Waterfall meaning

HMRC guidance on compromises using Part 26 schemes and Part 26A restructuring plans In corporate insolvencies, HMRC commonly ranks as a secondary preferential and/or unsecured creditor (see Practice Note: Waterfall of payments—a comparative guide), a status that often serves as the relevant comparator or alternative to a Part 26 scheme or a Part 26A restructuring plan. On 1 November 2023, HMRC issued guidance covering compromises under Part 26 schemes (see: Schemes of arrangement—overview) and Part 26A restructuring plans (see: Restructuring plan—overview) (see: HMRC publishes guidance on using debt management schemes to restructure finances—LNB News 15/11/2023 13). Practitioners should take account of this guidance whenever a proposed scheme/plan includes HMRC as a creditor. HMRC will only back a restructuring where it considers there is a realistic prospect of success. If HMRC does not consider success realistic, it will engage with the scheme/plan proponent to explore other means of repaying HMRC’s debt, which may involve a formal insolvency process. The debtor must have submitted all outstanding...

Re Avanti Communications Ltd [2023] EWHC 940 (Ch) This marks the first substantial judgment on the divide between fixed and floating charges since the House of Lords’ landmark ruling in Re Spectrum Plus [2005] UKHL 41, which reclassified an apparent fixed charge over book debts as floating because the chargor could freely deploy the charged assets and the security holder therefore lacked the requisite control to constitute a fixed charge. The designation of security as ‘fixed’ or ‘floating’ under English law now carries even greater weight given HMRC (the UK tax authority) ranks as a preferential creditor for certain taxes in insolvency—ie those taxes sit behind fixed charge realisations but ahead of floating charge realisations. That characterisation had a decisive effect on the order of payments in Avanti’s administration: as the charge was properly treated as fixed, the secured creditors recovered in full; had it instead been treated as floating, part of the proceeds would have been payable to HMRC (as preferential creditor) and to unsecured creditors up to...

Nardelli and others v Richardson and another [2024] EWHC 2740 (Ch) What are the practical implications of this case? From the standpoint of office-holders and their advisers, the ruling provides reassurance, confirming the consistently demanding bar for applications to remove them. It will reassure office-holders and advisers because it underlines how exacting that test remains in practice. Set against that is the theme in the judgment that the administrators had generally: identified the paragraph 3, Schedule B1 Insolvency Act 1986 objectives and kept them under continual review; assessed the material before them; sought out and followed suitable external advice; and, critically, while noting creditors’ and shareholders’ views, preserved their independence at all times. Those features were central to the assessment of their conduct. Seen this way, the decision serves as a practical illustration of a proper response when a creditor already in a powerful position attempts to consolidate that advantage throughout the administration. From start to finish...

Original news Re Lehman Brothers Europe Ltd (in administration) [2017] All ER (D) 44 (Aug), [2017] EWHC 2031 (Ch). In a significant ruling, the court endorsed a plan by the joint administrators to appoint a director to LBEL, already in administration, so that surplus monies could be paid to its sole member, Lehman Brothers Holdings plc (LBH), rather than to a creditor. The proposal was found to be lawful, practical and advantageous. The application outlined a pragmatic route to unlock value for the member once unsecured debts had been met. How, then, did the administrators approach distributions to members? The principal entities were LBEL, its parent LBH, and an associated company, Lehman Brothers Limited (LBL), each in administration. After paying LBEL’s unsecured creditors 100 pence in the pound, LBEL’s administrators retained a substantial surplus. They were, however, unable to distribute that balance, in part due to an unresolved LBL claim against LBEL’s estate. A settlement of the Waterfall III proceedings was proposed. Under that compromise, LBL would withdraw its...

