Statutory moratorium The appointment of an administrative receiver does not create an automatic statutory moratorium. As such, a company’s creditors may commence or continue any legal proceedings against the company. Floating charge The appointment of an administrative receiver will effectively cause any floating charge over a company’s assets to crystallise. As a floating charge must be over the whole or substantially the whole of a company’s assets, the administrative receiver will effectively take over the directors’ executive functions and powers. This means the company will not be able to deal with any of the assets subject to the floating charge. Employees As a general rule, employees are not immediately affected by the appointment of an administrative receiver. Employment contracts do not terminate automatically. This is subject to the three exceptions set out below, which would result in automatic termination: • if the appointment is accompanied by an immediate sale of the business (but

Effect of IVA on unsecured creditors The effect of the approval of an individual voluntary arrangement (IVA) is set out in section 260(2) of the Insolvency Act 1986 (IA 1986). This provides that an approved IVA: • takes effect as if made by the debtor at the time the creditors decided to approve the IVA proposal, and • binds, as if they were a party to the arrangement, every person who in accordance with the rules was entitled to vote at the time the creditors decided to approve the IVA proposal or would have been so entitled had they had notice of it An IVA becomes effective as a result of the approval given by the creditors—no court order is required. As a matter of legal analysis, an IVA operates as though a consensual agreement was entered into between the debtor and each of their creditors at the time the IVA was approved (see Lloyds Bank plc v Ellicott at para [51]). This agreement is, however, extended by IA 1986,

Impact of appointment The effect of the appointment of a receiver under the Law of Property Act 1925 (LPA 1925) or pursuant to a fixed charge (referred to in this Practice Note as an LPA/fixed charge receiver) is very different from that of an appointment of an administrator, liquidator or trustee in bankruptcy. The appointment of an LPA/fixed charge receiver is a remedy of a mortgagee. It is not an insolvency procedure and does not necessarily mean that the mortgagor is insolvent. Depending on the terms of the lease, remedies, such as forfeiture, that are available to landlords/lessors when a lessee becomes subject to insolvency procedures may not be triggered by the appointment of an LPA/fixed charge receiver. However, the appointment does have an effect on property, albeit less drastic than where insolvency procedures are being taken. The main impact of the appointment of an LPA/fixed charge receiver is on the role of the mortgagor of the property. LPA/fixed charge receiver as agent of the mortgagor The

The appointment of an administrative receiver does not create an automatic statutory moratorium. As such, creditors are not precluded from commencing or continuing legal action against the company over which an administrative receiver has been appointed. The appointment of an administrative receiver will cause the floating charge pursuant to which the administrative receiver was appointed to crystallise. As a result, the company will no longer be able to deal with the property subject to the floating charge. As

A receiver generally acts as agent of the mortgagor in collecting income from and disposing of the assets in respect of which the receiver has been appointed. This Practice Note considers the effect of bankruptcy or liquidation on the position of the receiver as agent of the mortgagor and the effect of a receiver losing its position as agent of the mortgagor. The status of the receiver will be important because it affects • the potential liability of both the receiver and the appointing mortgagee for acts done by or omitted to be done by the receiver and • how any documentation is structured, ie whether the receiver enters into an agreement as principal or agent of the mortgagor Where the receiver cannot act as agent of the mortgagor, they will either be acting as principal or, less preferably from the point of view of the mortgagee, as agent of the mortgagee. For an explanation of the different types of receivers,

This Practice Note considers the effect of a court-appointed receiver on employees, contracts and landlords. Employees It is usual for a court-appointed receiver to be appointed as receiver and manager, in which case the appointment results in the vesting control of the company's business in the receiver and manager. This changes the personality of the employer. As a result, the appointment by the court of a receiver and manager of the company will have the effect of automatically terminating all employee contracts. The employment contracts terminate with immediate

