
Asset financing
Stock financing
Government-backed schemes
Business angels
Crowdfunding
Peer-to-Peer (‘P2P) Lending
Directors’ loans
Equity finance
6 Secured Creditors
Security interests
Charge
Mortgage
Lien
Pledge
Other forms of ‘security’ – quasi-security
Retention of title
Set-off
Invoice discounting or factoring
Finance leasing and sale and leaseback
Hire purchase and conditional sale
Commercial Rent Arrears Recovery
Introduction
What can a landlord exercise CRAR for?
Procedure
What goods can CRAR be exercised over?
What is the effect of an insolvency proceeding on CRAR?
Recovery from a sub-tenant
Measures introduced in response to the Covid-19 pandemic
Creditors with the right to distrain
Validity of security
Terms of the security interest
Perfection
Priority
Corporate benefit
Financial assistance
The rights of a secured creditor
Introduction
Enforcement of security
Receivership
Administration
Financial Collateral Arrangements (No 2) Regulations 2003
Assignment of security interests
The position of an invoice discounter/factor
The position of a secured creditor
Introduction
Classes of assets
Assets held on trust
Order of priority of payment
Administrators and secured creditors
7 Goodwill, Intellectual Property Rights and Data Protection Act Issues
Goodwill
Goodwill, VAT and transfer as a going concern
Intellectual property rights
Data protection law
2.12 Merger, acquisition, and business re-organisation
2.12 Merger, acquisition and re-organisation
Data protection clause example
Summary
Appendix
Insolvency Service Guidance on ‘Re-use of company names’
8 Excluded Assets
Introduction
Book debts
Books and records
The company’s books and records
The office-holder’s books and records
Business name
Cash
Claims
Customer contracts
Intellectual property rights
Premises
Third-party assets
Retention of title assets
Shares
‘Catch all’ clause
9 Employees
Introduction
General provisions of TUPE
Specific TUPE provisions where the seller is insolvent
Introduction
‘Relevant insolvency proceedings’
Relevant insolvency proceedings – non-transfer of certain debts
Relevant insolvency proceedings – permitted variations to contracts
Relevant insolvency proceedings – dismissal of employees
‘Bankruptcy proceedings or any analogous insolvency proceedings’
Bankruptcy/analogous insolvency proceedings – no transfer of employees or automatic unfair dismissal
Information and consultation
Introduction
The information to be given
The obligation to consult
‘Special circumstances’ defence for failure to inform or consult
Liability for claims
Where the seller is insolvent
Employee liability information
Collective redundancies
Overlap between TUPE and collective redundancy consultation
TUP and payments from the NIF
Liquidation
Administration
Debts covered under the statutory scheme
Debts due as at the appropriate time
Debts that transfer
TUPE checklist
10 Pension Schemes
Introduction
Workplace pensions
TUPE
Pension issues on the transfer of the business
Defined benefit schemes
Defined contribution schemes
Future arrangements
Exceptions to the general rule
Existing pension scheme
Bulk transfer payments
The Pensions Regulator
Introduction
Powers
Financial Support Directions and Contribution Notices
Clearance statements
New criminal offences
Other powers
Pensions issues on insolvency
Winding up the scheme
Notice obligations
Scheme transfer to the PPF
Nortel and Lehman Brothers
11 How to Deal with Existing Customers and Work in Progress
Advance protection
Rights to vary contracts
Other contract terms
Other credit issues
After a customer goes out of business
Bona vacantia
Purchase agreement and assignment of contracts
Work in progress
Practical steps to take if a customer is in difficulties
Checklist of practical immediate steps
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 and Debt Pre-Action Protocol
Acquiring the customer’s business and contracts – Insolvency Service Guidance
‘Your role as a creditor
Buying a business – taking over a project
Summary
12 How to Deal with Suppliers
Assigning and novating supplier contracts
Tactics
Negotiation with suppliers
13 Leasehold Premises
Introduction
Administration
Part A1 Moratorium
Receivership
Liquidation
Disclaimer
Company voluntary arrangement (‘CVA’)
Informal restructuring
Commercial Rent Arrears Recovery (‘CRAR’)
Forfeiture
Introduction
Forfeiture on insolvency
Method of forfeiture
Relief from forfeiture in cases of insolvency
Assignment
Introduction
Assignment by the company
Assignment by an administrator
Assignment by a liquidator
Assignment by a receiver
Assignment by a mortgagee
The assignment
Licence to occupy
Surrender
Introduction
Form of surrender
Other options available to the tenant
Other remedies available to the landlord
Commercial Rent (Coronavirus) Act) 2022
Appendix
Precedents
A. Business and asset sale agreement
B. Assignment of intellectual property rights
C. Novation of contract
D. Sample retention of title clauses
E. Debenture
F. Guarantee and indemnity
G. Guaranteed Liabilities
H. Certificate confirming independent legal advice
Index
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Buying and Selling Insolvent Companies and Businesses Third edition

