Comparative Insolvency Law in the UK - Assignment Example

Name: Professor: Institution: Course: Date: Introduction The normal survival of the humankind assumes many forms, and living in this world where survival for the fittest is the normal formula the different races have established various mechanisms. The most adapted method is business ranging from the small ones to the big ones, like the companies and the corporate, and being always uncertain about the future security must be kept always to prevent collapse. A business may experience downfall or a shake in its financial strengths. This can be experienced in the case of cash inflow is affected in terms of debts not being paid or when its debtors fails to fulfill the promise of repayment. However, the debtors may also become insolvent, hence a guideline on now to recover its lent money must be clearly be outlined. This piece of writing looks at various forms of securities given to creditors and also the forms they take comparatively among various nations. Question 1 A In various countries, especially when the situation of insolvency arises, different procedures and securities are considered to prevent any unplanned consequences to attack the company. The attack is believed to contribute in the windfall, which may be difficult for any company to encounter. In the United Kingdom, the adaptation of the fixed and floating charges is a method that has been taken by many creditors and has proven to be a one way to rely on in these difficult times. Fixed charges are acquired by creditors in order to enhance and facilitate the access of debtors’ assets in times of insolvency. In the United Kingdom, a fixed charge provides and exists as a form of security or the specific and identifiable property. The creditor holding the fixed charge has the advantage and the power to force the sale of property (Westbrook, 2010). This is done in order to recover the amount owed, and also if the debtor fails in one way or another to honor and to meet the deadline of fulfilling his due by the agreed date. The holder takes advantage of other creditors when considering payment of debts by having a resource to the security. Fixed charges are advantageous in that they offer the opportunity to the creditor to liquefy the assets obtained, and therefore, enhancing security. They clearly specify the property over which the intended security is intended to apply, and in many situations may be taken over real properly or even extend to intellectual property and any other asset of a business in which the debtor had offered as collateral for the loan given (Westbrook, 2010). When the debtor fails to meet the agreement, the creditor with the fixed charge takes the mandate to control and restrict any dealings with the property. In its own right, the fixed charge offer protection to the creditor holding it, in that an opportunity to get the dues back are given and also the power to sell the assets to obtain the much owed. Question 1 B The collateral extends to real property, intellectual property and also any other asset. It is given priority over the floating charge, in that it offers an opportunity to get the dues back, and the creditors holding it are given also the power to sell the assets to obtain the much owed. It is further given priority over the floating charge, in that by considering the set terms the creditor has the right to sell the property seized upon his own advantage to cover any amount due. On the other hand, a floating charge as the name suggest is a charge in transition. In this manner, it is an equitable charge on the assets for the time being. The charge remains shifting in nature, and happening from time to time the person in favor of the charge intervenes. In its own right, the charge has not yet crystallized or becomes as fixative and authoritative as the fixed charge. The debtor can continue with the business in the ordinary way. The asset that is subject to the charge, or in other terms, the one proposed to be taken over as a means to recover the debt in times of default, is not finally accepted as a security for the repayment of the debt. It denies the creditor the right to liquefy the assets and gives priority and opportunity for the debtor to continue freely using the asset, and can also remove it from the security. This means that under the United Kingdom law, in times and situations of insolvency, the holder of a floating charge, unlike the holder of a fixed charge, cannot assume total security of his owing. Although if conditions are not fulfilled by the debtor, a floating charge usually assumes the role of a debtor and eventually translate to a fixed charge (Westbrook, 2010). Furthermore, the debtor also has the freedom to continue using the assets’ subject to charge, which is different from a fixed charge, whereby the holder has full control of the assets. On the contrary, an opportunity to remove it from the security is a distinguishing feature of the two types of charges. The law of protecting companies in times of insolvency extends too many countries in the world and takes various forms. In the United States, security of debts is granted under which set terms and conditions are followed. It is with considerable similarity as the case in the United Kingdom, where the creditor is given much of preference and access to his own right over the considerations of the debtor. In the United States, under article 9 of the secured transaction and the bankruptcy code, the security to the creditor’s due is granted in the form of a security interest (Westbrook, 2010). A security interest arises when following an agreement between the borrower and the lender. A security agreement is set before exchanging a loan, in that if a debtor bankrupts, the creditor will be in a good position to recover the loan value by taking possession of specified collateral. In personal views, the security interest under the United States secured transactions is treated the same as the fixed charge in the United Kingdom. This takes place with its own advantage of giving the creditors an upper hand than the debtors. Considering its vivid and favorable advantages to the creditor, it denies the debtor access to the property again and given the power to own property. The creditor can as well convert it to an equivalent amount if the debtor fails to honor the promise. Furthermore, it does not mean that the holder will get a portion of the assets after it is divided among all creditors. It is treated more favorably than the floating charge and almost the same as the fixed charge in the United Kingdom. Question 2 Asset