Liquidation Following enforcement of security by fixed charge creditors for their own benefit, the order of distributions in a winding up is: if liquidation commences within 12 weeks of a moratorium, any unpaid moratorium debts and ‘priority pre‑moratorium debts’ to which no payment holiday applied during the moratorium expenses properly incurred in the winding up (including the liquidator’s remuneration) ordinary preferential debts secondary preferential debts the prescribed part for unsecured creditors (where not disapplied) debts secured by floating charges unsecured debts statutory interest postponed debts (i.e. non‑provable liabilities) return of any surplus to members (subject to adjustment between members) For further details, see Practice Note: Waterfall of payments in liquidation...

When disagreements arise in property transactions, parties typically have a number of avenues for resolving matters, each bringing its own benefits and drawbacks. This Practice Note explores those routes and provides examples of the types of property dispute that may lend themselves to settlement through alternate dispute resolution (ADR). ADR in property disputes It is well recognised that ADR can be an effective method of resolving disputes, especially in property disputes and other commercial transactions. ADR is: efficient cost-effective capable of producing settlements that courts may not be able to replicate more imaginative than judicial awards tailored to the commercial needs of the parties At present, ADR is not compulsory in Scotland, so it is not a necessary pre-requisite to legal proceedings; however, practitioners still have obligations to advise on, and consider, ADR...

Where does the value break? Early in restructuring talks, the parties commission valuations of the business to identify where the value breaks (see Practice Note: Types of valuation for R&I lawyers). That valuation shows: which tranche(s) of debt is impaired which creditors are plainly out of the money and therefore have no place at the restructuring table which creditors sit close to the break and may contest the valuation the probable division between equity and debt instruments in the company after the restructuring who will be asked to inject further funds in return for a post-restructuring stake which creditors may wish to buy out the senior creditors to avoid enforcement and the resulting impairment of their debt Creditors in the tranche at the value break will generally expect a larger slice of equity in the restructured entity, compensating their impairment and encouraging them to back a restructuring agreement (see Precedent: Restructuring Agreement). The valuation ultimately decides which creditors...

Insert the following as new definitions (if not already included) in the articles of association of the relevant company: A Ordinary Shares — refers to the A ordinary shares of [ insert amount ] each comprised within the share capital of the Company; Available Profits — signifies profits that are distributable as construed under the Companies Act; B Ordinary Shares — denotes the B ordinary shares of [ insert amount ] apiece forming part of the Company’s capital; Issue Price — indicates the price at which the relevant Share is allotted, being the combined total of amounts paid or treated as paid in respect of its nominal value together with any share premium applicable; Preference Dividend — means the dividend payable in accordance with Article [ insert number of article dealing with company dividend payments ]; Preference ...

This limited partnership Agreement is entered into on [ insert day and month ] 20[ insert year ] Parties [ insert name of general partner ] of [ insert address ] (the General Partner); and Each of the persons named in Schedule 1, Part B. BACKGROUND The Limited Partnership is registered as a limited partnership and designated as a private fund limited partnership in England under the LPA 1907 with number LP [ insert number ]. The General Partner has agreed to act as the general partner of the Limited Partnership and to manage the business of the Limited Partnership, and the Limited Partners have agreed to make Contributions to the Limited Partnership on the terms set out below. The General Partner and the Limited Partners intend that the Limited Partnership will carry on the Business and agree to regulate the affairs of the Limited Partnership on the terms set out below. ...

This Limited Partnership Agreement is entered into on [ insert day and month ] 20[ insert year ] by and between the parties set out below. Parties [ insert name of general partner ] of [ insert address ] (the General Partner); and Each of the persons whose names are listed in Schedule 1, Part B. BACKGROUND The Limited Partnership has been registered in England as a limited partnership under the LPA 1907 with number LP [ insert number ]. The General Partner has agreed to act as the general partner of the Limited Partnership and to manage, operate and administer the business of the Limited Partnership, and the Limited Partners have agreed to make Contributions to the Limited Partnership on the terms set out below. The General Partner and the Limited Partners wish the Limited Partnership to carry on the Business and agree that the affairs of the Limited Partnership shall be regulated in accordance with...