Small businesses often structure payments to directors who are also shareholders using a combination of dividend payments and salaries. At a time when corporate governance and director and shareholder accountability are under review, a recent Court of Appeal decision gives more reason for directors to ensure that they understand not only their obligations and duties as directors under the Companies Act 2006, but also the implications of relying solely on advice without evaluating it first.
A recent case is a cautionary reminder to qualifying floating chargeholders (and their advisers) to review the terms of all security documents before seeking to appoint an administrator. In this case, failure by junior chargeholders to obtain consent from senior chargeholders (as required under a deed of priority) prior to the appointment of administrators led to the court finding that the out-of-court appointment of administrators was invalid (as opposed to being a procedural irregularity that could be cured).
In a recent case, Insolvency and Companies Court Judge Jones dealt another blow to qualified floating charge holders' (QFCH's) control by finding that failure to serve a notice of intention to appoint administrators by directors of a company on a QFCH does not automatically void an administration. This finding may come as a surprise given that the reason for giving notice is to enable a QFCH the opportunity to appoint its preferred choice of administrator.
Numerous recent extensions and changes to temporary measures have been announced that affect insolvency practice and procedure. These concern the ipso facto regime for small suppliers, the Corporate Insolvency and Governance Act 2020, the temporary restrictions affecting winding-up petitions, the prohibition on forfeiture proceedings and the revised Temporary Insolvency Practice Direction.
The Finance Act 2020 recently received royal assent, confirming the anticipated but opposed intention to restore Her Majesty's Revenue and Customs (HMRC) as a secondary preferential creditor on insolvency. From 1 December 2020 HMRC's claim will sit ahead of floating charge holders and unsecured creditors, reducing the monies available for distribution to both when a corporate files for insolvency. But what does this mean for secured lenders and corporates?