management companies are used as mechanisms to assist with the bank and corporate restructuring. They are usually government owned and financed, although private capital can be introduced. In its own right, an asset management company acquires loans from financial and other institutions, and any securities connected to the loan that had been acquired to be transmitted to the company (Westbrook, 2010). The amount and terms of obligation of the borrower does not change only the person or the entity that are owed money to initiated possible changes. In order to maximize the chances of recovery, the bank negotiates with the borrower and choose a number of strategies to enhance payment recovery, and this may include an immediate sale of the whole or a fraction of the loan to a third party. It may also wish to provide the borrower with additional capital to enhance its validity. Furthermore, the asset management company may seek recovery through legal remedies. In banking and corporate restructuring, an asset management company provides a mechanism which allows bankers to return to banking. It also offers general solutions as it also operates under a limited lifestyle over which it repays its initial and subsequent sectors. The forms of assets management companies vary from one nation to another. They may take the form of central deposition agencies that have no restriction of where they take loans from, a group of banks may also be another form or an independent contractor. A good example in Asia is in Singapore where DBS asset management is located. It is well known of its positive returns and effective investment solutions for Asia – focused clients. It is governed by principles such as expertise and focused management, transparency, specialist management of loan security. Also expertise management of problem loans through reconstruction and rehabilitation (Westbrook, 2010). As the burning issues of debts and their recovery being on secured or unsecured basis may contribute to a different outcome during debt recovery period. The various parties involved have done so under the unsecured basis and having taken the way forward to file insolvency petition different outcomes will be realized. This is in consideration of the jurisdictions that they are bound within. Question 3 A Broadway bank lends money to First manufacturing company on an unsecured basis, and also in this case, there is nothing much to deal with Stan smith although his debt was paid before time. Having sued FMC, Broadway bank gets a judgment and the judgment is enforced to FMC. But to save its rights, FMC files an insolvency petition. Under the United States bankruptcy code, a security interests in personal property that are both consensual and commercial. The perfection of a security agreement under this law requires also having a written agreement in order for the creditor to gain priority to the collateral over any third party. Under this charge, the trustee in bankruptcy can only assume a temporal ownership and control of the assets, upon which the debtor has an opportunity to remove them from the security, as it was not a blinding contract. Question 3 B Under the Hong Kong Companies ordinance, it is required that the demands of borrower information must be reasonable. There will not be any conflict of interest within the banks upon which everything should be declared openly and promptly. Under this act, the bank will gain success as it will be supported by other banks. As it is a requirement that upon knowing generally that the borrower is experiencing financial problems, the first attitude, according by other banks, is support. Although the security was secured, a lender in this act cannot withdraw facilities or put the borrower into receivership. Within the control of this act, information given and shared fully by all the banks will contribute to universal contribution of other banks, hence rendering support. Question 4 Secured creditors set a complete agreement of how to recover their debts at the beginning of a transaction. However, in the case of events, where debtors are allowed to postpone their dates of payment they are not excluded. Some of the secured creditors are exempted from this, and it can be a case where they are holding a charge over an equivalent or substantially all of debtors’ assets. By binding the secured creditors to the automatic stay, it is likely to benefit the creditors, generally in which a re –organization to be achieved. For instance, if the creditor was allowed to seize an asset, and hence, sell it to reduce its own liability. The other creditors would be likely to receive nothing (Westbrook, 2010). This is possible and evident in that if a debtor had many creditors and each of them demands the same assets it is likely that the one occupied and seized the asset before the other would benefit. Therefore, the others are bound to receive nothing. However, if bound by an automatic stay this will be controlled, hence benefiting all creditors. This further ensures that the creditor do not suffer in terms of depreciation of value of the asset the period that the creditor is prevented from asserting its pre – existing rights against the seized assets. This delay will enhance re –organization structure as during this period the debtor will have a good recovery time as well as justification of the policy before the secured creditor asserts its rights the London approach to automatic stay enhances safety to creditors and also assists much in much as liquidation is concerned. The London approach method was developed by the bank of England, and in general, it has outlines four basic benefits with regards to the rights of debtors. Unlike in many cases, there is support given by the banks in that initially the banks will be and will not exercise or be in a crave to open an official insolvency process, and also if any information given is seen reliable it will and must be shared by all the banks (Westbrook, 2010). Furthermore, it is clearly outlined that in favor and assistant of the debtor where applicable, other creditors should work together to try to come up with a unanimous view on whether or not to continue rendering support to the debtor and if so in what form should it be. In its conclusion, the London approach offers another advantage in that the banks that have lend out funds have a shared burden of supporting the debtor. These fair guidelines offer a basic workout under this approach within the events regarding debtors management of his entity where an investigation follow the proceedings of the debtors affairs. After these