Buying and Selling Insolvent Companies and Businesses Third edition

Ken Titchen

Solicitor, Gateley Legal, www.gateleyplc.com

Susan Singleton

Solicitor, Singletons, www.singlelaw.com With thanks to Keith Arrowsmith

BLOOMSBURY PROFESSIONAL Bloomsbury Publishing Plc 50 Bedford Square, London, WC1B 3DP, UK 1385 Broadway, New York, NY 10018, USA 29 Earlsfort Terrace, Dublin 2, Ireland BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc © Bloomsbury Professional 2022 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. E S Singleton and K Titchen assert their right to be identified as authors under the Copyright, Designs and Patent Act 1988. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/opengovernment-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2022. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN:

PB ePDF ePub

978 1 52651 908 5 978 1 52651 909 2 978 1 52651 907 8

Typeset by Evolution Design & Digital Ltd (Kent) To find out more about our authors and books visit www.bloomsburyprofessional. com. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters

Dedication To my family and friends who have supported me over the years, I thank you. To my mother, whose tales of life in a solicitors’ practice led me to become a lawyer, particular thanks for showing me the way to a long and fulfilling career. Ken Titchen To my solicitor daughters Rachel and Rebecca, my twin sons Sam and Joe who completed the Legal Practice Course in 2022 and qualify as solicitors in 2024 – may you have as much fun in law as I do, and to my oldest son Ben. To my grandchildren Rose and Frederick and their new cousin Tabitha Mary – you have it all before you. Susan Singleton

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Foreword to second edition Three years have passed since the first edition of this book was released … three summers, with the length of three long winters. It has been bleak weather and bleaker economic times. In fact it has been so bleak that even Insolvency Practitioners have been feeling the pinch. Charles Dickens would have loved this era and would have found ample material for a few cold hard novels, with happy endings of course. When I penned the foreword to the first edition I thought then that the immediate future would bring many administrations of distressed companies and many businesses for sale. In fact, since then Western Europe has seen a period of economic stagnation, high unemployment, low demand and low interest rates. Inhabiting this parched corporate landscape are the charmingly named Zombie Companies, Golem like entities with an existence but little life. And yet in this grey economic climate Ken’s and Susan’s Buying and Selling Insolvent Companies and Businesses has flown off the shelves. Funding for business purchases and for investment has not been easy and so the skills involved in maximising value when buying and selling insolvent businesses have become more important than ever. It is these very skills that this book has helped to hone for the current generation of restructuring professionals. The politics of Austerity and of trying to balance the nation’s books have ­translated themselves into new legislation and this book has been updated in order to reflect the changing corporate environment and the new hurdles which need to be cleared when dealing with already distressed businesses. And, of course, it is not all bad news as there are the new provisions to make UK PLC stronger and more adaptable to change. This mercantile adaptability has been the mainstay of the UK, and in particular the City of London, since the Middle Ages. And so the chapter on Employment covers the halving of the proposed period of consultation when redundancies of over 100 people are being dealt with, thus helping businesses to adapt more quickly to a changing environment. The chapter on Raising Funds covers the emergence of such schemes to lend money to businesses as the Business Finance Partnership, the National Loan Guarantee Scheme and Finance for Lending Scheme. These initiatives are helping to replace the funds which used to come from the high street banks before their appetite for risk collapsed culminating in an enforced starvation diet for some of their clients. The chapter on Leasehold Premises shows us how insolvent businesses are now more likely to survive and to be sold successfully, as pre administration rent is confirmed as an unsecured claim as opposed to a cost of the administration. As regards balancing the nation’s books the chapter on Pension Law introduces us to the new environment of vastly increased employers’ workplace pension vii

Foreword to second edition obligations. The chapter on Pre-Packs reminds us that whilst it is important for the nation to be able to dynamically reprocess its ailing businesses and get them back making a contribution to the country’s coffers, it is important that this process inspires confidence and trust in the business community through it being transparently honest and fair. And, on the technical side, Chapter 1 briefs us on the confused state of the case law dealing with the process of putting companies into administration and reminds us of the common sense approach as to who to give legal notice to in such circumstances … everyone!! The world and business have become more regulated and complex. There is no place for flabby companies and woolly thinking. Ken’s and Susan’s book reflects this changing environment and is keenly to the point and focused on briefing its readers as to what they need to know in order to successfully restructure a distressed business, whether they are selling or buying one. Finbarr O’Connell, Smith & Williamson LLP http://www.smith.williamson.co.uk/ May 2013 Smith & Williamson is a leading independent provider of investment management, accountancy, tax, corporate and financial advisory services to private clients, corporates, professional practices, and non-profit organisations. With 11 principal offices in the UK and Ireland, 1,500 people and an international capability in over 100 countries, its aim is to provide an innovative global service. Finbarr O’Connell is a partner in the Restructuring and Recovery Services department at Smith & Williamson. He has 30 years’ restructuring and turnaround experience at the highest level. He is a specialist in Fraud and Asset Tracing work and is constantly surprised that nothing surprises him anymore. Finbarr is a past president of the Insolvency Practitioners’ Association and is a Fellow of the Institute of Chartered Accountants in Ireland. He is also a Licensed Insolvency Practitioner.