Senior creditors will ensure that in addition to having better security rights over junior creditors, juniors are also subordinated to them—ie the priority of claims against the debtor is changed so that junior creditors agree that their debt will not be paid until debts owed to the senior creditors have been paid. Subordination is also used to ensure that repayments of any intra-group loans rank behind repayments of debt provided by external creditors. Generally, creditors closest to the main asset-owning companies (in this Practice Note the main asset-owning companies will be referred to as ‘Opcos’, but depending on structuring, this may also be a ‘Propco’, for example) exert most control over any restructuring/insolvency, meaning their final dividend is often higher. The three main types of subordination are: • contractual subordination—lending to the same debtor entity • structural subordination—seniors lending to Opcos, juniors lending to Holdcos • equitable subordination—shareholder loans re-characterised as equity; common in the US and parts of Europe, but not recognised in the UK The common theme

Corporate analysis: This case concerned a claim for breach of warranties in a share purchase agreement. The judgment includes detailed consideration of the effectiveness of a clause requiring the buyer to take all reasonable action to mitigate its loss, as part of the sellers’ limitations on liability provisions in a share purchase agreement. On this issue, the court found that the buyer did not breach its duty under the mitigation clause and therefore no adjustment should be made to the assessment of the buyer’s loss derived from the share valuation exercise.

In an enforcement scenario, it is necessary to confirm that the charge under which you wish to appoint a receiver is valid. This Practice Note considers the impact on the validity and enforceability of a charge created by a security document which has not been registered at Companies House and/or HM Land Registry. For the purposes of the Practice Note, it is assumed that the security document is duly executed as a deed and contains a charge by way of legal mortgage over the property in respect of which the mortgagee wishes to appoint a receiver. Where appropriate, references in this Practice Note to charges include mortgages. HM Land Registry Certain dispositions of a registered estate are required to be completed by registration at HM Land Registry—this includes the grant of a legal charge (section 27(2)(f) of the Land Registration Act 2002 (LRA 2002)). This applies to all types of chargors including individuals, companies and partnerships. Pursuant to LRA 2002, s 27(1), a charge takes effect only

Property analysis: In this case, the appeal court was required to decide between two competing constructions of a right of way that had not been, on any view, satisfactorily drafted. The appellants contended that their construction was correct given the practical and geographical realities. The respondents contended that their construction was correct given the wording of the grant, even if that construction produced an impractical and unreasonable result. On appeal from the County Court, where the appellants had been unsuccessful, Sir Anthony Mann rejected the appellants’ construction, holding that on a purely textual analysis of the grant its meaning was clear. Written by Dermot Woolgar, barrister and arbitrator at Crown Office Chambers.

Registration can have an important effect on the priority of competing security interests. Broadly speaking, there are two systems for registration of security interests: • registration against the entity providing the security, and • registration against the asset which has been secured This Practice Note is concerned with the first system of registration where the entity providing the security is a company formed and registered under the Companies Act 2006 (a 'UK company') and explains: • the requirement to register at Companies House • whether registration constitutes constructive notice to other creditors • whether registration constitutes constructive notice to other creditors of a negative pledge • the consequences of failure to register security at Companies House and the effect of registering security at Companies House as against the effect of registering security at other asset registries For information about how registration against an asset affects priority of security interests, see Practice Notes: • Effect of registering security at HM Land Registry/Land Charges Department on priority of security interests

Introduction Registration can have an important effect on the priority of competing security interests. This Practice Note explains the impact on priority of registration at the relevant IP registry of: • a UK patent • a UK registered trade mark, or • a UK registered design For information about how registration against other assets affects priority of security interests, see Practice Notes: • Effect of registering security at the HM Land Registry/Land Charges Department on priority of security interests • Effect of registering security on the UK Ship Register on priority of security interests • Effect of registering security on the UK Register of Aircraft Mortgages on priority of security interests In addition, most security interests created by a company which is formed and registered under the Companies Act 2006 need to be registered at Companies House in order to be effective. For more information on registration at Companies House, see Practice Note: Registering security at Companies House. For information about how such registration affects priority