investigations, the law allows actions to be carried out and lead by the selected leading bank, and therefore, a conclusion is drawn as to whether continue supporting or abandon the debtor. By offering a period of the moratorium in which the creditor is allowed for a while to postpone the date of payment (Westbrook, 2010). It facilitates a chance to prevent automatic liquidation of the seized assets hence re- structuring and organizing the binding policies. It also offers protection of the other interest with much not dealing with and not taking place within a court structure this further may reach a point whereby the debtor may be deprived the entry into the protective regime in order to provide the evidence for their support to just not liquidate the assets taken as surety but offer a period of staying away from debt payment. It extends by searching for other agreeable terms between the two parties with this automatic stay variation is seen in many other countries in the process of seeking protection of assets and also depreciation of value of any item given item given as security. For instance in Australia total protection is facilitated and also of other interests by the requirement to appoint an administrator. This administrator serves as the link between the creditor and the debtor. mostly being a qualified accountant he is able to establish good terms between the parties hence concludes a point of agreement. In other countries like the United States, adequate protection is granted of the security interest in which there are an agreeable set conditions in which the debtor provide for periodic payments to guarantee protection during this automatic stay (Westbrook, 2010). This is further reinforced by the debtor adding other property belonging to him which must be accompanied by insurance coverage to prevent risks and also other similar protections. this method is further fruitful under the United States system in that upon the agreement therein between the creditor and debtor and the protection the debtor provides turns to be non applicable or more or less the same inadequate or unreliable it turns the creditor to assume a super priority and can have the access of the remaining assets of the debtor apart from the seized ones. In a country like Germany, a variation from the London approach is seen in which the administrator is guaranteed and empowered to dispose the assets subject to seize. However, this is done with protection for creditor, including a right to suggest more available dispositions, and also a favor to ask for an interest. The mention of an interest brings the difference in that in most in most cases the property asset to be liquefied is done on equivalent bases with the value of the debt owed. the binding of creditors by the automatic stay is advantageous although it does have a shortcoming in depriving the creditor an immediate recovery of what they have been owed. It prevents depreciation of value of the seized assets by considering many are sold at a price that they do not value at. It also enhances formal restructuring of the involved corporate as a time of recovery is guaranteed and also automatic liquidation is derived. Question 5 In case of insolvency proceedings the position of an employee cannot be restricted to that of a mere creditor. This follow distinguishing characteristics between the employee and a normal creditor in business employees normal and many circumstances the claims laid down by creditors mostly against the debtors mostly arises in form of goods supplied and were not paid for or in other forms like unpaid and still outstanding loans. in this manner they are in the outside of the business though part of it and not fully integrated as it may be perceived as in the case of any employee. the employees are justified to participate in normal business operations, daily routines and to a larger extent business success lies on them. Their success contributes a lot to the success of the business and in general terms business prosperity lies on them and their downfall may contribute to collapse (Westbrook, 2010). Workers are consulted on business decision and the same workers may also exercise constraints on proposed business decision on which they do not agree with. Furthermore on the position of managing large corporations the employees influence cannot be down looked. in the management and on the governance of the large corporations employees are consulted in various matters regarding running and controlling the business of the one who has employed them to high economic power that the employees would eventually wield in for the advantage of the employer. Workers stand to be part of the internal business operations and regulations. They stand to have the mandate to prosper the business or contribute to its downfall. noting their importance several jurisdictions have established and spell out their role well in the legislative procedures advocating for business rescue in times of insolvency rather than its liquidation for instance in France the main purpose of insolvency proceedings is to save jobs. Employment being an important requirement in daily life is given an upper hand rather than liquidating the assets to offset balances owed. This adaptation of France shows much of reducing attention to the powerful position of secured creditors to that of employees collective bargaining also stands to be one of the employees role in management of the corporate and the future of their enterprise for instance in the United states there is a major respect of employees entitlement and control reasoning that they are greatly concerned in the insolvency of their employers. much is seen by them in protecting their contractual rights and positions and also another role of managing their bankrupt debtor their superiority cannot be down looked and should have a superior claim than other creditor (Westbrook, 2010). In the United Kingdom the establishment of the comprehensive welfare state did not deny the opportunity of employee claims to be prioritized in an insolvency proceeding. furthermore considering the Coric report it also gives much to workers in comparison to the secured creditors in that it gives the employees absolute protection in that their rights come prior to the secured creditors rights. It also provide absolute priority to employee creditors with certain restrictions in which first they are paid preferentially only for a percentage of assets other countries offering this priority include Brazil; Chile; Colombia; and Malaysia. Workers are the real business and considering how much credit the business