The threat of insolvency proceedings against a corporate debtor can greatly assist a creditor's primary objective of getting paid, preferably in advance of everyone else. This is particularly so where the debtor is prevaricating but there is no genuine dispute that the sum in question is due and owing. Although the courts decry the use of the winding-up procedure as a means of debt collection, it is often a very effective tool.

Consider the following when faced with a corporate debtor who is refusing, without genuine reason, to settle its debts:

Facts

In Andrew Fender (Administrator of FG Collier & Sons Limited) - v - National Westminster Bank Plc, a company went into administration. The administrator applied to the court to establish whether he had to treat NatWest bank as a secured or unsecured creditor of the company.

In Oakland v Wellswood (Yorkshire) Ltd, the Employment Appeals Tribunal (EAT) decided that an employee of a business in administration was unable to have the protection afforded to employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) when the business in which he was employed was transferred and continued as a going concern with the transferee.

A business you are buying or selling, if reorganised for sale, may be less valuable if you do not avoid tax pitfalls. This note highlights the most common pitfalls, including those related to an insolvency. You can avoid most with planning.

Reorganisations

Many businesses will now be considering transactions involving corporate reorganisations. They might want to take advantage of market conditions to buy or be considering the sale of business units to refocus strategy. Or they might become involved in an insolvency or reconstruction.

Introduction

On 25 July 2008, HM Treasury published a Consultation Paper entitled Modernising the insolvency protections for the operation of financial markets - proposals to reform Part 7 of the 1989 Companies Act (the Consultation Paper).

Proposals

A business you are buying or selling, if reorganised for sale, may be less valuable if you do not avoid tax pitfalls. This note highlights the most common pitfalls, including those related to an insolvency. You can avoid most with planning.

Reorganisations

Many businesses will now be considering transactions involving corporate reorganisations. They might want to take advantage of market conditions to buy or be considering the sale of business units to refocus strategy. Or they might become involved in an insolvency or reconstruction.

The Court of Appeal in Haine v Secretary of State for Business Enterprise & Regulatory Reform has held that where redundancies are made in breach of obligations to carry out collective consultation and the employer then goes into insolvency, a protective award subsequently ordered by an employment tribunal is a debt in the liquidation.

Impact on employers

Re Cheyne Finance PLC

The UK courts recently interpreted the definition of insolvency in a way which can lead to an insolvency default being triggered earlier than before.

The recent downturn in the economy is undoubtedly having an adverse effect on the cash flows of a large number of businesses in the UK. Businesses are keeping a much closer eye on outgoings and expenses, and may be looking to ease financial pressure by making payments due to creditors as late as possible.

For a business operating from leased premises, quarterly rental payments are likely to be one of the biggest outgoings. The longer the rental payment remains in the tenant's bank account, the more interest they will accrue and the more likely that cash flow issues will be eased.

A company went into administration and company voluntary arrangements were entered into to effect a rescue of viable parts of the group. As part of that process, a valuation of the liabilities of the companies as at 1 October 2001 was required. They included claims arising under section 75 of the Pensions Act 1995. However, those debts were not triggered until July 2004 and the scheme actuary for did not sign the section 75 certificates and apportion shares amongst the various companies until March 2006.