Northern Ireland
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1. Insolvency and restructuring procedures
1.1 – What are the main insolvency and restructuring procedures applicable to companies?
Insolvency and restructuring procedures applicable to companies in Northern Ireland are broadly similar to those available in the rest of the United Kingdom. However, it is worth noting that Northern Ireland has separate primary legislation dealing with the area of insolvency known as The Insolvency (Northern Ireland) Order 1989 (as amended) along with various sets of Insolvency Rules which are to be read in line with the primary Northern Irish legislation. Northern Irish insolvency law is therefore similar to but legally distinct from that of other parts of the United Kingdom.
The main insolvency and restructuring procedures applicable to companies are as follows:
Administration – a flexible procedure that can be used to achieve a range of outcomes for a distressed company, from a restructuring to a liquidation of the company’s assets. It is frequently used in order to achieve a sale of the business of the company as a going concern (the terms of which have often been agreed in advance of the administrator(s) being appointed, known as a “pre-packaged” sale or a “pre‑pack”. In order to protect the business and preserve its value, the company is protected by a statutory moratorium whilst in administration. Administrators can be appointed by the company itself or a creditor holding a floating charge filing a notice of appointment at court; alternatively, an application for an administration order can be made to the court by the company or by any creditor.
Liquidation – intended to facilitate the realization of the company’s assets, the fair assessment and payment of the claims of its creditors and, in the case of a solvent liquidation, the division of any surplus among the shareholders. It can be commenced by an order of the court (compulsory liquidation) – generally on the petition of a creditor – or by a resolution of the company’s shareholders (voluntary liquidation).
Company Voluntary Arrangements (CVAs) – this process allows the company to propose a restructuring plan to its creditors which will be binding on those creditors if approved by the relevant majority of them (75% by value including at least 50% of creditors unconnected with the company). Secured or preferential creditors cannot be bound without their consent. A creditor can apply to court to challenge a CVA that it considers to be unfair.
Schemes of Arrangement – like CVAs, Schemes of Arrangement allow the proposal of a restructuring plan to creditors, but they are also used to effect a wide range of other compromises and arrangements between the company and its creditors or shareholders. Unlike CVAs, schemes can bind secured creditors. The scheme is a company law rather than insolvency law mechanism, but provides a useful tool for corporate restructuring especially where there are dissenting creditors. Creditors or members whose interests are similar are divided into classes, and the scheme only becomes effective if approved by the relevant majority (at least 75% by value and 50% in number) of the members of each class.
A company does not need to be insolvent to implement a CVA or a scheme. Liquidation and administration require the company to be insolvent (on a cash flow basis or on a balance sheet basis).
Fixed charge receiverships – a fixed charge receiver is an individual appointed by a secured creditor of a company holding a fixed charge over certain assets of that company. The role of the fixed charge receiver is to take custody and control of the assets charged in favour of the secured creditor and collect income in relation to those assets and manage them more generally. If the security document containing the fixed charge contains the explicit power for the receiver to market the assets for sale and dispose of them then they will often also carry out that role.
The Corporate Insolvency and Governance Act 2020 (“CIGA 2020”) came into force on 25 June 2020 and introduced the following insolvency processes:
Statutory moratorium – the standalone moratorium restricts creditors from taking steps to recover debts and/or enforce security for its duration; it is a flexible process that allows the company to continue to trade under the control of its directors, subject to monitoring by an insolvency practitioner (known as the “monitor”), while they pursue a turnaround strategy. The standalone moratorium lasts for an initial period of 20 business days and this period can be extended by the directors of the company without the consent of its creditors for a further 20 business days or, with the consent of its creditors, for up to a year. The moratorium can also be extended by the Court, following an application for its extension or in the course of other relevant proceedings, to a date at its discretion.
The Insolvency (Amendment) Rules (Northern Ireland) 2023 (“the 2023 Rules”) came into force on 13 March 2023, providing permanent procedural rules for the company moratorium procedure introduced by the CIGA 2020.
In addition, the 2023 Rules and accompanying guidance issued by the Master introduced new rules for creditor winding up petitions. Under the 2023 Rules, a winding up petition can only be presented provided that the petition debt is either grounded on a court judgment, decree or other similar court order (eg, Certificate of Taxation or a Tribunal Award) or grounded on a statutory demand dated and served on or after 1 June 2022, with the debt referred to in the demand also being grounded on a judgment, decree, or similar court order. Consequently, it is only possible to issue a petition if there is a judgment.
