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GLOSSARY

Anti-deprivation principle definition

Published by a LexisNexis Banking & Finance expert

What does Anti-deprivation principle mean?

This principle seeks to prevent parties from contracting out of the statutory regime for the collection, realisation and distribution of an insolvent estate. It prevents assets that should form part of an insolvent estate from being removed from that estate.

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Intercreditor payment priorities and requisite majorities

Intercreditor payment priorities and requisite majorities Background The aim of the intercreditor agreement (also known as a deed of priority) is to try and deal with potential conflicts which will inevitably arise between the different classes of secured lender on a restructuring. Waterfall of payments The intercreditor agreement usually sets out a payment waterfall directing the security trustee how to apply any money received by it (whether sale proceeds, proceeds of litigation or payments from a debtor wrongly paid to a junior creditor and handed over under turnover provisions) either (i) in all circumstances or (ii) during normal operations (pre-enforcement) and post enforcement ie a 'flip' clause (see below). The payment waterfall will generally provide for the security trustee's fees to be paid out first, and then money paid to creditors according to their ranking (usually secured lenders appearing at the top of the list) with any surplus being returned to the debtors. A typical payment waterfall may require the security trustee to apply monies received towards:...

Contracting out of expense claims in administration and liquidation

Contracting out of expense claims in administration and liquidation It has long been standard practice for administrators and liquidators to seek to limit their personal liability when entering into contracts on behalf of the company. Moreover, it is not uncommon for office-holders to seek to limit liabilities incurred during the course of an administration or liquidation where such liabilities would rank as an expense of the respective administration or liquidation. Expense claims rank second only to fixed charge claims, and in many cases ahead of the insolvency office-holder’s remuneration. This Practice Note covers the use of exclusion clauses drafted to contract out of expense claims, reviewing the background to the practice, the issues that may arise in practice and matters to be considered by counterparties when agreeing such clauses. Background to the practice In the course of an administration or liquidation, an office-holder may enter into any number of contracts on behalf of the company when exercising their powers and functions. The two main categories of contracts...

Discover our 10 Practice Notes on Anti-deprivation principle

Can shares transferred as a result of a mandatory transfer clause (in the event of bankruptcy) be held on trust by the continuing shareholder until the offending shareholder is no longer bankrupt?

Can shares transferred as a result of a mandatory transfer clause (in the event of bankruptcy) be held on trust by the continuing shareholder until the offending shareholder is no longer bankrupt? The mandatory transfer provisions should be considered in conjunction with the anti-deprivation principle (ADP). The ADP is a principle that seeks to prevent parties from contracting out of the statutory regime for the collection, realisation and distribution of an insolvent estate. It prevents assets that should form part of an insolvent estate from being removed from that estate. In that regard it protects the value of the estate from attempts to evade insolvency laws and operates to prevent an insolvency estate from being deprived of an asset that would otherwise be available for the benefit of its creditors. Refer to Practice Note: The difference between the anti-deprivation principle and the pari passu principle and the linked cases and articles for further guidance. In the event the original structure is deemed permissible, following the principle...

Is it possible for a supplier and a customer to agree that if the customer gets into financial difficulties, the supplier would be classed as a ‘secured’ or ‘preferential’ creditor in the context of a straightforward supply of goods and/or services? If so, what would be the simplest way to achieve this?

Is it possible for a supplier and a customer to agree that if the customer gets into financial difficulties, the supplier would be classed as a ‘secured’ or ‘preferential’ creditor in the context of a straightforward supply of goods and/or services? If so, what would be the simplest way to achieve this? Where a company is insolvent and so unable to pay its debts as and when they fall due (as defined by section 123 of the Insolvency Act 1986 (IA 1986)), there will be a limited pot of money available for creditors. The order in which creditors of an insolvent company are paid is set out in statute and unsecured creditors rank at the bottom of this hierarchy. The office-holder will determine the priority of creditors’ claims in accordance with these strict rules. If a creditor suspects the insolvency practitioner is acting incorrectly, they can challenge their conduct by making a court application. For more information, see: Challenges to an insolvency office-holder—overview. For details on the...

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