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Insolvency - validity of appointment |
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The number of insolvency-related sales is likely to increase. When dealing
with a purchase from an insolvency practitioner the buyer will usually have to
accept a lower level of legal protection. For instance, there will usually be no
covenants, warranties or indemnities in favour of the buyer, and the IP may
well refuse to answer any pre-contract enquiries.
Most buyers will accept that,
but it is often worth reminding the client that the IP-seller may not have access to all the selling company’s tax records which means (i) it may be unclear
whether a VAT election has been made for the property; (ii) it may be unclear
whether the IP should be using the company’s VAT registration; and (iii) there
may be no disclosure of the capital allowances history of the property.
From the conveyancing point of view, the initial task for the buyer is to check
the validity of the appointment:
- Check the appointment and acceptance of appointment. If there are
two receivers or administrators, check whether they can act jointly
and severally. Likewise, obtain a copy of a liquidator’s appointment
(a copy of the chairman’s certifi cate in a voluntary winding up, or a
sealed copy of the court order for a winding up by the court). If in
doubt, check his status as an IP. Once again, the appointment should
confi rm whether joint liquidators can act severally. Undertake a
company search to establish that no notice of resignation or removal
has been filed.
- Look at the debenture. The ability of the secured creditor to appoint
joint receivers must be provided for in the debenture.
Get confi rmation from the receiver’s lawyers that a demand was
properly made under the debenture (or other circumstances entitling
the appointment).
- Do a company search to see if the debenture was registered under
s395 CA 1985, and whether there are any other charges over the
assets (which may mean consents are required), and also whether
the appointment of the receiver or administrator has been notifi ed to
the Registrar of Companies. If dealing with administrators, the court’s
consent may be required for disposal of assets free from charges or
other encumbrances (in which case, insist on a copy of the court
order).
- If the seller is an administrator, and the initial creditor’s meeting has
taken place, then you will need a copy of any creditor’s resolutions
approving the administrator’s proposal.
One final point is to ask for confi rmation that the consent of any mortgagee
to the sale has been obtained before contracts are exchanged. Although this
is principally the seller’s concern, the buyer will want reassurance – because
he will have limited recourse against the company or IP if unable to complete
the contract because a mortgagee will not release its security on completion.
For an excellent introductory article see [2008] NLJ 432. © Practical Lawyer
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May 2008 |