Restructuring plan – the restructuring plan procedure shares many characteristics with schemes of arrangement – and like schemes, forms part of the Companies Act 2006, namely Part26A. The principal difference between this procedure and a scheme is that a company will be able to use a restructuring plan to impose a restructuring on dissenting classes of creditors or members, in a way which is not possible with a scheme.
A restructuring plan may be proposed by a company, its members or its creditors. It must propose a compromise or arrangement between the company and its creditors and/or members with the purpose of addressing the actual, or anticipated, financial difficulties of the company. Part 26A plans are therefore different from other processes under the Insolvency (Northern Ireland) Order 1989 in that there is no need for the company to be insolvent in order to propose a Part 26A plan, and a company can propose a Part 26A plan in order to avoid becoming insolvent. The stakeholders must be provided with sufficient information to make a decision whether or not to support the restructuring plan and the Court will oversee its proposal and implementation. After the plan is proposed there will be a Court hearing at which the Court will consider how the classes of creditors and/or members of the company should be constituted. The Court will also hear any challenges to the constitution of the classes, and the terms of the compromise, by the creditors and/or members.
If the Court is satisfied with the proposal, the creditors and/or members will then vote on it. The restructuring plan requires the approval of 75% in value of a class of creditors or members; there is no requirement that this includes 50% of that class in number, so that rescue plans are less likely to be frustrated by a large number of creditors with low-value debts.
Since its introduction in 2020, take up of restructuring plans in Northern Ireland has been slow, largely due to the costs of implementation leading to a perception that they are more suitable for large corporate entities than SMEs. This is in part due to the requirement for two court hearings. A CVA, in contrast, involves no court hearings unless a creditor applies to challenge the outcome of the creditors’ meeting.
1.2 – Can a company obtain a moratorium whilst it prepares a restructuring plan? If so, what is the effect of the moratorium?
Prior to CIGA 2020 coming into force, Northern Irish law did not provide for any “free standing” restructuring moratorium and a company did not have the protection of a moratorium while formulating or awaiting the creditors’ approval of a CVA or scheme of arrangement (with the limited exception of CVAs proposed by small companies). As a result, where a company needed a moratorium to protect it from creditor action whilst a restructuring was to be effected, it generally needed to go into administration, with the administration being discharged once the restructuring plan had been approved.
However, please note our responses to question 1.1 above and 7.2 below which confirm that eligible companies which are insolvent can avail of the statutory moratorium process introduced by the CIGA 2020.
1.3 – How long will it generally take for a creditor to achieve the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
In most cases, between six and ten weeks, from presentation of a petition. As noted in our response to question 1.3 above, a petition must be grounded on a debt founded in a court judgment, decree, other similar court order or a statutory demand. This means that a creditor cannot simply present a petition immediately.
1.4 – Does your jurisdiction make use of a distressed sale process by which the business/assets of the company can be sold?
Yes. A distressed sale of the business or assets of a company will generally take place through administration.
It is common for the preparations for the sale (eg identifying the purchaser and negotiating and drafting the sale documentation) to be undertaken before the commencement of the administration and the sale concluded immediately afterwards (usually without court or creditor approval, or even often knowledge). This is referred to as a “pre-packaged” or “pre-pack” sale. In a pre-pack, there will necessarily be limited marketing of the business/assets. The administrator is therefore responsible for ensuring that a fair price is obtained.
Sometimes a pre-pack sale may be made to a purchaser controlled by a secured creditor. The consideration for such a sale would typically involve a release and/or an assumption of all or some of the secured liabilities by the secured creditor.
2. Insolvency office-holders and courts
2.1 – Who can act as an insolvency office-holder?
Accountants or lawyers although the officeholder must be a qualified and regulated professional.
2.2 – Who decides the identity of the insolvency office-holder, and what restrictions apply?
This depends on the process:
- in an administration, the administrator will be chosen by the appointor (either a secured creditor or the company/its directors)
- in a voluntary liquidation, a liquidator will be appointed by the shareholders but – in the case of a creditors’ voluntary liquidation (“CVL”) – may be replaced by the creditors. Alternatively, where a CVL follows an administration, the former administrators will often act as liquidators
- in a compulsory liquidation, the court will appoint the Official Receiver (a civil servant) as liquidator. An alternative liquidator may then be appointed by the creditors
- in a moratorium, the monitor is chosen by the directors
- in a CVA, the supervisors will be nominated by the company
- in receivership, the receivers are chosen by the secured creditor which appoints them
2.3 – Are insolvency cases heard by specialist judges, or in the general commercial courts?
