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Insolvency – Security and its enforcement

We regularly advise organisations and individuals on loan arrangements with companies which include taking security over assets in case the borrower defaults on the repayments and becomes insolvent. Clients range from banks, finance companies and private debenture holders to shareholders who have taken security for deferred consideration following a business sale or directors who have lent money to a company and require security.

We provide advice on the different types of security available and how effective each type will be in each situation. We draft security documentation and register this where required and we advise clients on how to enforce the security and the different enforcement options available to them.

Types of security

The main types of security that are granted are charges (fixed and floating) on a variety of assets , mortgages and pledges.

When deciding whether to take security and what security is appropriate, the lender must consider a number of factors.

We have a wealth of experience of advising on all types of security and can offer clients legal and commercial advice on their situation.

If you are loaning money to a company or if you are struggling to obtain repayment of an existing loan please get in touch.

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Invoice Financiers and the Financial Ombudsman Service

On 1 April 2019 the jurisdiction of the Financial Ombudsman Service (“FOS”) was extended to include additional categories of eligible complainants such as more SMEs and individual guarantors of loans. The FCA has also indicated that it intends to increase the limit of an award which can be made by the FOS under its compulsory jurisdiction scheme from £150,000 to £350,000, probably sometime later in 2019.

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Funding Credit hire and Credit repair

The Credit hire and credit repair industries and ancillary services provided to claimants in “no fault” accidents have traditionally been regarded as challenging sources of business for invoice financiers, but there are signs that financiers are becoming more comfortable with the risks involved.

It is fair to say that these industries have over recent years been subject to a number of measures by the Government in attempts to reduce overall insurance premiums, but they continue to display a sense of innovation.

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Credit Protection Revisited

The recent decision by one of the main bank owned invoice financiers to withdraw from the provision of credit protection has highlighted a continuing debate within the industry on issues arising from the interface between bad debt protection on the one hand and the provision of insurance on the other hand.

It is now widely understood within the industry that the provision of insurance is a regulated activity under the Financial Services and Markets Act 2000 (“FSMA”) which requires providers to be authorised and regulated by the Financial Conduct Authority.

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Managing cashflow and risk, coping with uncertain times

chris-mcdonoughThere are various ways in which a business can protect its business interests whether that is profit or cashflow. Many will look first at the internal workings of the business to make savings and some may never look at their other options with external parties. Having in place contractual provisions which assist you in that regard are often overlooked. The aim of this article is to provide some ideas on how a business can protect itself in these uncertain times.

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Insolvency – Liquidation

Liquidation is the procedure through which the assets of a company are realised and distributed to creditors to satisfy the company’s debts in accordance with the Insolvency Act 1986. At the end of this procedure the company is dissolved and no longer exists. The process is often referred to as winding up a company.

Liquidation can happen in isolation, for example if there is no prospect of selling the company, but it can also follow as an exit route for a company in administration. In 2018 over 15,000 companies were liquidated.

There are two types of liquidation; voluntary liquidation and compulsory liquidation.

Voluntary Liquidation

Voluntary liquidation can be achieved in two ways:

Members’ voluntary liquidation – this option can be used if a company is able to pay its debts but the management have decided to wind up the company, for example on retirement.

Creditors’ voluntary liquidation – if a company is unable to pay its debts then a creditors’ voluntary liquidation is the process to follow to wind up the company.

Compulsory liquidation

A compulsory liquidation comes about as a result of the court granting an order to wind up the company, most likely on the petition by HM Revenue & Customs of one of the company’s other creditors.

The Role of the Liquidator

The liquidator has wide ranging powers including to collect and realise assets, to disclaim onerous property, to pursue or defend legal proceedings and to challenge antecedent transactions.

What to do next?

If you think your company is in danger of being liquidated, has received a winding up petition or if you are considering exit strategies that include liquidation, it is important to seek professional advice.

We act for liquidators, creditors and companies in relation to the liquidation process. We can offer practical and commercial advice as well as giving you expert advice on your legal position.

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Insolvency – Receivership

Administrative Receivership

Prior to 2002, creditors holding a charge over a company’s assets (usually a bank), had the right in certain circumstances to appoint a receiver. A receiver was an Insolvency Practitioner who acted on behalf of the creditor. Its duty was to take custody of the company’s assets and exercise powers with a view to satisfying the debt owed to the creditor.

In 2002 the law changed and restricted the use of this procedure to certain types of companies or floating charges created prior to September 2003. For this reason, administrative receiverships are rare (in 2018 there were only a handful in the UK).

LPA Receivership and Fixed Charge Receivership

LPA receiverships and fixed charge receiverships are different to administrative receivership.

Under the Law of Property Act 1925 (LPA), creditors (usually banks/lenders) that hold a fixed charge over property have a statutory right to appoint an LPA receiver.

A fixed charged receivership is when a creditor who has a fixed charge over a company’s assets, has the power under the terms of the security documentation to appoint a receiver.

In these situations the receiver will have powers to help realise the debt owed to the creditor by taking charge of the assets/property. This could mean selling the assets that are the subject of the charge or managing them and collecting the rent for the benefit of the lender.

What can you do if a receiver is appointed in respect of your company’s assets?

We are experienced in advising both lenders in respect of the appointment of receivers, receivers in relation to legal issues arising from the exercise of their powers and companies facing receivership which gives us valuable experience in advising on this specialist area.

If you receive a formal demand from a lender indicating their intention to appoint a receiver, or a receiver has been appointed in respect of your company, it is critical that you seek urgent advice.

We regularly advise companies on the validity of the appointment of a receiver, their rights and the best course of action. We offer practical, commercial advice rather than just restating the law.

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Insolvency Procedures

We act for insolvency practitioners, lenders and business owners on all aspects of corporate restructuring and insolvency.

Our client base includes a number of North West based and nationally based insolvency practitioners, most of whom we have advised for many years. They welcome our practical and commercial advice and our responsiveness. We advise them on the full range of insolvency processes.

Where commercial lenders have clients who are struggling to pay their debts, or are involved in an insolvency process, we assist the lenders in recovering their funds.

When businesses are having financial difficulties, we are able to advise the owners on the best solutions for their situation, whether that be a formal process such as administration, or an informal restructuring, a managed turnaround and refinance or just general commercial and practical advice.

We also regularly advise purchasers who are buying distressed businesses that may or may not be in an informal insolvency process.

There are a range of procedures available to struggling businesses including:

  • Informal arrangements with creditors
  • Company Voluntary Arrangements
  • Administration
  • Liquidation
  • Receivership

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