Answer ... (a) Debtor
Liquidation: The debtor ceases to trade (expect for its beneficial winding-up); and from the date on which the debtor is in liquidation, all invoices and documents bearing its name must state that it is in liquidation.
Receivership: If the receiver manager so decides, the debtor’s trading activities may continue. However, from the date on which the debtor is placed in receivership, all invoices and documents bearing its name must state that it is in receivership.
Examinership: The debtor continues trading and its directors retain their management and other powers unless the court orders otherwise. The debtor, where it is the party that applies for the appointment of an examiner, must appoint an independent expert who will prepare a report to the court vis-à-vis the debtor’s financial position, to be submitted together with the examinership petition. From the date that the debtor is under the protection of the court, all invoices and documents bearing its name – including the company website and emails – must state that it is in examinership.
(b) Directors of the debtor
Liquidation: The duties of the directors cease. The directors must:
- provide the liquidator with a statement of the affairs of the debtor drawn up on the date of his or her appointment; and
- generally cooperate with the liquidator and his or her investigation and enquiries into the affairs of the debtor.
If the directors do not cooperate, the liquidator has the power to apply to the court for their public examination.
In the case of an MVL, the directors (or a majority of them) must provide a declaration of solvency of the debtor, which must be filed with the Insolvency Department and presented to the general meeting.
Receivership: The directors retain certain powers, as mentioned in questions 4.1 and 4.3; however, they no longer have the power to manage the assets secured by the floating charge debenture, as these are placed in the hands of the receiver. The directors must provide the receiver with a statement of the affairs of the debtor drawn up on the date of his or her appointment.
Examinership: The directors retain control of the affairs of the debtor unless, following a petition by the examiner, their powers are limited by a court order. If the application for the appointment of an examiner is made by the debtor, a creditor or a member, the directors of the debtor must cooperate with the independent expert for the preparation of the report. Once an examiner has been appointed, the directors must:
- produce all books and documents relating to the debtor which are in their possession or under their control;
- present themselves before the examiner, whenever requested; and
- provide all reasonable help to the examiner in carrying out his or her functions.
(c) Shareholders of the debtor
Liquidation: In the event of an MVL where the whole or part of the business is proposed to be sold to another company, the liquidator may proceed with the sanction of a special resolution, giving him or her the authority to enter into the transaction.
In the event of a CVL and compulsory winding-up, the shareholders may appoint a liquidator during a duly convened meeting of members, but the decision of the creditors prevails. In all liquidations, any proceeds that remain following distribution to all creditors are distributed to the shareholders subject to the rights attached to their shares.
Receivership: The shareholders have no power or say over the actions of or appointment of the receiver.
Examinership: Shareholders may petition for examinership of the debtor provided that they hold, at the time of the presentation of the petition, not less than one-tenth of the paid-up capital that carries, at the time, voting rights at a general meeting.
Shareholders (or classes of shareholders) will be invited to vote in respect of proposals put forward by the examiner for a compromise or scheme of arrangement. However, regardless of whether they vote for or against the proposals, the court can ratify the proposals, provided that:
- at least one class of creditors votes in favour; and
- among other things, the proposals are not unfairly prejudicial to the interests of any interested party.
Nevertheless, members whose interests are impaired by the proposals may object to their ratification at court.
(d) Secured creditors
Liquidation: Secured creditors will rely on their security and can proceed to foreclose and sell immovable property at auction irrespective of the appointment of a liquidator.
Any secured creditors that wish to submit a proof of debt must:
- surrender their security for the benefit of creditors; or
- value their security and prove for the difference.
Receivership: Secured creditors which have a floating charge debenture in their favour have a leading role in a receivership, as they are the appointors of the receiver, who acts primarily in their interests (and also has a duty of care to guarantors).
Any realisations made by the receiver will be paid in the following order of priority:
- expenses of the receivership;
- then preferential creditors; and
- then payment to the floating charge holders.
Any surplus after settlement of the floating charge holders will remain with the debtor; the receiver will not settle debts of unsecured creditors.