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Preface When writing the preface to the first edition of this book in 2010 we noted that since the idea was first mooted to write the text, the business and political landscape and the law in which the subject matter of the book sits had developed rapidly. In the preface to the second edition in 2013 we identified certain key themes prevalent at the time, including high profile insolvencies in the UK, concern about pre-pack administrations, the courts balancing the interests of landlords and tenants and companies looking to downsize their property portfolios using an insolvency process. On writing the third edition in 2022 it seems that a lot has changed since the earlier editions, but at the same time nothing has changed. The restructuring and insolvency world is still grappling with the same issues.  There have been some very significant changes in insolvency law since 2013. A brand new set of Insolvency Rules came into effect on 6 April 2017. The recast EU Insolvency Regulation, in force from June 2015, applied to insolvency proceedings from June 2017. The Corporate Insolvency and Governance Act 2020 (CIGA 2020) came into force on 26 June 2020 with a series of temporary and permanent measures expanding the toolkit available to companies and practitioners navigating a way through the unprecedented economic impact of the covid-19 pandemic. Then there was Brexit, and the impact of the end of the transition period on 31 December 2020; plus, the Pre-pack Regulations coming into force on 30 April 2021. Not to mention the indirect impact of other legislation such as the National Security and Investment Act 2021 and the Pension Schemes Act 2021. However, many of the drivers to change remain the same as when previous issues of the book were published. In recent years we have continued to see high profile business failures, such as House of Fraser and Debenhams, caused by external pressures and changing market conditions. We are currently witnessing a rapid rise in insolvency numbers since the business support measures put in place during the covid-19 pandemic came to an end, followed by significant rises in energy and other costs and a shortage of labour putting many businesses under severe operational and financial pressures. Tensions continue to exist between landlords and tenants, with company voluntary arrangements (CVAs) still prevalent and landlords being asked to reach settlements on rent arrears under the covid rent arrears arbitration scheme. CIGA 2020 introduced two entirely new permanent insolvency processes, the Part A1 Moratorium and the Restructuring Plan. The government published an interim report on the new procedures on 21  June 2022, concluding that although the Part A1 Moratorium had been used successfully there were significant concerns as to the unintended consequences of changes to priorities on a subsequent insolvency. However, the Restructuring Plan had, according to the report, been a success, building on an existing body of case law governing schemes of arrangement with the addition of cross-class cramdown. Nonetheless, Restructuring Plans were seen as expensive and time consuming ix

Preface for the mid-market and the costs of raising a challenge to a plan were seen as excessive for dissenting creditors. Both procedures are a work in progress but are developing well. The report concluded it was too early to assess how effective measures to restrict ipso fact clauses had been. As with the earlier editions, this book is intended to be a practical and legal guide to the sale and purchase of an insolvent business and is not a definitive explanation of all relevant law and practice. It aims to be comprehensive and wide ranging, and useful to insolvency practitioners and other professionals working in the restructuring and insolvency arena, whether accountants, lawyers, agents or others. It is of use to potential investors and their advisors, and will hopefully inspire students to make this their field of practice in future years. Between us, Susan Singleton and I  have again reviewed the different insolvency procedures which you might come across in a transaction for an insolvent business. We have updated each chapter, looking at new techniques to deal with the purchase available to companies and practitioners. We have noted that pre-packs continue to be widely used as a method of choice to effect a going concern restructure of an insolvent business – although that may change in future years if Restructuring Plans can be made cost effective and proportionate for SME businesses. We have again identified areas of concern to certain stakeholders in transactions in insolvency situations, such as the use of Restructuring Plans in addition to CVAs to assist a tenant to reduce a leasehold portfolio and continued conflicts with employment and pensions law. We have reviewed new sources of funding a transaction that have become available to the market, and have also considered new legislation of general impact in national security and the pensions sector that can lead to tensions between the need to satisfy the new statutory obligations and the need to move swiftly to protect an insolvent business and its employees. The law relating to restructuring and insolvency has been through a period of dramatic change. Much of that change has been positive and welcomed by practitioners. Some remains a work in progress and will benefit from an increasing body of case law and some amendment in due course. Working in this arena never ceases to be challenging and highly rewarding, and once more I can say that I hope this book might help motivate people to continue making, or to make, restructuring and insolvency their chosen field. I  would personally like to thank my colleagues at Gateley Legal who have assisted me in writing my parts of this book, in particular, Chris Davies, Michael Collins who have provided invaluable comment and assistance in dealing with the more specialised areas of employment and pensions and to Hannah Drozdz who provided me with an invaluable overview. The law in this book is current as at 31 July 2022 and applicable to England and Wales. Ken Titchen, Gateley Legal

