| useful summary of anti-deprivation principle: | The anti-deprivation rule is a rule of preservation of assets and will invalidate a commercial agreement that deliberately evades insolvency law by removing an asset belonging to an insolvent party. |
| useful summary of anti-deprivation principle: | The anti-deprivation rule is a rule of preservation of assets and will invalidate a commercial agreement that deliberately evades insolvency law by removing an asset belonging to an insolvent party. |
| what does insolvency mean? | a situation where the debtor cannot pay the debts they owe to their creditors |
| how is insolvency and bankruptcy different? | insolvency can be applied to both corporate and personal debtors. bankruptcy is only applied to personal debtors.
insolvency is also a series of events and procedures |
| what is the difference between cashflow and balance sheet insolvency? | The cash flow insolvency test denotes that the debtor is unable to pay its debts as they fall due. The balance sheet insolvency test captures a debtor’s inability to pay its debts if its assets are less than its liabilities, taking into account its contingent and prospective liabilities |
| what is liquidation? | a terminal procedure that will result in the dissolution of the company after the winding up of its affairs |
| what is an office-holder? | a licensed insolvency practitioner who is primarily responsible for managing the insolvency procedure. The title of the office-holder will depend on the insolvency procedure; for example, a liquidator in liquidation, an administrator in administration, a receiver in receivership, a monitor in a moratorium and a supervisor in a CVA. |
| what is a floating charge? | a charge that is held over assets but 'floats', meaning that it can change over time as the business changes and assets move. it provides you with much more freedom than a fixed charge because you don't need to seek approval from your lender before transferring, selling, or disposing of the assets. Floating charge examples include stock, inventory, trade debtors |
| what is an undervalue transaction? which section? | when an asset is transferred for no payment or sold at below their true value. The transaction becomes a problem if the company is insolvent, as any transfer at an undervalue is in effect depriving the creditors of money owed to them.
s238 |
| what is a voidable preference? what section? | where a person or company transfers assets or pays a debt to a creditor shortly before going into bankruptcy, that payment or transfer can be set aside on the application of the liquidator or trustee in bankruptcy as an unfair preference
s239 |
| what is the main act for insolvency? | Insolvency Act 1986 |
| which case establishes good faith in undervalue transactions? | Levy McCallum Ltd v. Allen |
| what must be proven in a voidable preference? | -factual preference – factual improvement in the position of the creditor or guarantor/surety
-a desire to prefer the creditor or guarantor/ surety - found through motivation |
| what does Fortress Value Recovery Fund v. Blue Skye etc establish? | defined 'victim', it is a very wide definition. "who is, or is capable of being, prejudiced by it" |
| what is the aim of insolvency law? | restore the position to that which existed before the commercial transaction took place |
| useful summary to note: | Insolvency legislation might disrupt the continued operation of commercial arrangements such as security, leases or other dispositions. Such disruption will unwind the commercial arrangement, recover some financial value that had been given away by the entity in that arrangement, and distribute the recoveries among the creditors of the insolvent entity |
| what is the general rule for office-holders? | that they will take the company's assets as they see them, not the company before the insolvency |
| what is the pari passu principle? | it holds that, in a winding up, unsecured creditors shall share rateably in those assets of the insolvent company that are available for residual distribution. |
| true or false: the pari passu principle is not mandatory | false, it is mandatory. the courts have consistently held that it is not open to parties to avoid the operation of pari passu by means of a contract |
| what happened in the key case of British Eagle International Airlines Ltd v Compagnie Nationale Air France? | British Eagle was part of a scheme devised among a number of airlines and operated through IATA (International Air Traffic Association). The airlines in question often carried passengers for each other, giving rise to claims and cross-claims between them all. Rather than go to the time and expense of paying each individual claim it was agreed that each time a claim arose IATA would be notified, and IATA would keep records of all claims. Then, on a monthly basis, the claims would be netted off, leaving a net balance due either to or from each airline. Thus each airline would either be obliged to pay a sum to IATA or entitled to receive a sum from IATA each month. British Eagle entered insolvent liquidation and at that time had carried passengers for Air France (thus giving rise to a claim). Its liquidator argued that the netting scheme was unenforceable because it had the effect of removing an asset (the claim against Air France) from the assets of British Eagle.
The court held that the arrangement between the airlines offended the pari passu rule. |
| what is the anti-deprivation principle? | this principle is a judge-made rule. it is a rule of preservation of the assets of an insolvent party. any contractual provision which deprives the insolvent of an asset will be void where the deprivation is triggered by insolvency. |
| what does the key case of Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd establish? | The principle has two key aspects, of which the Supreme Court of the United Kingdom ruled that only the first was relevant on the facts of the case:
1 The anti-deprivation rule, which is aimed at attempts to withdraw an asset on bankruptcy or liquidation or administration, thereby reducing the value of the insolvent estate to the detriment of creditors.
2 The pari passu rule, which reflects the principle that statutory provisions for pro rata distribution may not be excluded by a contract which gives one creditor more than its proper share |
| which rule is an effect-based one? | pari passu |
| useful summary of anti-deprivation principle: | The anti-deprivation rule is a rule of preservation of assets and will invalidate a commercial agreement that deliberately evades insolvency law by removing an asset belonging to an insolvent party. |