Specialist insolvency judges. A substantial amount of day to day insolvency court business is heard by the Bankruptcy and Companies Master, in the High Court in Belfast. Other insolvency court business is heard by the Chancery Judge, again in the High Court in Belfast.
3. Position of directors
3.1 – To what extent do the directors of the company remain in control of its affairs during any of the procedures described above?
In an administration or liquidation the powers of the directors cease, and the administrator or liquidator takes control of the company. In a CVA, Scheme of Arrangement, statutory moratorium or restructuring plan, the directors remain in control of the company (although, in the case of a CVA, subject to supervision by an insolvency practitioner and in the case of a statutory moratorium, subject to supervision by a monitor who must be an insolvency practitioner).
3.2 – Are there circumstances in which directors are obliged to file for insolvency proceedings? If so, when do those circumstances arise?
Not absolutely. However, there will be circumstances in which continued operation of the company poses such a high risk of personal liability that the directors are effectively forced to file for insolvency, in order to protect themselves.
3.3 – What are the risks facing the directors of an insolvent company?
The chief risks of civil liability for directors are:
- wrongful trading (if they fail to take every step to minimize the losses to creditors, once they know or ought to know that the company cannot avoid insolvent liquidation or administration)
- breach of duty (in particular, if they fail to have regard to the interests of creditors at a point where the company is insolvent or likely to become insolvent)
- in principle, directors can be held criminally liable for a number of insolvency‑related offenses including fraudulent trading but, in practice, prosecutions are very rare
- directors whose conduct indicates that they are unfit to be company directors can be disqualified from acting as such, or being involved in the management of a company, for a period of between two and 15 years
4. Position of creditors
4.1 – What are the main forms of security over movable and immovable property?
- fixed charges (including mortgages)– security over immovable property and specific movables (such as identified items of plant and machinery). Can also apply to intangibles (such as intellectual property rights)
- floating charges – flexible security which can apply to any class of asset, including a fluctuating set of movables (such as stock) (but which rank below certain unsecured debts and the expenses of the insolvency proceedings)
- liens/pledges – possessory security over tangible assets
4.2 – How does the opening of insolvency proceedings affect the rights of secured creditors?
In administration or the new statutory moratorium, creditors (secured or otherwise) are prevented from taking enforcement action against the company or its assets, or commencing or continuing legal proceedings against it (although, in an administration, such action may be taken with the consent of the administrator or permission of the court). The rights of secured creditors are otherwise respected, as regards to priority over unsecured creditors.
In general, a creditor’s right to enforce its security is unaffected by a liquidation, and a secured creditor may proceed to realize its security provided that it does so outside any court proceedings.
In relation to the statutory moratorium introduced by CIGA 2020, a company will not have to pay most pre-moratorium debts during the moratorium. Pre-moratorium debts are debts or other liabilities of the company falling due before the start of the moratorium or becoming due during the moratorium pursuant to obligations incurred by the company before the start of the moratorium. This payment holiday will apply to trade creditors. However, it does not apply to pre-moratorium debts arising under financial services contracts – this includes payments under loan agreements and factoring/invoice discounting arrangements. The company must therefore continue to make payments of principal and interest (or discount charges, in the case of invoice discounting facilities) to lenders under such agreements, regardless of whether such payments become due before or after the start of the moratorium. If the monitor thinks the company is unable to make these payments, the monitor must end the moratorium.
4.3 – Where a debt owed to a secured creditor exceeds the value of the security, is the secured creditor entitled to claim for the shortfall?
Yes. A secured creditor who has realized his security may prove for the balance of his debt after deducting the amount realized. Further if a secured creditor voluntarily surrenders his security for the general benefit of creditors, he may prove for his whole debt as if it were unsecured.
4.4 – Which classes of creditor are given preferential status? Are any classes subordinated?
