England and Wales

When a company is unable to pay their debts as they fall due or its liabilities exceed its assets, it may enter a formal insolvency procedure. There are three main insolvency procedures.

Liquidation

Liquidation is a winding-up process. It can take one of two main forms — voluntary and compulsory. In each case, a liquidator (a licensed insolvency practitioner) is appointed to manage the company.

In a voluntary liquidation, the shareholders of a company pass a resolution to place the company into liquidation. A voluntary liquidation can be further sub-divided into a solvent “members voluntary liquidation” or an insolvent “creditors voluntary liquidation”.

Alternatively, the company or a creditor may present a petition to the court for a compulsory winding-up. This is a court-driven process — if the court is satisfied that the company is insolvent, the court will issue a winding-up order. Both compulsory and voluntary liquidation aim to distribute the assets and dissolve the business.

Administration

Administration is designed to be more of a rescue process than liquidation. There is a statutory three-stage purpose of administration:

• to rescue the company as a going concern;
• to achieve a better result for the company’s creditors as a whole than would be likely if the company were wound up without going into administration; or
• to realise property in order to make a distribution to one or more of the secured or preferential creditors but without “unnecessarily harming” the interest of the unsecured creditors.

The objectives are pursued in order (i.e. an administrator will only move on to the next objective if it is not possible to achieve the previous objective).

An administrator (a licensed insolvency practitioner) is appointed to take control of the company and its assets. As noted, administration provides the company with the protection of a moratorium, allowing the company breathing space to explore potential rescue options.

An administrator may be appointed by the court on the application of a creditor (including a secured creditor), the company’s directors or the company itself. An administrator may also be appointed without involving the court (i.e. out of court) by the holder of a “qualifying floating charge” or by the company itself or its directors. The holder of a “qualifying floating charge” must hold security, which includes a floating charge, over the whole or substantially the whole of the assets of the company.

Receivership

Receivership allows a secured creditor to appoint a receiver to realise secured assets. The right to appoint a receiver is a contractual right agreed between a company and those to whom it grants security — and the relevant security document will set out this appointment right and the powers and duties of any receiver.

Receivers may be appointed over a particular asset of a company only (for example, real estate or shares) or over all assets of a company. A receiver that is appointed over all or substantially all the assets of a company under a debenture secured by charges which include a floating charge is deemed an “administrative receiver”. Hence, only a floating charge holder can appoint an administrative receiver — although the circumstances in which a floating charge holder can appoint an administrative receiver are very limited.

Standalone moratorium

Prior to entering a restructuring process, debtors have the option of entering a standalone moratorium. Once the debtor enters a moratorium, creditors are unable to take certain actions. This includes initiating insolvency or legal actions against the company. Another benefit is that the debtor is not required to meet its payment obligations for some of its pre-moratorium debts. Further to this, entry into the moratorium triggers the ban on the operation of ipso facto clauses — this means that unless an exclusion applies, contractual counterparties will not be allowed to terminate or alter contracts for the supply of goods or services by reason of the company entering a moratorium.

Administration moratorium

Once an administration application is presented to the court or a notice of an intention to appoint an administrator is filed, an interim statutory moratorium becomes effective. The moratorium operates in a similar manner to the standalone moratorium. If the company is already subject to a standalone moratorium, entry into administration or the start of an interim administration moratorium brings the standalone moratorium to an end, replacing it with the administration moratorium. A full moratorium applies once an administrator is appointed and lasts until the company administration ends.

In England and Wales, pre-insolvency, debtor-in-possession restructuring regimes exist to facilitate the compromise of debt or equity claims. The regimes help debtors to restructure their obligations and avoid formal insolvency. In England and Wales, the main pre-insolvency mechanisms are Company Voluntary Arrangements (CVAs), Part 26 of the Companies Act 2006 (CA 2006), Schemes of Arrangement (“scheme”) and Part 26A of the CA 2006 restructuring plans (“plan”).

3.1 What are the conditions to entry?

For a company to propose a CVA, the company must be registered under the CA 2006 in England, Wales or Scotland. Alternatively, it can be a company incorporated in a Member State of the European Economic Area (EEA), or the company have its centre of main interests (COMI) in a Member State (other than Denmark) or in the United Kingdom.

For a scheme, the company must fulfil the definition of “Company” as defined in section 895(2) of the CA 2006, which means a company liable to be wound up under the Insolvency Act 1986. This can also include foreign countries with a “sufficient connection” to England.

