Insolvency Insolvency Outcomes: Outcomes: Research Research Findings Findings Dr Sandra Frisby Dr Sandra Frisby Baker & McKenzie Lecturer in Company and Baker & McKenzie Lecturer in Company and Commercial Law Commercial Law University of Nottingham University of Nottingham 27 July 2006 27 July 2006
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Insolvency Outcomes: Research Findings Dr Sandra Frisby Baker & McKenzie Lecturer in Company and Commercial Law University of Nottingham 27 July 2006.
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Insolvency Insolvency Outcomes:Outcomes:Research Research FindingsFindings
Dr Sandra Frisby Dr Sandra Frisby Baker & McKenzie Lecturer in Company and Baker & McKenzie Lecturer in Company and
Commercial LawCommercial LawUniversity of Nottingham University of Nottingham
27 July 200627 July 2006
The Research ProgrammeThe Research Programme• 2063 Companies
– 953 companies in administrative receivership– 1110 companies in administration
• Procedures entered into between September 2001 and September 2004– Comparison between pre- and post-Enterprise
Act outcomes
• 27 Interviews– Bankers and Insolvency Practitioners– Telephone contact with receivables financiers
The DatabaseThe Database
Trends Relating to Trends Relating to Companies Companies
• Business Sectors– High incidence of printing firms
• Locations– 14% of all companies located in London– 11% of companies located in
Manchester, Birmingham, Leeds, Bristol or Nottingham• No significant variation from general
• Absence of charge holder?• Comfortably secured charge holders?
Duration of Procedures: Duration of Procedures: ComparisonComparison
• Significantly longer duration in administrative receivership – Average of 558 days as compared to
average of 377 days in administration– The Brumark effect
• Similar impact on both procedures?
Pre- and Post-Enterprise Act Pre- and Post-Enterprise Act DurationsDurations
• All Administrative Receiverships– 17% of cases lasting over 3 years– 15% of cases lasting over 2 years– 48% of cases lasting over 1 year– 20% of cases lasting less than one year
• All Administrations – 6% of cases lasting over 3 years– 3% of cases lasting over 2 years– 22% of cases lasting over one year– 69% of cases lasting less than one year
56% ‘liquidations’38% business rescues3% corporate rescues 3% unknown
Corporate Rescue: ViewsCorporate Rescue: Views• Informal rescue activity by the banks
– Ongoing, and generally viewed as successful • Use of the CVA
– Viability of proposal • Unworkable proposals may deter future creditors
• How realistic is corporate rescue through formal insolvency?– Attitudes of creditors– Insolvency-related depreciation– Late entry into the procedure – Possibility considered but rarely achievable
Business Rescue: Pre-PacksBusiness Rescue: Pre-Packs• Trends towards pre-packaging
– To independent purchasers – To connected parties
• Advantages of pre-packs– Preservation of goodwill and avoidance of costs– Encouraging a rigorous procedure through accountability– Preservation of employment?– Better realisations?– The ‘second-chance’ ideal?
• Disadvantages of pre-packs– Lack of transparency– The image problem– Subsequent insolvency of Newco?
Administrations as ‘Disguised Administrations as ‘Disguised Liquidations’: The Phenomenon Liquidations’: The Phenomenon • Explaining the higher incidence of asset
sales in post-Enterprise Act administrations
• Using administration instead of CVL– Higher incidence of company/director
appointments – Non-interventionist stance of charge holders– Low barrier to entry into administration: para.
3(1)(b) Schedule B1 Insolvency Act 1986
Disguised Liquidations: Disguised Liquidations: Incentives and EvaluationIncentives and Evaluation
• The Leyland Daf effect– Costs and expenses (including fees) payable out of floating