Preferential debts rank after debts secured by fixed charges and ahead of debts secured by floating charges. The main classes of preferential creditor are as follows:
- Contributions to occupational pension schemes
- Unpaid wages (up a maximum of £800 per employee)
- Accrued holiday pay due to employees
- In the case of an insolvent company which provided services covered by the Financial Services Compensation Scheme, certain sums owing to or covered by the Scheme
Further, as of 1 December 2020, HMRC regained its status as a secondary preferential creditor for certain taxes as a result of the Finance Act 2020. However, this only applies to taxes which are held by business on behalf of other taxpayers, and includes:
- Value Added Tax (VAT)
- Pay As You Go (PAYE) Income Tax
- Employee National Insurance contributions
- Student loan deductions
- Construction Industry Scheme deductions
This means that in respect of the above, HMRC are paid after fixed charge holders and the expenses of insolvency practitioners but before floating charge holders, company pension schemes, suppliers and customers.
Corporation Tax and employer National Insurance contributions are considered to be taxes owed by the business itself, and therefore these tax debts are not preferential.
Sums due to the shareholders of the company in their character as shareholders (eg in respect of dividends which have been declared but not paid) are subordinated to the claims of unsecured creditors.
4.5 – Is there a date by which creditors must make claims in the insolvency proceedings? If so, what are the consequences of failing to claim by that date?
There is no fixed time period in which claims must be filed.
Following the start of an insolvency, the office-holders will contact creditors and invite them to submit details of their claim (a process referred to as “proving” the claim, using a form referred to as a “proof of debt” or simply a “proof”). At first, the primary purpose of submitting a proof will generally be to allow for votes to be cast in a “decision process” within the insolvency (eg a vote on administrators’ proposals).
Creditors are not obliged to submit a proof at this point, unless they wish to vote. If a creditor does not submit a proof, it will not lose the ability to do so in future.
At a later point, when they have funds available to make a distribution to creditors, the office-holders will set a “last date for proving” (or “bar date”), and notify creditors accordingly. If a creditor does not submit a proof before that date, it is likely to lose its right to participate in the distribution to which the bar date applies. However, it will not generally lose the chance to participate in future distributions, or to “catch up” – ie to be paid in respect of its claims up to the level of payment made in earlier distributions – if funds allow.
The position may be different in a CVA or scheme of arrangement, where the date for proving will generally be set in the proposal or scheme document. Creditors should ensure that they submit their claim before any such date, in order to ensure that they are included in the process.
4.6 – Are contractual rights of set-off and/or netting effective in insolvency?
Yes. As a general rule, insolvency proceedings under Northern Irish law may allow set-off without a contractual right, or may expand the scope of an existing set-off right, but will not deprive a creditor of set-off rights altogether.
The only significant exception to this general rule relates to multilateral set-off (ie contractual rights which provide for set-off between more than two parties). Such multilateral rights would be overridden by mandatory insolvency set-off in certain insolvencies (namely compulsory liquidation, “distributive administration”* and bankruptcy). Insolvency set-off applies only to “mutual” debts (ie those due between the same two parties, excluding claims acquired after the commencement of the insolvency), so that, if insolvency set-off applies, the set-off available to the counterparty would be limited those debts, whatever the terms of the contractual right.
* “Distributive administration” refers to an administration in which the administrator has been permitted by the court to make a distribution to creditors (thus engaging the rules applicable to distributions, including insolvency set-off). An administration will almost never start as a distributive administration, but may be converted at a later stage. Many administrations never become distributive.
4.7 – Are contract terms permitting termination of a contract by reason of insolvency (“ipso facto clauses”) effective?
Whether such clauses are effective depends on the nature of the contract and the role of the insolvent party under the contract.
Where a company is subject to insolvency proceedings, suppliers of goods and services to the insolvent company will be unable to rely on any provision in their contract which gives them the right to terminate the relevant contract or supply, or provide for the automatic termination of the relevant contract or supply, as a result of the insolvency. In addition, a supplier will not be entitled to terminate for a pre‑insolvency termination event, or to “ransom” the company for the supply of goods or services during the relevant insolvency procedure.
Note that this rule only applies to supplies of goods and services to an insolvent company. It does not apply to contracts that are not contracts for the supply of goods or services, or such contracts where the insolvency company is the supplier rather than the recipient.
4.8 – Are retention of title clauses enforceable and (if applicable) what are the main requirements for enforceability?
In principle yes, providing that the clause is incorporated into the contract between the parties and the goods in question can be identified. Retention of title can secure all monies due from the company to the supplier and is not limited to sums due under the particular order in question.