Examinership: All creditors have the right to be heard in an examinership application and can oppose the ratification of a scheme or proposal on the grounds set out in Section 202Ζ of the Companies Law.
(e) Unsecured creditors
Liquidation: In both a CVL and compulsory liquidation, the liquidator must act in the best interests of creditors.
Unsecured creditors determine who will be appointed liquidator; this will be the IP in whose favour a majority of creditors (in value) vote for, in person or by proxy. In the event of a CVL, a creditor may at any time apply to the court for the liquidation process to continue under the supervision of the court. At any point, any creditor wishing to bring any action against the debtor must obtain the prior leave of the court. In any type of liquidation, any creditor may at any time apply to the court for a review of the exercise of the liquidator’s powers or to determine any question arising in the winding-up.
A committee of inspection may be appointed, which will be comprised of up to five creditors and contributories of the debtor, to assist and supervise the liquidator in the exercise of his or her duties and determine his or her remuneration.
Receivership: The receiver owes no duty of care to unsecured creditors. The unsecured creditors have all rights of recovery options against the debtor afforded to them under the law and may proceed with execution measures and/or the filing of a winding-up petition while the receivership is ongoing.
Examinership: All creditors have the right to be heard in an examinership application and can oppose the ratification of a scheme or proposal if they believe that their interests are impaired by its terms.
The court may, upon application by a creditor, authorise the payment of any obligation if it is satisfied that failure to pay it would substantially reduce the prospects of survival of the debtor as a whole or any part of its business as a going concern.
Utility providers – including providers of electricity, telephone services, water and internet services – will continue to provide services to the debtor, as long as they are paid for any costs incurred during the period that the debtor is under the protection of the court.
If a committee of creditors is appointed, this:
- may consist of no more than five members; and
- must consist of the three largest unsecured creditors.
The committee of creditors provides the examiner with its opinion in respect of the proposed scheme or proposal on behalf of the group of creditors that each member of the committee represents.
(f) Administrator
The Companies Law does not provide for or recognise an administrator.
(g) Employees
Liquidation: Employees have the same role, rights and responsibilities as unsecured creditors, but their claims rank as preferential claims.
Receivership: Sums due to employees – including wages, deductions from wages (eg, provident fund contributions) and compensation for injuries – rank in priority as preferential claims over any floating charge.
Examinership: Employees have the same role, rights and responsibilities as unsecured creditors. Additionally, the scheme or proposal should cover:
- whether any employees will be made redundant under the Termination of Employment Law; or
- in the event of a merger or transfer of the business, whether their employment will continue under a new entity under the Maintenance and Safeguarding of the Employees’ Rights in the Event of Transfer of Undertakings, Businesses, or Parts Thereof Law.
In the event of any changes to the terms of their employment, the employees or their representatives (unions) must be consulted and must agree to any changes.
Where the employment of an employee is terminated because of redundancy before the attainment of pensionable age, the employee is entitled to a redundancy payment out of the redundancy fund; alternatively, if the employee is of pensionable age, he or she retains his or her benefits under the Social Insurance Law.
(h) Pension creditors
Liquidation: Pension creditors have the same role, rights and responsibilities as employees.
Receivership: Pension creditors have the same role, rights and responsibilities as employees.
Examinership: Pension creditors have the same role, rights and responsibilities as employees. Employees no longer employed in the debtor’s business at the time of the transfer maintain their acquired or prospective entitlement to old age or invalidity benefits, including survivors’ benefits, under occupational or inter-occupational pension schemes (under the Maintenance and Safeguarding of the Employees’ Rights in the Event of Transfer of Undertakings, Businesses, or Parts Thereof Law).
(i) Insolvency office holder
Liquidation: The liquidator is responsible for:
- winding up the affairs of the debtor;
- identifying, locating and realising the assets; and
- distributing the proceeds by way of a dividend on a pari passu basis in accordance with the statutory order of priority.
The liquidator must adjudicate on proofs of debt filed and inform creditors of the amount of their claims accepted/rejected. The liquidator has extensive powers, including, without limitation, the right to:
- defend claims against the debtor;
- issue legal proceedings on behalf of the debtor;
- continue to trade in the name of the debtor for its beneficial winding-up;
- borrow on the security of the debtor’s assets; and
- make compromises or arrangements with creditors and debtors.