For plans, the criterion above applies, plus Conditions A and B from section 901(A)(2) and (3) of the CA 2006 — the company is facing financial difficulties that may affect its ability to carry on its business as a going concern, and the company is proposing a compromise or arrangement with creditors and/or members designed to reduce or prevent those with difficulties. Case law has introduced a fourth condition, which is that the company must consent and agree to the relevant compromise (Re NGI Systems & Solutions Ltd v. The Good Box Co Labs Ltd [2023] EWHC 274 (Ch)).

3.2 Can creditor claims be compromised “within a class”?

A CVA requires 75% by value of those creditors who respond to the relevant decision procedure, which must include more than 50% of the company’s unconnected creditors. For a scheme, the proposal will be approved if a majority in number (i.e. more than 50%) representing at least 75% in value of each class by creditors/members voting vote in favour of the scheme. For a plan, 75% in value of those voting in each class must approve (subject to the application of cross-class cramdown).

3.3 Is there a “cross-class cramdown”?

Cross-class cramdown is only available in plan processes. For the court to effect a cramdown: (1) the plan must have been agreed by a number representing 75% in value of a class of creditors or members who would receive payment or have a genuine economic interest in the company if the “relative alternative” were to take place; and (2) the court must be satisfied that if the plan was sanctioned, none of the members of the dissenting class would be any worse off than they would be in the event of the “relative alternative”. The relevant alternative is what would happen without the plan.

3.4 Can shareholder claims be compromised?

CVAs are unable to compromise the claims of shareholders. However, plans and schemes can do so.

Under a scheme and a plan, shareholders would likely be treated as a separate class to the creditors and the plan would need to be approved by the required percentage of shareholders as set out above (subject to the use of cross-class cramdown to impose the plan on a dissenting class of shareholders).

3.5 Can secured creditors’ claims be compromised? Are deficiency claims treated differently?

Under CVAs, secured creditor claims cannot be compromised. Though the CVA cannot compromise the secured debt, a secured creditor might vote on the CVA if they have an unsecured portion of their debt. Under a plan and scheme, secured creditor claims can be compromised. A class of unsecured creditors may also include secured creditors to the extent that the security is insufficient to cover the secured creditor claims, since that deficiency may also be subject to a compromise (Re Matter of Hong Kong Airlines Limited [2022] EWHC 3210 (Ch)).

3.6 Can creditors propose competing plans?

CVAs can only be proposed by a company (through its directors) or an administrator/liquidator, not creditors. Similarly, plans can be proposed by creditors. If dissenting stakeholders decide to challenge a plan, the alternative plan must be considered “deliverable” by the courts (Re Thames Water Utilities Holdings Ltd [2025] EWHC 338 (Ch)).

3.7 What level of court or other third-party supervision is there of the process(es)?

The level of court supervision varies depending on the regime that is used. In the case of CVAs, court involvement is minimal as CVAs are supervised by an insolvency practitioner. Court involvement occurs only if challenged. By contrast, schemes and plans require a more active role from the court, which is responsible for considering the proposed constitution of classes, convening creditor meetings, supervising the process, imposing cross-class cramdown (in respect of plans), and ultimately sanctioning the scheme or plan for it to take effect.

4.1 What is the applicable law that provides for clawback and/or antecedent transaction claims?

Sections 238 and 239 of the IA 1986 allow for claims to be made by a company’s office holder for relief arising from antecedent transactions.

Transactions at an undervalue

Section 238 applies to transactions at an undervalue and it applies where a company has, at the relevant time (see below) entered into a transaction with a person in circumstances where the transaction is either (1) a gift; or (2) for consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the company.

Preference

Section 239 applies to preferences where the company has, at the relevant time (see below) given preference to any person. A preference is given to a person if that person is one of the company’s creditors (or surety or guarantor) of the company’s debts or liabilities, and the company does anything or suffers anything to be done which has the effect of putting that person in a position which in the event of the company going into insolvent liquidation will put that person in a better position than they would have been in but for the preference.

There is a rebuttable presumption of preference if the party receiving the preference is connected to the company (other than by reason of being an employee). Preferences can also arise in circumstances where something is being done by order of the court.

4.2 What are the relevant “look-back” periods for claims?

The relevant times, for the purposes of sections 238 and 239, are set out in section 240.