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Foreword to first edition When invited to write the foreword to Buying and Selling Insolvent Companies and Businesses I  was sitting on the bottom steppe of a mountain range in central Asia humming a Borodin tune to myself. The invigorating mountain air gave me a crystal-clear understanding of the significance of the arrival of this book at a time in the UK when business insolvencies and the lack of available finance to purchase businesses are, and will continue to be for some time, major issues. Quite simply, the providers of finance do not wish to take any more risks than are absolutely necessary with their funds when they finance the purchase of an insolvent company or business, and this means that business sales and purchases are more highly engineered today than ever before. In my quarter of a century in a profession which has rebranded itself from Insolvency to Corporate Recovery to Restructuring and which would probably have gone on to rebrand itself as Corporate Makeover had the current recession not arrived, I  have seen the process for selling insolvent businesses change beyond recognition. Gone are the days of a receiver and later of an administrator learning frantically about how to build nuclear submarines or how to trade financial derivatives having been appointed, out of the blue, to these businesses by a stressed banker late on a Friday afternoon. Nowadays, there are very few, if any, surprise appointments and the process of being appointed administrator over a distressed company is just a stage in a planned sequence of events aimed at removing or at least controlling the risk variables from a business sale. This highly engineered business-sale environment means that the sellers, purchasers, funders and professionals involved in these sales must be completely up to date with all of the knowledge and skills necessary to ensure that the planned outcome is achieved. This does not mean that the partners in the large firms cannot don their tweeds and go to their country estates on a Friday afternoon – it just means that they must bring their blackberries with them and that their trusted lieutenants must stay in the office. One major development in this process of de-risking business sales has been the arrival of the pre-packaged administration (‘pre-pack’), and Ken’s and Susan’s book has very properly highlighted the significance of this development. Very simply, the pre-pack process describes a procedure in which the distressed business is confidentially marketed and then, based on the results of that marketing, packaged for sale prior to the appointment of an administrator. The administrator will have been involved in the planning stage of the prepack process and, when they are comfortable with it, will execute the sale. Clearly, the creditors will be concerned that the business is being sold at the best price, and the control mechanism to ensure that this is the case is that the sale will be carried out by an independent licensed insolvency practitioner, acting as administrator, whose professional reputation (and PI policy!!) is at risk if they have undersold the business. Ken and Susan’s book recognises the importance of this balancing act for the administrator and makes it clear xi

Foreword to first edition how an administrator should go about getting themselves comfortable with a business sale in a pre-pack situation. Whilst there are a lot less sales of insolvent companies than businesses I was involved a few years ago in the sale of an insolvent company. The reason why the company was being offered for sale rather than the business was because the company had the non-transferrable right to race a Formula 1 team. Ken and Susan’s book is completely up to the minute and is packed full of all the essential information relating to the important issues which anyone involved in the sale or purchase of an insolvent business needs to know. Whilst there are other books which cover some of the issues relating to this area, their book is the only one which contains all of the relevant issues in one wellreferenced volume. The book is a timely arrival in this hothouse environment where knowledge is king and where those who can successfully navigate their way through all of the issues will succeed in maximising value for themselves or for their clients from the sale of insolvent companies or businesses. Finbarr O’Connell, Managing Partner, Re10 http://re10.org.uk/ June 2010 Re10 is one of the leading independent turnaround specialists in the UK. Its expert team has a wealth of industry experience across many industry sectors, and works with organisations of every size on a local, national and international basis. Finbarr O’Connell is the Managing Partner of Re10. He has over 25 years’ restructuring and turnaround experience at the highest level. Prior to joining Re10, Finbarr spent 10 years with KPMG LLP where he was a Partner in their London Restructuring practice. Finbarr is a past president of the Insolvency Practitioners’ Association and a Fellow of the Institute of Chartered Accountants in Ireland. He is also a Licensed Insolvency Practitioner and Member of the Institute of Credit Management.

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About the authors Ken Titchen has been a solicitor for over 28 years, and he has dealt with almost every aspect of restructuring and insolvency in his career. He joined Gateley Legal in London in 2011 and works on mostly non-contentious assignments in the UK and, together with professionals in other jurisdictions, across Europe and the United States. Ken represents lenders and insolvency practitioners, boards of directors, turnaround professionals and other stakeholders in distressed businesses. Recently, he has been involved in assisting major clearing banks and insolvency practitioners in several high-profile UK restructurings. Ken has written a number of articles and legal updates, and has been a regular speaker on restructuring and insolvency related topics at training seminars and conferences, including local, national and international events. Ken is a member of the Association of Business Recovery Professionals (R3), the Insolvency Lawyers Association and the Turnaround Management Association (UK), and benefits from Gateley being a corporate member of the Institute for Turnaround. Ken was formerly a Licensed Insolvency Practitioner (nonappointment taking). Ken Titchen Gateley Legal Tel: 020 7653 1619 Mobile: 07774 606672 Email: [email protected] Website: https://gateleyplc.com/people/ken-titchen/ and www.gateleyplc.com Twitter: @gateleylegal Instagram: #wearegateley About Gateley Founded as Gateley Wareing & Co in 1994, Gateley grew into a national law firm that, in 2015, became the first commercial law firm in the UK to list on the London Stock Exchange’s growth market AIM. Since listing, Gateley has diversified and differentiated its offering, creating four distinct platforms to meet the need of its clients, completing the acquisition of several complementary legal and professional services businesses to underpin the strategy. The platforms combine the legal skills of lawyers within Gateley Legal with the expertise of other professionals from its consultancy businesses and the combined skills and knowledge of its experienced professionals are available to assist clients to solve problems, mitigate risk, realise growth and maximise opportunities. The platforms focus on business services, corporate activities, people issues and property matters, and include specialists from businesses such as Adamson Jones (patent and trade mark attorneys), Entrust (independent pension trustees), Gateley Capitus (property tax specialists) and built environment specialists Gateley Hamer and Gateley Vinden. Gateley was proud to accept the coveted UK Law Firm of the Year award at the British Legal Awards in 2019. xiii

