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  • Series: Elgar Corporate and Insolvency Law and Practice series x
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Kayode Akintola

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Kayode Akintola

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Kayode Akintola

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Kayode Akintola

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Kayode Akintola

In this chapter, we explore the connection between a company, its capital and the institution of corporate insolvency. This link is not trivial if we accept that there is a fundamental link between the growth of any economy and the viability of companies operating within it. These companies and the economy have a stronger chance of survival if there is access to cost-effective capital. In this chapter, we will see that this dependency on capital transcends solvent situations; capital is also required in a company's insolvency in order to fund corporate insolvency proceedings and, where commercially apposite, broker a rescue of the company or its business. The chapter concludes by highlighting the verity that much of corporate capital is based on credit and the use of credit or lack thereof advances the institution of corporate insolvency. It also explores legal and commercial reasons for taking or giving credit and security.

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Kayode Akintola

In this chapter, we explore varied forms of credit and their providers. We highlight the link between these credit variants and English insolvency law. We explore loan credit from banks and non-institutional lenders. We also explore trade credit, including financing expedients like Retention of Title agreements that could be used in this regard. The role of the Crown in the provision of credit through deferred payment of taxes and the insolvency status of employees as creditors is also explored. It is clear that the nature of credit transactions will determine the status and priority of creditors in insolvency. Nevertheless, there is no necessary link between priority and realisation of debt. Thus we will explore the priority of creditors by an analysis of the statutory index of distribution (as discussed in Re Lehman Bros International (Europe) (No 4)) and the myriad of legal rules that could affect a creditor’s insolvency priority.

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Kayode Akintola

In this chapter, we examine some cardinal common law principles on creditor treatment. These principles, to an extent, serve as the basis for distribution rules in insolvency legislation. We start by highlighting the duty company directors owe to a company to have regard to its creditors’ interests once the company enters the zone of insolvency (twilight zone). We then consider the notion that an insolvent company’s assets are held on trust for the purpose of distribution to its creditors. We also explore the pari passu and anti-deprivation rules as sub-rules of the general principle that parties are not allowed to contract out of insolvency legislation. In this regard, we highlight the contours of both rules; the pari passu rule serving as a rule of distribution of assets in insolvency and the anti-deprivation rule serving as a rule of preservation of corporate assets for the general body of creditors in insolvency.

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Kayode Akintola

In this chapter, we discuss the treatment of different categories of unsecured creditors in insolvency. The basis of the treatment of these creditors is embedded in what is known as the redistributive policy by which Parliament enables assets available for the payment of floating charge creditors to be used to pay unsecured creditors in priority to the claims of the floating charge holder. This chapter provides the reader with the meaning, history, rationale and analysis of the redistributive policy in the Insolvency Act 1986. It does so by exploring various redistributive provisions, viz: the payment of liquidation and administration expenses from floating charge assets; elevation of preferential claims above those of a floating chargee; setting aside of a prescribed part fund from assets subject to the floating charge for the benefit of unsecured creditors; and the ability of an administrator to dispose of floating charge assets free of the charge.

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Kayode Akintola

In this chapter, we discuss the treatment of secured creditors in English Insolvency Law. We highlight the legal and commercial reasons for taking security in credit transactions. We then explore the conceptual basis of English law’s distinctive treatment of certain security interests by analysing the proprietary nature of fixed and floating charges. The chapter also examines the practical implications of such treatment, including the use of alternative receivables financing agreements (factoring and invoice discounting) by creditors taking security over book debts. We then discuss the control of secured creditors on insolvency proceedings and the implication of such control, including its impact on insolvency expenses. We examine pre-packaged administrations as well as the role of and outcome for secured creditors in such proceedings. Finally, we examine the treatment of secured interests under the charge registration framework, the insolvency priority implications of the registration regime and proposals to reform the registration regime.