In the case of a transaction at an undervalue or preference given to a person who is connected with the company (other than by reason of being an employee), the period is the period of two years ending with the onset of insolvency. For preferences that are not given to a person connected with the company the period is six months ending with the onset of insolvency. In either case the relevant period extends to the period between the making of an administration application and the making of an administration order and between the filing of a notice of intention to appoint administrators and the appointment of administrators (under paragraphs 14 or 22 of Schedule B1 Insolvency Act 1986.)

4.3 Who can pursue the claims?

Sections 238(2) and 239(2) provide that an office holder, being an administrator or liquidator, may apply to the court for orders under those sections. Section 246ZD also allows office holders to assign claims made under these and other sections of the IA 1986. It is common for such claims to be assigned to specialist litigation asset investors or to creditors.

4.4 What remedies are available and how do they operate in practice?

Sections 238 and 239 allow the court to make such order as it thinks fit. Without prejudice to the generality of those sections, section 241 provides for examples of the reliefs that may be made under sections 238 and 239. These include:

• The court can order that any property transferred as part of the transaction or preference be returned to the company.
• If the original property has been sold or converted, the court can require that the resulting proceeds or substituted property be vested in the company.
• The court may release or discharge any security interest that was given by the company.
• Anyone who received benefits from the company may be ordered to repay amounts as directed by the court.
• If a surety or guarantor was released due to the transaction, the court can impose new or revived obligations on them.
• The court can require security to be provided for any obligations arising from the order, potentially giving it the same priority as any discharged security.
• The court can determine how someone whose property is vested in the company or who is subject to obligations under the order may claim in the company’s winding up for debts or liabilities affected by the transaction.

4.5 What defences are available?

Claims under sections 238 and 239 may be defended on the basis that they do not fall within the gateway for making of an order under the sections.

In the cases of transactions at an undervalue the following defences arise:

• The transaction was for consideration, the value of which, in money or money’s worth, was not significantly less than the value, in money or money’s worth, of the consideration provided by the company.
• Pursuant to section 238(5) the company entered into the transaction in good faith for the purpose of carrying out its business and there were reasonable grounds for believing that the transaction would benefit the company.

In the cases of preferences the following defences arise:

• The transaction has not put the recipient in a better position than the position they would have been in had it not been done.
• The transaction was not influenced by a desire to put the recipient in a better position than they would have been in had it not been done. The burden for proving the intention lies on the recipient if they are connected to the company (otherwise than by reason of being its employee).

4.6 Is there a general right of action in respect of transactions defrauding creditors or Actio Pauliana claims?

Section 423 of the IA 1986, similarly to section 238, allows for claims to be made where a person entered into a transaction at an undervalue which are the same as in section 238 in the context of companies. The difference is that no relevant period applies to claims under section 423 and the applicant must prove that the purpose of the transaction was, as provided for in section 423(3), either: (1) to put assets beyond the reach of a person who is making, or may at some time make, a claim against him or her; or (2) otherwise prejudice the interests of such a person in relation to the claim which he or she is making or may make.

4.7 Who can pursue the claims?

Section 423 is not restricted to office holders. Any person who has been the victim of a transaction within the meaning of section 423 may apply to the court for relief under the section.

4.8 What remedies are available and how do they operate in practice?

Section 423(2) provides that the court may make such order as it thinks fit for the purposes of either: (1) restoring the position to what it would have been if the transaction had not been entered into; and (2) protecting the interests of person who are victims of the transactions. In practice section 423 is used to unwind transactions and claw back assets or, where an asset can’t be identified, to provide for monetary relief against the recipient. A recipient may not be holding the asset that was the subject of the transaction any longer but can still be liable under section 423 given the court’s broad powers.

4.9 What defences are available?

Claims under section 423 may be defended on the basis that the transaction isn’t a transaction at an undervalue, within the meaning of section 423(1) or that it was not made for the purpose provided for in section 423(3). In addition, given the discretionary nature of relief under section 423 (the section provides that the court “may” make an order rather than “shall” make an order) a party may argue that there are reasons that the court ought not to exercise its discretion to make an order.

The liability of directors and managers may be broadly categorised into liability arising from breach of fiduciary duty (governed principally by sections 170–177 of the CA 2006) and liability arising from specific sections of the IA 1986. There are other circumstances, for example under tax legislation, where directors can face personal liability — but that is outside of the scope of this chapter.