About the authors Restructuring and insolvency is a key part of the corporate platform and the restructuring team, led by 10 partners and 3 Legal Directors, which continues to deliver partner-led technical and commercial advice nationally to a wide range of stakeholders on financial and organisational restructuring and insolvency matters. Susan Singleton is a solicitor with her own London solicitor’s firm, Singletons (www.singlelaw.com) which specialises in commercial law, including buying and selling companies, commercial litigation, competition law, intellectual property law and IT/ecommerce law. Trained at Nabarro, she joined Slaughter and May on qualifying, moving to Bristows, where she remained until founding her own law firm in 1994. Since then, she has advised over 1,000 clients. In 2002, Susan acted for the claimant in the first damages action for breach of the EU competition rules to come before the English courts, Arkin v Borchard and Others. In March 2020, she was nominated as a Female Tech Law Hero for the Society for Computers and Law for International Women’s Day. Her clients range from major plcs and institutions around the world to small startup businesses. She has spoken regularly at many legal conferences including in 16 countries from Trinidad to Dubai, Iran to Nigeria and extensively around Europe, at times speaking at about 50 conferences a year. Susan is the author of over 30 law books on topics such as internet and ecommerce law, competition law, commercial agency law, data protection legislation and intellectual property and writes regularly for the Solicitors Journal. She is the author of Beswick and Wine: Buying and Selling Private Companies and Businesses (10th edition, Bloomsbury Publishing). Susan has also updated Data Protection and Freedom of Information Act: Encyclopaedia of Forms and Precedents, 2020 and 2021 (and Confidentiality volume of the same Encyclopaedia in 2021) (LexisNexis’). She also publishes 10 subscription newsletters she acquired from Informa, including Pensions Today, IT  Law Today, Finance and Credit Law, Corporate Briefing and International Trade Finance. Susan is a past Vice Chairman of the Competition Law Association, is a member of the Licensing Executives Society (EC/Laws Committee) and served on the Contracts Group of the Chartered Institute of Purchasing and Supply (CIPS). Until 2010, she sat as an independent member/Director on the Direct Marketing Commission. She has five children and three grandchildren and lives in outer London. Susan Singleton Singletons Solicitors Tel: 020 8866 1934 Website: www.singlelaw.com Email: [email protected] Twitter: @Singlelaw

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About the authors About Singletons, Solicitors London commercial law firm Singletons was founded in 1994 and provides advice to clients from all over the UK and abroad from large plcs to small start-up businesses in relation to terms and conditions of sale, retention of title clauses and commercial disputes and litigation as well as in the following areas: • • •

commercial litigation/disputes competition law – advisory and guidance, litigation, CMA, EU intellectual property

• • • •

IT/ecommerce law commercial agency regulations and claims agency and distribution agreements buying and selling businesses

xv

Contents Foreword to second edition Preface Foreword to first edition About the authors Table of Statutes Table of Statutory Instruments Table of EC and International Material Table of Cases Downloadable precedent/Licence agreement 1

vii ix xi xiii xxv xxxiii xxxvii xxxix 469

What is Corporate Insolvency? 1 Ken Titchen Introduction1 Insolvency law 2 Insolvency Act 1986 2 Insolvency (England and Wales) Rules 2016 2 The Recast Insolvency Regulation and Brexit 3 Other primary legislation 4 Other secondary legislation 5 Judge-made law 5 Statements of Insolvency Practice 6 The insolvent entity 6 Partnership6 Limited Liability Partnership 7 Unregistered companies 7 Formal insolvency processes 8 Administration8 Company voluntary arrangement 17 Part A1 Moratorium 22 Scheme of arrangement 25 Restructuring Plan 26 Receivership28 Liquidation29 Informal arrangements 34 Introduction34 The process 35 Common features of a workout 36 Causes of company failure 38 Statistics38 Common features 41 Loss of market 41 Failure to deal with tax affairs 41 Failure of management 42 General trends 42 Warning signs 43