owe them and the support they have gained in the various jurisdictions they should be allowed much protection in form of priority ahead of secured creditors. Question 6 The different systems of jurisdictions that exist worldwide may be adapted by many countries in order to provide a pathway to be followed. This is especially in times when a disagreement erupts as in the case of the debtor and the creditor. With country X, there is need to reform its system and laws that would govern and direct any insolvency proceedings. Therefore, advice must be sought and provided well for such objective to be realized effectively. Laws that govern cases of insolvency are controversial, as they determine a lot the final decree and direction to be followed in case of insolvency of corporate. Countries should, therefore, set aside an open and vivid structure of its strategies and rules to guide the way forward in such situations. With country X, two applicable approaches are possible in reforming the formal corporate insolvency laws. To decide between the two approaches, which one to choose, a person has to understand and draw the differences between them. With the US debtor–in–possession approach, the debtor management continues to operate the company during the cooperate re-organization. Where as in the British system, an outside administrator is appointed to run the company. In this case, for the benefit of creditor, the administrator is allowed to take the control of the property upon his appointment. Also the company and any third party involved surrenders property upon his appointment at that time. The independent administrator is also guaranteed with the power to delegate some roles to some of the company’s directors and other officials who would report back to him. The administrator is chosen through a court order; therefore, law is involved in case of a wind – up. The British style system has a number of advantages, some being that it offers an upper hand to the company’s unsecured creditors. The company is totally insolvent all involved stakeholders. Moreover, the powers of the administrator are well defined by the legislating body, or a court order. This system has much to do with the creditors’ advantage. For instance, commonwealth jurisdictions usually provide for an out of court insolvent liquidation, in which the creditors may choose their own administrator. With the creditors being the possible losers, if they are allowed to have their own administrator, more of voluntary winding up, as seen in the US debtor – in – possession approach, may become a compulsory winding up. In this case, the debtors are deprived the mandate of the control of company. It also enhances transparency and quick service delivery within the company. By keeping off the debtors, more of open investigations, like balance sheets, are possible to be carried out. The system also enhances independency and eventual win of the most affected creditors. It denies debtors total access to information, hence, giving more powers to the creditors. Though all of these are effective, it however, has various shortcomings by engaging an administrator. It will increase overhead costs, and more time of a recovery period will be taken as the new administrator is not fully versed with the daily chores of the company involved. By keeping into probation some of the employees, and choosing some as directors, it may be difficult to select among all the best that did not contribute to the downfall of the company. Furthermore, as seen in some commonwealth countries, giving creditors a chance to select administrator of their own may lead to biasness, as it is natural for anyone to favor the side that proposed him. Debtors are also not given the chance to proceed with the business, therefore, they are deprived of the opportunity to contribute to the re-organization and re- construction of the premise they well know. With the US debtor–in–possession approach, the debtor’s management continues to operate the company during the re-organization. During this period, more of debtor’s attention is required, since they are the ones leading to more premise failure to balance the assets and their liabilities. Since they have dealt much with their company, and known well its roots and directions, giving them the chance to stay in possession will enhance quick re-organization before fully deciding whether it’s fully insolvent. However, this method should not be promoted as investigations should be carried out by an independent person. Furthermore, it keeps the creditors at a distance and they are the ones owed. When a premise reaches its insolvency stage, much credit and control should be given to the creditors who are the “legal owners “of the assets, at that particular time. Therefore, with this method of giving much control to the debtors in terms of possession creates its own disadvantage (Westbrook, 2010). The method does not involve an administrator to run the Company. This translates to timing liquidity period as property is still under the ownership of the debtors. The debtors are also advantaged by this in that they are all retained and their obligations and affiliations to their premise are not assumed by an outsider. Generally, it stands to be advantageous by favoring the debtors but fully out done by the British system, which gives much of advantage to the creditors who at that particular time assumes the role of full ownership of the seized assets. Cases of insolvency have been petitioned worldwide and depending on a country’s set rules to govern and control directions during petitions controversy may be met. However, if a country has well set rules during this difficult times that challenge businesses justice will be realized with ease. It cannot be termed as ignorance for debtors to fail to fulfill their agreed terms of conditions. Misfortunes may also befall them, like cases of fire, theft and also lack of qualified personnel who will not be able to deal with the balances in a proficiency manner. It is therefore, a guideline of any business small or big as in case of companies or corporate to enhance measures that will put their premise in a situation where insolvency will be controlled at all cost. In the above piece of writing various jurisdictions have been looked at and conditions that they set to facilitate a smooth flow during petition cases. The various forms that also exist have also been looked at with much consideration on to which extent the collateral is extended. Reference Westbrook L. (2010). A Global View of Business Insolvency Systems. New York: World Bank Read More