5.1 What are the duties of directors and managers?

Directors, pursuant to section 251 IA and section 250 CA, include de jure, de facto and shadow directors such that it is not limited to directors who formally appear on the register of directors maintained by the Registrar of Companies. De facto directors include persons who assume the functions and status of a director (Re Kaytech International Plc [1999] 2 BCLC 351 CA). Shadow directors, pursuant to section 251 of the CA, are persons in accordance with whose directions or instructions the directors of the company are accustomed to act.

Directors owe duties as set out in sections 170–177 of the CA 2006. These include:

• Acting within their powers (section 171).
• Promoting the success of the company (section 172).
• Exercising independent judgement (section 173).
• Acting with reasonable skill, care and diligence (section 174).
• Avoiding conflicts of interest (section 175).
• Not accepting benefits from third parties (section 176).
• Declaring interests in proposed transactions (section 177).

Directors’ duties under sections 175 and 176 continue after their appointment as a director has ended.

Directors’ duties to the company engage the duty to act in the interests of creditors (known as the “creditor duty” following BTI 2014 LLC v. Sequana SA [2022] UKSC 25) once the company is insolvent or bordering on insolvency. When liquidation or administration is inevitable the interests of creditors is paramount. Until then the interest of creditors and other stakeholders should be balanced on a fact-sensitive basis.

Under section 212 of the IA 1986 proceedings may be bought against a director or manager of a company if they have misapplied or retained or become accountable for any money or property of the company or acted in breach of duty (in the case of those falling within the above-mentioned definition of directors).

Directors and managers should not trade for fraudulent purposes known as fraudulent trading (section 213(1) IA 1986). Directors should not trade where they know or ought to have concluded that there was no reasonable prospect that a company would avoid going into insolvent liquidation or administration. This is often referred to as the point of no return. This liability is known as wrongful trading (section 214(2)(b)). Where directors reach the point of no return, they should take every step with a view to minimising the potential loss of the company’s creditors. When assessing whether a director has taken every step the court assumes he or she had the knowledge that the company had reached the point of no return.

5.2 What claims can be brought against directors and managers arising from breaches of those duties?

Directors who breach their duties to a company and cause the company loss are liable to account to the company for losses suffered by the company as a result. Claims are subject to the normal English law rules of causation. Directors are also liable to account to the company for company money or property that they have become accountable for. These claims typically arise where directors have received payments from the company to which they were not entitled or used company information or opportunities for their own benefit.

The court in Wright and Rowley, BHS and others v. Chappell and others [2024] EWHC 1417 (Ch) held that a director can also be liable for misfeasant trading, a form of breach of duty, where a director had failed to act in the interests of the creditors of a company by continuing to trade after the creditor duty had been engaged.

5.3 Who can pursue the claims?

The office holder or any creditor or contributory may apply to the court for relief arising from breach of duty of a director. Leave of the court is required for a creditor or contributory (section 212(4) IA 1986).

Claims under sections 213 and 214 may only be bought by a liquidator or by an assignee of a claim from a liquidator (under section 246ZD).

5.4 Do directors have, at any time, a strict obligation to file for insolvency and, if so, when does that arise?

Directors are under strict obligations to file for insolvency, which could take place at any particular point in time, but in practice directors are generally advised to file for insolvency when the point of no return has been reached.

5.5 Can directors and managers be found liable for the increase in sums owed to creditors after a company becomes insolvent?

Directors and managers who trade for fraudulent purposes or directors who engage in wrongful trading are liable to make such contributions (if any) to the assets of the company as a court thinks proper. Whilst the level of the contribution is left to the court it should reflect the loss which has been caused to the creditors by the carrying on of the business in the way that gives rise to the exercise of the power (Morphitis v. Bernasconi [2003] EWCA Civ 289).

5.6 In what other circumstances can directors and managers be found liable directly to creditors of the company?

Directors may be held directly liable to creditors of the company where they incur tortious or contractual liability. This may include where directors make negligent misstatements, engage in lawful or unlawful means conspiracy and where directors assume liabilities as surety for a company. Directors may also become liable for certain tax liabilities under tax legislation, but the details are outside of the scope of this chapter.

The IA 1986 provides for information gathering tools at sections 235 and 236.

6.1 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

Section 235 applies to companies that have been the subject of a compulsory order for winding up. It obliges directors, those involved in the formation of the company, employees and former office holders to attend upon the office holder or give to the office holder such information concerning the company’s promotion, formation, business, dealings affairs or property (“the information”) as the office holder may reasonably require.