xvii

Contents 2

Pre-pack Administrations 45 Ken Titchen Introduction45 Benefits of pre-packs 46 Criticism of pre-packs 47 Case law 52 Re T&D Industries plc52 Re Transbus International Ltd53 DKLL Solicitors v Her Majesty’s Revenue and Customs53 Re Kayley Vending Ltd54 Re Hellas Telecommunications (Luxembourg) II SCA54 Clydesdale Financial Services Limited and others v Smailes and others54 The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 56 Statement of Insolvency Practice 16 57 Statement of Insolvency Practice 13 60 Other matters 61 The appointment process 61 Employees63 The Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) 63 Landlords64 VAT66 National Security and Investment Act 2021 (‘NSAI 2021’) 66 Challenging a pre-pack 67 Insolvency Practitioner’s Complaints Gateway 70 The Pensions Regulator and the Pension Protection Fund 70 Future developments 72

3

Purchasing Vehicles and Insolvency Act 1986, s 216 73 Ken Titchen Introduction73 Shares or assets? 74 Method of sale 78 The sale process 81 Hive-down88 Introduction88 Hive-down agreement 89 Hive out 89 Insolvency Act 1986, ss 216 and 217 90 Introduction90 What is a prohibited name? 92 Criminal liability 93 Civil liability 93 Permission of the court 94 Excepted cases 96 Conclusion99

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Contents 4

Due Diligence 101 Susan Singleton Introduction101 Essential due diligence 101 Let the buyer beware 102 What to investigate 103 Title to the target’s shares 103 Who owns the company’s shares? 103 Registration of trusts and their beneficial owners 104 Title to the target’s assets 105 Capacity of the seller 108 Consents/approvals required 114 Unknown or understated liabilities 122 Arrangements infringing competition law 130 Connected party transactions 131 Forms of due diligence 132 Accountants’ report 132 Legal due diligence report 134 Physical inspection 139 Seller’s disclosure letter and documents 140 Summary140 Appendix140 Due Diligence Checklist 140

5

Raising Funds 149 Ken Titchen Valuation and price 149 Payment terms 152 Fixed cash terms 153 Variable cash terms 153 Deferred consideration 154 Shares158 Loan notes 158 Raising cash 159 Bank funding 160 Other funders 161 Challenger banks 161 Invoice financing 162 Private equity/venture capital and debt funds 162 Asset financing 163 Stock financing 164 Government-backed schemes 164 Business angels 165 Crowdfunding165 Peer-to-Peer (‘P2P) Lending 166 Directors’ loans 167 Equity finance 167

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Contents 6

Secured Creditors 169 Ken Titchen Security interests 169 Charge169 Mortgage173 Lien174 Pledge175 Other forms of ‘security’ – quasi-security 175 Retention of title 176 Set-off186 Invoice discounting or factoring 187 Finance leasing and sale and leaseback 187 Hire purchase and conditional sale 187 Commercial Rent Arrears Recovery 187 Introduction187 What can a landlord exercise CRAR for? 188 Procedure189 What goods can CRAR be exercised over? 190 What is the effect of an insolvency proceeding on CRAR? 192 Recovery from a sub-tenant 193 Measures introduced in response to the Covid-19 pandemic 193 Creditors with the right to distrain 195 Validity of security 195 Terms of the security interest 195 Perfection196 Priority197 Corporate benefit 198 Financial assistance 199 The rights of a secured creditor 200 Introduction200 Enforcement of security 201 Receivership202 Administration205 Financial Collateral Arrangements (No 2) Regulations 2003 205 Assignment of security interests 207 The position of an invoice discounter/factor 208 The position of a secured creditor 210 Introduction210 Classes of assets 210 Assets held on trust 211 Order of priority of payment 211 Administrators and secured creditors 213

7 Goodwill, Intellectual Property Rights and Data Protection Act Issues 215 Susan Singleton Goodwill215 Goodwill, VAT and transfer as a going concern 216 Intellectual property rights 219 Data protection law 221 xx

Contents 2.12 Merger, acquisition, and business re-organisation 222 2.12 Merger, acquisition and re-organisation 223 Data protection clause example 225 Summary227 Appendix228 Insolvency Service Guidance on ‘Re-use of company names’ 228 8

Excluded Assets 235 Ken Titchen Introduction235 Book debts 236 Books and records 238 The company’s books and records 238 The office-holder’s books and records 239 Business name 239 Cash240 Claims240 Customer contracts 241 Intellectual property rights 241 Premises242 Third-party assets 243 Retention of title assets 243 Shares245 ‘Catch all’ clause 245

9 Employees 247 Ken Titchen Introduction247 General provisions of TUPE 247 Specific TUPE provisions where the seller is insolvent 252 Introduction252 ‘Relevant insolvency proceedings’ 252 Relevant insolvency proceedings – non-transfer of certain debts 253 Relevant insolvency proceedings – permitted variations to contracts253 Relevant insolvency proceedings – dismissal of employees 254 ‘Bankruptcy proceedings or any analogous insolvency proceedings’254 Bankruptcy/analogous insolvency proceedings – no transfer of employees or automatic unfair dismissal 255 Information and consultation 256 Introduction256 The information to be given 256 The obligation to consult 257 ‘Special circumstances’ defence for failure to inform or consult 257 Liability for claims 258 Where the seller is insolvent 258 Employee liability information 258 Collective redundancies 260 Overlap between TUPE and collective redundancy consultation 262 xxi