In CVLs and compulsory liquidations, the liquidator has the power to investigate the conduct of persons involved in the affairs of the debtor, including the power to apply to the court for the public examination of any company officer or anyone involved in its promotion, formation and management. In compulsory liquidations, the liquidator must file with the Insolvency Department his or her receipts and payments accounts on a six-monthly basis. In a CVL, the liquidator files a statement of all receipts and payments of the liquidation at the end of the administration.
Receivership: The receiver manager has control of all property covered by the debenture and his or her powers are set out in the debenture under which he or she is appointed. The receiver manager must:
- notify the debtor of his or her appointment;
- submit the statement of affairs that he or she has received from the directors of the debtor to the registrar of companies; and
- submit statements of receipts and payments of the receivership to the registrar of companies, the debtor and his or her appointee on a six-monthly basis.
The receiver manager has a primary duty of care to the secured creditor which appointed him or her, but also has a duty of care to guarantors. Once he or she has settled the debt owed to the debenture holder and the preferential creditors, the receiver manager resigns.
The receiver:
- may be personally liable on any contract entered into by him or her in the performance of his or her functions, except insofar as the contract otherwise provides (and typically a receiver will exclude any such liability in any contract entered into); and
- is entitled in respect of that liability to indemnity from the assets of the debtor.
Examinership: An examiner must notify the registrar of companies of his or her appointment and ensure its publication in the Official Gazette. As soon as practically possible after his or her appointment, the examiner must prepare proposals to be put to members and creditors at duly convened meetings before proceeding to file the same at court for sanction (provided that the majority of members or creditors or a class of creditors approves the same).
The examiner may appoint a committee of creditors to help him or her in performing his or her duties. The examiner also has the power to:
- receive notice of, convene, set the agenda and preside over board meetings and general meetings of the debtor, give proposals or resolutions and speak at such meetings;
- take any action necessary to stop or prevent any matter to be done by any person in relation to the debtor’s income, assets or liabilities which he or she deems detrimental to the debtor or any interested party;
- examine the officers and representatives of the debtor or any other person in relation to the affairs of the debtor; and
- perform any duties set by the court.
(j) Court
Liquidation: The court will decide whether to make a winding-up order, following a petition made for the winding-up of a debtor or for the continuation of a voluntary winding-up of a debtor under the supervision of the court.
In the majority of compulsory liquidations, the official receiver is appointed liquidator by the court by virtue of his office and the Companies Law provides that the official receiver can apply to court for an IP to replace the official receiver as liquidator. Alternatively, upon the making of the winding-up order, the court may appoint, instead of the official receiver, an IP to act as liquidator if such an order is sought by the petitioner.
A liquidator requires the sanction of the court (or a committee of inspection) to exercise certain powers and may apply to the court for directions. A liquidator can apply to the court for the public examination of any persons involved in the affairs of the debtor before the court.
Receivership: Any receiver manager appointed under the powers contained in a floating charge debenture may apply to the court for directions on any matter arising in connection with the performance of his or her duties.
Examinership: The court must be satisfied that there is a reasonable prospect of survival of the debtor and all or any part of its business, as a going concern, in order to appoint an examiner. To determine this, the court may take into account:
- whether the debtor has requested significant extensions of time from its creditors for the payment of its debts, from which it can reasonably be inferred that the debtor is likely unable to pay its debts; and
- whether the debtor has undergone a restructuring of its debts by any bank.
The court may also allow the removal from the independent expert’s report of any information whose inclusion is likely to adversely affect the survival of the debtor or all or any part of its business as a going concern. The court may refuse to hear or continue an application if it considers at any time that the applicant or the independent expert failed to disclose any material information or did not act in good faith. The court will not ratify a scheme or proposal unless:
- at least one class of creditors whose rights are affected by the scheme or proposal accepts the same; and
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it is satisfied that:
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- the scheme or proposal does not adversely affect the interests of any party; and
- the main purpose of the scheme or proposal is not the avoidance of tax due.