6.2 How is that information obtained in practice?

In practice an office holder will usually write to the relevant person setting out the information required and the power relied on to obtain the information.

6.3 Can the court assist in obtaining that information and how does that work in practice?

Section 236 gives the court power to summon to appear before it any former director of the company, anyone suspected of having company property or being indebted to the company and any person whom the court thinks is capable of giving information concerning the company’s promotion, formation, business, dealings affairs or property. The court may also require these persons to submit to the court an account of their dealings with the company or to produce any books, papers or other records in their possession or under their control relating to the company or the information. The account will be via witness statement verified by a statement of truth.

7.1 Is the UNCITRAL Model Law on Cross-Border Insolvency adopted in the jurisdiction.

Yes, via the Cross-Border Insolvency Regulations 2006 (CBIR).

7.2 Is it possible to recognise office holders from other jurisdictions?

Yes, there are two routes to doing so. First, under CBIR and second, for qualifying states via section 426 of the IA 1986.

7.3 What is the process and what are the conditions for recognition?

An application for recognition of foreign proceedings can be made under CBIR. Article 17 of the UNCITRAL Model Law (implemented by Regulation 2(1) CBIR) defines foreign proceedings as being collective judicial or administrative proceedings of a foreign state where the assets and affairs of a debtor are subject to the control of a foreign court for the purposes of reorganisation or liquidation. Upon recognition of the foreign proceedings a foreign office holder can apply for recognition under Article 21(1)(e).

Section 436(4) provides that the courts in the United Kingdom shall assist courts having corresponding jurisdiction in any other party of the United Kingdom and any relevant country or territory. The assistance is obtained via a letter of request made to the court in the home jurisdiction. The Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Orders 1986 designated Anguilla, Australia, the Bahamas, Bermuda, Botswana, Canada, the Cayman Islands, the Falkland Islands, Gibraltar, Hong Kong, Republic of Ireland, Montserrat, New Zealand, St Helena, the Turks and Caicos Islands, Tuvalu and the Virgin Islands. By an order of the same name in 1996 Malaysia and Republic of South Africa were added, and from 1998 Brunei Darussalam was added. The court will provide assistance to the foreign court unless there is a powerful reason not to (England v. Smith [2001] Ch 419 and McGrath and Others v. Riddell and Another [2008] UKHL 21). This may include recognising the rights of a foreign office holder (Hughes v. Hannover-Ruckversicherungs AG [1997] 1 BCLC 497).

7.4 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

Article 21(1)(d) of the UNCITRAL Model Law allows for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor’s assets, affairs, rights, obligations or liabilities. Further, Article 21(1)(g) allows the granting of relief that may be available to a British insolvency office holder under the law of Great Britain such that a foreign office holder may be able to access powers set out in sections 235 and 236 of the IA 1986.

7.5 What steps can a foreign office holder take to recover assets belonging to the debtor?

Once recognised, the foreign office holder would usually have the same ability to recover assets that an insolvency practitioner licensed in England and Wales would have.

7.6 Is a foreign office holder able to bring clawback claims or fraudulent transaction claims?

Once recognised, the foreign office holder would usually have the same ability to bring claims under sections 238, 239 and 423 of the IA 1986 that an insolvency practitioner licensed in England and Wales would have.

8.1 Can a foreign office holder take appointments?

No, a foreign office holder cannot take appointments save where they are being recognised as a foreign office holder in respect of foreign proceedings.

8.2 What are the conditions for becoming an office holder?

An office holder must be authorised by one of the professional bodies recognised under section 391 IA 1986. These are currently the Institute of Chartered Accountants of England and Wales (ICAEW) and the Insolvency Practitioners Association (IPA).

8.3 What are the main rules of professional conduct?

The Insolvency Code of Ethics is jointly issued by the ICAEW and the IPA. It is overseen by the Insolvency Service and is built around five core principles; namely:

• Integrity. Being straightforward and honest in all professional and business relationships.
• Objectivity. Not allowing bias, conflict of interest or undue influence to override professional judgement.
• Professional competence and due care. Maintaining professional knowledge and skill at the level required to ensure competent service.
• Confidentiality. Respecting the confidentiality of information acquired as a result of professional and business relationships.
• Professional behaviour. Complying with relevant laws and regulations and avoiding any conduct that discredits the profession.

In addition, insolvency practitioners must act in accordance with 17 mandatory Statements of Insolvency Practice.