Contents TUP and payments from the NIF 262 Liquidation263 Administration263 Debts covered under the statutory scheme 263 Debts due as at the appropriate time 264 Debts that transfer 265 TUPE checklist 265 10

Pension Schemes 269 Ken Titchen Introduction269 Workplace pensions 269 TUPE270 Pension issues on the transfer of the business 272 Defined benefit schemes 272 Defined contribution schemes 272 Future arrangements 272 Exceptions to the general rule 273 Existing pension scheme 276 Bulk transfer payments 277 The Pensions Regulator 277 Introduction277 Powers278 Financial Support Directions and Contribution Notices 279 Clearance statements 282 New criminal offences 284 Other powers 285 Pensions issues on insolvency 286 Winding up the scheme 286 Notice obligations 287 Scheme transfer to the PPF 288 Nortel and Lehman Brothers 288

11

How to Deal with Existing Customers and Work in Progress Susan Singleton Advance protection Rights to vary contracts Other contract terms Other credit issues After a customer goes out of business Bona vacantia Purchase agreement and assignment of contracts Work in progress Practical steps to take if a customer is in difficulties Checklist of practical immediate steps The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 and Debt Pre-Action Protocol

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291 292 296 297 297 297 298 299 300 300 300 301

Contents Acquiring the customer’s business and contracts – Insolvency Service Guidance 302 ‘Your role as a creditor 302 Buying a business – taking over a project 306 Summary306 12

How to Deal with Suppliers 307 Susan Singleton Assigning and novating supplier contracts 307 Tactics307 Negotiation with suppliers 308

13

Leasehold Premises 309 Ken Titchen Introduction309 Administration310 Part A1 Moratorium 313 Receivership314 Liquidation314 Disclaimer316 Company voluntary arrangement (‘CVA’) 317 Informal restructuring 321 Commercial Rent Arrears Recovery (‘CRAR’) 322 Forfeiture322 Introduction322 Forfeiture on insolvency 322 Method of forfeiture 324 Relief from forfeiture in cases of insolvency 324 Assignment325 Introduction325 Assignment by the company 325 Assignment by an administrator 326 Assignment by a liquidator 327 Assignment by a receiver 327 Assignment by a mortgagee 327 The assignment 328 Licence to occupy 331 Surrender335 Introduction335 Form of surrender 335 Other options available to the tenant 337 Other remedies available to the landlord 337 Commercial Rent (Coronavirus) Act) 2022 338

Appendix

341

Precedents341 A. Business and asset sale agreement 342 B. Assignment of intellectual property rights 372 C. Novation of contract 380

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Contents D. Sample retention of title clauses E. Debenture F. Guarantee and indemnity G. Guaranteed Liabilities H. Certificate confirming independent legal advice

386 392 429 444 446

Index449

xxiv

Table of Statutes [References are to paragraph number and appendices] Agricultural Credits Act 1928......6.2 s 8.............................................6.26 Apportionment Act 1870 s 3.............................................13.22 Bills of Sale Act 1878..................6.26 Bills of Sale Act (1878) Amendment Act 1882..........6.26 Civil Aviation Act 1982 s 86...........................................6.26 Commercial Rent (Coronavirus) Act 2022..................1.40; 6.12, 6.22; 13.1, 13.26 Pt 1 (ss 1–6).............................13.26 s 2–5.........................................13.26 Pt 2 (ss 7–22)...........................13.26 s 11...........................................13.26 13(3)......................................13.26 16(1)–(3)................................13.26 18...........................................13.26 19(4), (5), (8).........................13.26 20...........................................13.26 Pt 3 (ss 23–27).........................13.26 23, 25, 27...............................13.26 Sch 2.........................................13.26 Sch 3.........................................13.26 Commonhold and Leasehold Reform Act 2002 s 21...........................................4.17 Companies Act 1985 s 35A........................................4.16 317.........................................4.23 320...................................... 4.21, 4.23 424.........................................4.21 Companies Act 2006........... 1.5, 1.6, 1.13, 1.42; 3.4; 4.21, 4.43; 5.7; 6.7, 6.29 s 40........................................ 4.13, 4.16 77(1)(a)..................................8.5 113.........................................4.53 162.........................................4.53 172........................................5.8; 6.28 177, 182, 184, 185.................4.23 190...............................3.4; 4.21, 4.23 191.........................................4.21 252–254.................................4.23 269(1), (3)..............................6.29

