A number of legal systems make provision for companies trading while insolvent to be unlawful in certain circumstances, and provide for directors to become personally liable for a company's debts if they have acted improperly. In most legal systems, the liability in respect of unlawful transactions only extends for a certain period of time prior to the company going into liquidation.
An officer of the Insolvency Service of the United Kingdom, an official receiver (OR) is an officer of the court to which he is attached. The OR is therefore answerable to the courts for carrying out the courts' orders and for fulfilling his duties under law. He also acts on directions, instructions and guidance from the Service's Inspector General or, less often, from the Secretary of State for Business, Energy and Industrial Strategy.
An unfair preference is a legal term arising in bankruptcy law where a person or company transfers assets or pays a debt to a creditor shortly before going into bankruptcy, that payment or transfer can be set aside on the application of the liquidator or trustee in bankruptcy as an unfair preference or simply a preference.
An undervalue transaction is a transaction entered into by a company who subsequently goes into bankruptcy which the court orders be set aside, usually upon the application of a liquidator for the benefit of the debtor's creditors. Under Australian insolvency law they are referred to as uncommercial transactions.
In law, set-off or netting are legal techniques applied between persons with mutual rights and liabilities, replacing gross positions with net positions. It permits the rights to be used to discharge the liabilities where cross claims exist between a plaintiff and a respondent. The result being that the gross claims of mutual debt produces a single, net claim. The net claim is known as a net position. In other words, a set-off is the right of a debtor to balance mutual debts with a creditor. In bookkeeping terms, set-offs are also known as reconciliations. To determine a set-off, simply subtract the smaller debt from the larger.
United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. "Insolvency" means being unable to pay debts. Since the Cork Report of 1982, the modern policy of UK insolvency law has been to attempt to rescue a company that is in difficulty, to minimise losses and fairly distribute the burdens between the community, employees, creditors and other stakeholders that result from enterprise failure. If a company cannot be saved it is "liquidated", so that the assets are sold off to repay creditors according to their priority. The main sources of law include the Insolvency Act 1986, the Insolvency Rules 1986 ), the Company Directors Disqualification Act 1986, the Employment Rights Act 1996 Part XII, the Insolvency Regulation (EC) 1346/2000 and case law. Numerous other Acts, statutory instruments and cases relating to labour, banking, property and conflicts of laws also shape the subject.
Principles of Corporate Insolvency Law by Roy Goode of the University of Oxford is a leading textbook on UK insolvency law. The forthcoming edition in 2010 will be taken over by Professor Robert Stevens, of University College London.
Re Barleycorn Enterprises Ltd [1970] Ch 465 is a UK insolvency law case, concerning the priority of creditors in a company winding up. It was held that fees for liquidation came in priority to preferential claims and floating charges. This was overturned by the House of Lords in Buchler v Talbot, but reinstated by Parliament through an amendment to the Insolvency Act 1986 s 176ZA.
British Virgin Islands bankruptcy law is principally codified in the Insolvency Act, 2003 and to a lesser degree in the Insolvency Rules, 2005. Most of the emphasis of bankruptcy law in the British Virgin Islands relates to corporate insolvency rather than personal bankruptcy. As an offshore financial centre, the British Virgin Islands has many times more resident companies than citizens, and accordingly the courts spend more time dealing with corporate insolvency and reorganisation.
Cayman Islands bankruptcy law is principally codified in five statutes and statutory instruments:
The anti-deprivation rule is a principle applied by the courts in common law jurisdictions in which, according to Mellish LJ in Re Jeavons, ex parte Mackay, "a person cannot make it a part of his contract that, in the event of bankruptcy, he is then to get some additional advantage which prevents the property being distributed under the bankruptcy laws." Wood VC had earlier observed that "the law is too clearly settled to admit of a shadow of doubt that no person possessed of property can reserve that property to himself until he shall become bankrupt, and then provide that, in the event of his becoming bankrupt, it shall pass to another and not to his creditors."
Anguillan bankruptcy law regulates the position of individuals and companies who are unable to meet their financial obligations.
Australian insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is principally governed by the Corporations Act 2001. Under Australian law, the term insolvency is usually used with reference to companies, and bankruptcy is used in relation to individuals. Insolvency law in Australia tries to seek an equitable balance between the competing interests of debtors, creditors and the wider community when debtors are unable to meet their financial obligations. The aim of the legislative provisions is to provide:
Provisional liquidation is a process which exists as part of the corporate insolvency laws of a number of common law jurisdictions whereby after the lodging of a petition for the winding-up of a company by the court, but before the court hears and determines the petition, the court may appoint a liquidator on a "provisional" basis. Unlike a conventional liquidator, a provisional liquidator does not assess claims against the company or try to distribute the company's assets to creditors, as the power to realise the assets comes after the court orders a liquidation.
Hong Kong insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is now primarily governed by the Companies Ordinance and the Companies Rules. Prior to 2012 Cap 32 was called the Companies Ordinance, but when the Companies Ordinance came into force in 2014, most of the provisions of Cap 32 were repealed except for the provisions relating to insolvency, which were retained and the statute was renamed to reflect its new principal focus.
Allied Concrete Ltd v Meltzer was a landmark Supreme Court decision on the defence to a court order allowing a liquidator to claw back value from an insolvent transaction. The matter in contention concerned whether repaying an old debt satisfied the words "gave value" in section 296(3)(c) of the Companies Act 1993. The Supreme Court unanimously agreed that "gave value" includes value given when a debt was initially incurred by the now insolvent debtor company.
Re MC Bacon Ltd [1991] Ch 127 is a UK insolvency law case relating specifically to the recovery the legal costs of the liquidator in relation to an application to set aside a floating charge as an unfair preference.