4.9 – Are foreign creditors treated equally to domestic creditors?
Yes.
5. Setting aside transactions
5.1 – What are the main transaction avoidance provisions applicable to the proceedings referred to above?
An insolvency officeholder can challenge:
- transactions at an undervalue (concluded in the two years prior to the commencement of insolvency proceedings)
- preferences (concluded in the six months prior to the commencement of insolvency proceedings or the preceding two years where the preferred creditor is connected to the company)
- floating charges granted in respect of pre-existing indebtedness (in the year prior to the commencement of insolvency proceedings or the preceding two years where the charge holder is connected to the company)
- transactions defrauding creditors (where the substance of the application is to return money to creditors, the limitation period is six years; where the substance of the application is to return assets to the company, 12 years appears to be the applicable time limit), and in fact insolvency is not technically a pre-requisite for the bringing of such a challenge
5.2 – Who is entitled to challenge transactions under these provisions?
Claims in respect of transactions at an undervalue, preferences and invalid floating charges may only be commenced by the insolvency office-holder or an assignee of the claims (following an assignment by the office-holder).
Claims for transactions defrauding creditors can be brought by the office-holder (or an assignee) or by a victim of the transaction. However, where the claim is brought by a victim of the transaction, relief will still generally be awarded to the company, rather than the specific victim (on the basis that the victim will be entitled to its share of the company’s recovery, together with other creditors).
6. Cross-border insolvency
6.1 – Do your courts recognize insolvency proceedings commenced in the courts of other jurisdictions?
The cross-border regime in recognising insolvencies between member states and the UK has fundamentally changed in the post-Brexit era. EU member states have benefitted from an automatic recognition of cross border insolvencies under the European Insolvency Regulation (EIR) which was introduced in 2002. The regulation permits insolvency practitioners within EU member states to request assistance from member state courts to recognise proceedings commenced in a different jurisdiction.
Following the UK’s exit from the EU on 31 December 2020, recognition applications for proceedings post this date cannot be made under EIR (it can still be relied upon for proceedings prior to this date). Insolvency officeholders appointed in other jurisdictions can obtain recognition under the Cross-Border Insolvency Regulations 2006 (which implements the UNCITRAL model law), section 426 of the Insolvency Act 1986 (however, note that Ireland is the only EU member state which has the benefit of section 426). Recognition of insolvency proceedings in accordance with this section requires an insolvency practitioner to make an application to the relevant UK court. The relevant court within the UK will hear the application and grant any order it deems fit.
Note, however, that judgments obtained in actions arising from insolvency proceedings (such as claw-back claims) abroad will not generally be enforceable against a defendant in Northern Ireland unless the defendant has submitted to the foreign jurisdiction.
6.2 – If so, what assistance can your courts provide, following recognition?
There is a wide range of assistance that a Northern Irish court can grant and generally such assistance broadly extends to doing whatever the Northern Irish court could have done in the case of a Northern Irish insolvency proceeding (including enabling foreign creditors to gain access to property situated in Northern Ireland and restraining creditor action/proceedings in respect of the insolvent company) subject to judicial discretion.
6.3 – Is it possible to commence insolvency proceedings in relation to a foreign company?
Yes, if that company has its centre of main interests or an establishment in Northern Ireland.
7. Other matters
7.1 – Please consider whether there is any other feature of your country’s insolvency regime of which a lender, investor or purchasers of distressed debts or businesses should be aware? For example, are there any mistakes that foreign creditors often make?
As a general rule, Northern Irish law is favourable to creditors, and the key principles are widely understood. There are a few frequent mistakes made by foreign creditors but, of course, creditors should seek advice whenever required.
7.2 – Are there any other stakeholders or entities (eg governmental or regulatory) which may influence the outcome of any restructuring?
Where a debtor company has a “defined benefit” pension scheme, the trustees of the scheme and the Pension Protection Fund will generally be key stakeholders in any restructuring.
In the case of a regulated entity, the regulator (eg the Financial Conduct Authority) will need to be consulted.
HM Revenue and Customs (the UK tax authority) will be a major creditor in many insolvencies, and in some procedures (eg CVAs) may exercise a significant degree of control.
7.3 – Are there currently any proposals for significant reform of your insolvency laws?
Following the reforms introduced by 2023 Rules there are now no significant proposals for reform.
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