Companies Act 2006 – contd Pt 16 (ss 475–538)...................4.43 s 549.........................................4.7 534, 537.................................4.43 550, 551.................................4.7 677(1)(b)(i)............................6.29 678(1)–(4)..............................6.29 679(2), (4)..............................6.29 681, 682.................................6.29 829(4)....................................6.40 Pt 25 (ss 859A–894).................13.25 s 859A................................... 6.26, 6.34 (3), (4)...........................6.26 859H................................... 6.26, 6.34 859K(1)(b).............................6.32 (2), (3)...........................6.32 860, 874.................................6.7 Pt 26 (ss 895–901)...... 1.20, 1.32, 1.34, 1.35, 1.36 s 896(1), (3), (4).......................1.32 Pt 26A (ss 901A–901L).. 1.1, 1.3, 1.23, 1.29, 1.34, 1.35, 1.36; 10.22; 13.7; App D, App F s 901A(2).................................1.34 901F.......................................1.34 901G(3)–(5)...........................1.34 1136.......................................8.4 1157.......................................3.12 1162....................................... App D 1169(1), (2)............................3.17 (3)(a)..............................3.17 Company Directors Disqualification Act 1986..... 1.6, 1.7, 1.28, 1.43; 3.3, 3.9 s 2.............................................3.11 10...........................................3.3 Competition Act 1998...............4.40; 11.1 Contracts (Rights of Third Parties) Act 1999....... App A, App B, App C, App D, App F Coronavirus Act 2020 s 82........................................ 6.12, 6.22 (12)....................................6.12 Corporate Insolvency and Governance Act 2020.................. 1.3, 1.29, 1.34, 1.35, 1.40; 2.3, 2.5; 4.14, 4.15, 4.19, 4.20; 6.34; 11.0

xxv

Table of Statutes Corporate Insolvency and Governance Act 2020 – contd s 8.............................................2.5 12(3), (4), (6).........................3.3 Sch 10.......................................1.40 Corporation Tax Act 2010 Pt 14 (ss 672–730)...................3.5 Pt 14A (ss 730A–730D)...........3.5 Pt 22 Sch 1 (ss 938–953).........3.5 Criminal Finances Act 2017.........4.7 Data Protection Act 2018....4.60; 7.4; 8.2; App A s 3(10)...........................8.2, 8.3; App A 205(4).........................8.2, 8.3; App A Deregulation Act 2015 Sch 6 para 6....................................1.19 Disability Discrimination Act 1995 s 22(1)......................................13.20 Economic Crime (Transparency and Enforcement) Act 2022.4.10 Employment Rights Act 1996 s 98(4)......................................9.2 Pt XI Sch VI (ss 166–170).......9.5 s 166(1)(b)................................9.23 (5)....................................9.23 Pt XII (ss 182–190)..................9.5 s 182............................... 9.5, 9.20, 9.24 (a)–(c)..............................9.24 183.........................................9.20 184(1)(a)–(e).........................9.23 185.........................................9.24 186(1)....................................9.23 220–228.................................9.2 Enterprise Act 2002.............1.3, 1.37; 2.4; 4.19, 4.28, 4.40; 6.2; 11.11 s 58, 59.....................................4.28 Equality Act 2010 Pt 4 (ss 32–38).........................13.20 Environmental Protection Act 1990 Pt I (ss 1–28)............................4.51 Pt IIA (ss 78A–78YC).............4.51 European Union (Withdrawal) Act 2018...............................1.5 s 3(1)........................................1.5 6(1)........................................1.5 7.............................................1.5 European Union (Withdrawal Agreement) Act 2020...........1.5 Finance Act 2020.........................11.11 s 98(2)......................................1.26

Financial Services and Markets Act 2000 s 362A......................................1.18 Insolvency Act 1985 s 17, 18.....................................3.9 Insolvency Act 1986....... 1.1, 1.3, 1.4, 1.5, 1.11, 1.12, 1.13, 1.40, 1.42; 2.4; 4.15, 4.41; 6.2, 6.25, 6.27, 6.31; 7.2; 8.7; 13.2, 13.3; App B, App C, App D, App F Pt A1 (ss A1–A55)................. 1.3, 1.17, 1.18, 1.29, 1.31; 6.2, 6.7, 6.32, 6.34, 6.40; 10.22; 13.3, 13.11, 13.12, 13.25; App D, App F s A3..........................................1.29 A4(1A)...................................1.29 A6(1)(e).................................1.30 A9(2)......................................1.29 A10–A15...............................1.29 A18.....................................1.31; 13.3 (3)....................................1.31 (c)...............................13.3 A20........................................1.31 (1)(e)...............................1.17 (f), (g)...................... 1.17, 1.18 A21........................................1.31 (1)(a)............... 13.3, 13.11, 13.12 (c)..................1.31; 6.32; 13.3, 13.25 (d)...........................6.7; App C (e)................6.17; 13.3, 13.11, 13.12 (2)....................................13.3 A22........................................1.31 (7)(c)...............................6.34 A25........................................1.31 A26................................. 1.31; App D A28........................................1.31 A35, A36................................1.30 A38........................................1.30 (1)(d)...............................13.3 A42(5)..................