(a) In relation to each type of insolvency procedure available in the legal system of this economy, what assets of the corporate debtor are available to its administrator to satisfy the claims of its creditors?

 

Scheme of arrangement

This is a matter for agreement between the company and its creditors pursuant to their underlying contractual rights.

Receiver

All of the assets properly covered by the charge under which the receiver is appointed are available to satisfy the claim of the debenture holder. The receiver is under no duty to satisfy the claims of any creditors other than preferential creditors.

Liquidation

All assets beneficially owned by a company and in which no proprietary rights have been created in favour of third parties are available to satisfy the claims of its unsecured creditors. Conversely, no asset which is legally owned by the company but in which it has no beneficial interest is available to satisfy the claims of its creditors.

Judicial managers

It is not the function of a judicial manager to satisfy the claims of creditors. Thus, a judicial manager is prohibited by section 227G(5) from making any payment to discharge any debt to which the company was subject on the making of a judicial management order without the leave of court or to a secured creditor.

The only exception to this is where creditors are paid under a scheme of arrangement proposed to and approved by the creditors under section 210. The assets available for such a scheme are a matter for agreement between the judicial manager and the creditors.

(a) To what extent and in what circumstances may the administrator of a corporate debtor take steps to recover assets of the debtor by overturning past transactions involving property of the debtor? (for example preferences given to certain creditors over others, invalid charges granted by the debtor, uncommercial transactions entered into by the debtor, profits on sales to and from the debtor at an undervalue or overvalue.)

 

A liquidator and a judicial manager, but not a receiver, has the power to set aside unfair preferences and transactions at an undervalue given when a company was insolvent or as a result of which the company became insolvent.

A transaction at an undervalue is a transaction where the value of the consideration received by the company in money or money's worth is significantly less than the value in money or money's worth of the consideration provided by the company. A transaction at an undervalue can be challenged if it took place within 5 years before the presentation of a winding up petition.

An unfair preference is given where a company does or suffers anything to be done which has the effect of puttnig another person into a position which in the event of the company's insolvency will be better than the position he would have been in if that thing had not been done and when in so doing the company was influenced by a desire to achieve that effect. An unfair preference which is not also a transaction at an undervalue and which is given to an associate of the company can be challenged if it took place within 2 years before the presentation of the winding up petition. Any other unfair preference can be challenged if they took place within 6 months before the presentation of the winding up petition.

Under section 330 of the Companies Act, a floating charge on the undertaking or property of a company created within 6 months of the commencement of the winding up is invalid except to the amount of any cash paid to the company at the time of or subsequently to the creation and in consideration of the charge together with interest on that amount at the rate of 5% per annum unless it can be proved that the company was solvent immediately after the creation of the charge.

Under section 331 of the Companies Act, a liquidator is empowered to recover the excess consideration or excess value received by directors of a company on a sale to or purchase from the company of property for a consideration other than shares occurring within 2 years before the commencement of the winding up. Where what was sold to the directors is a business, the liquidator can also recover any goodwill or profits that might have been made from the business.

Under section 131 of the Companies Act, any security created by a registrable but unregistered charge is void against the liquidator of the company or any creditor of the company

(b) What powers or mechanisms are available to each type of administrator for investigation of the affairs of the corporate debtor, for examination of persons formerly involved in the management or control of the debtor, and for the discovery of assets of the debtor?

 

A receiver has no power to investigate the affairs of the business organisation.

In a compulsory liquidation, the court has the power to summon before it any officer of the company to produce property or give information relating to the affairs of the company. Furthermore, if a liquidator discovers fraud in the affairs of the company and has reported this to the Court, the court can order any officer of the company capable of giving information to be publicly examined. In a judicial management, the judicial manager has similar powers to seek such orders from the court under section 227U and 227W of the Companies Act.

(c) What procedures may be employed by each type of administrator for the recovery of assets of the corporate debtor which are available for distribution to creditors? (for example initiation of legal proceedings, compensation from directors.)

 

The mode of proceedings for the recovery of assets which are available for distribution to creditors is ordinary legal action under the particular provision of the Companies Act.