Getting the best result from an insolvency appointment
Insolvency practitioners and secured creditors often find they have to deal with each other in the course of a file. How easily these dealing are conducted depends on a few factors.
From the practitioner’s view point, they need to know who they should be speaking to at a particular secured creditor. They then are able to seek instructions as to how to deal with an asset, or find out whether the creditor wishes to take another course of action, or appoint another person to look after their interests. Delays in being able to obtain that advice will delay the realisation process.
From a secured creditor’s view point, they want to know whether the practitioner recognizes their security, that the asset is protected and that the practitioner will act with the secured creditor’s relevant interest in mind. If the secured creditor does not have confidence that this will happen, they will take other action to protect their interests.
In most cases the secured creditor’s interests do not conflict with the practitioners, but sometimes they do. Voluntary administrators may need to retain assets to continue trading the business when secured creditors wish to repossess the items. Liquidators may seek to have securities overturned for late registration or simply because granting the security itself was a preference. But these cases are rare.
The obvious statement is that practitioners and secured creditors should make immediate contact with each other, introduce themselves, raise any potential areas of concern, and discuss the administration. Unfortunately sometimes practitioners delay advising secured creditors for some reason, and this leads to distrust.
Creditors with assets under lease or finance should make an immediate claim to their assets and ask whether the practitioner intends disclaiming the contract. This allows for an early repossession or may allow a sale of the item with the other assets of the business – potentially getting a better price. It also reduces any claim the practitioner may seek in relation to the protection, preservation and realization of the assets.
Creditors with charges over some larger pieces of equipment should discuss any plans they have to sell or trade the business. The best result in a sale may be achieved by creditors agreeing to a group all of the businesses assets in one sale, rather than have the assets sold in pieces by different auctioneers.
Creditors holding fixed and floating charges over all of the assets will have to consider whether the existing appointment will achieve the desired result want without the duplication of a receiver and manager being appointed – and the extra costs involved. An agreement may be able to be made for the existing practitioner to continue in control of the business and its assets.
Prudent lenders need to be prepared and proactive. By this we mean:
a. once they have taken any security over assets, they need to ensure that it registered (where required) in a timely manner and with the correct authority. Otherwise they may find that their secured debt is unsecured at the time they need it most.
b. make contact with any insolvency practitioner to ensure their assets are protected and arrangements are put in place as to ensure they are realized in the most appropriate manner and at least cost.