Corporate Insolvency Exam Questions with Complete Solutions

Corporate Insolvency Exam Questions with Complete Solutions AIB Finance Ltd v Bank of Scotland - Correct Answers: In contrast to other rights in security, the floating charge is created by a private act between the parties. Execution (i.e. delivery) is enough to effect creation of the floating charge. Negative pledge clause will alter the hierarchy of enforcement. A floating charge containing such a clause ranks ahead of any fixed rights in security, which are created after the floating charge has been executed but before the floating charge has attached. *The clause takes effect as soon as the floating charge has been executed but remains latent for up to 21 days. It may prejudice a subsequent bona fide third party creditor who takes a standard security in good faith.* Sharp v Thomson - Correct Answers: • Purchase of a flat in Aberdeen from a building company - After paying money and taking possession, went into Receivership - Receivership occurred before registration - Ownership does not transfer until the disposition is registered - When the floating charge came down, the flat was still owned by the Company • Hence, it was caught by the charge • T would acquire ownership on registration but subject to the floating charge. • This would diminish the value of the flat. • T was not pleased. - IH = Fairness does not matter; it is the law. • HL = Judges more amenable to Thomson's' argument - One was particularly influenced that, under English law, the fact that they had paid and taken possession, would have been enough to protect them from the charge attaching • They would have acquired a beneficial interest in the flat • Applied this English principle to Scotland • Held: Thomson had beneficial ownership • Good enough to bring the flat out of the shadow of the charge. - Second speech given by Lord Clyde • Same result but with more conventional reasons • This floating charge is a special statutory creation • We must interpret statutory words in that context • Words "Property and Undertaking" do not mean anything special in general terminology •*Could take it as something narrower as everything that the company owns* • If you pay for the property, then it is no longer within the Company - So, cannot fall under the floating charge shadow • It is just a policy-based statutory interpretation Burnett's Tr v Grainger - Correct Answers: • Facts were essentially the same • Did not register when moment of insolvency hits • Decided that Lord Hope was right = - Basic principles of Scots law were that ownership did not pass unless there was registration • However, Sharp was not explicitly overturned • Sharp is really only authoritative for Lord Clyde's judgment • "Property and Undertaking" are still taken as narrower than normal • Where you have paid for the Property but registration has not yet occurred, then you are still safe from a floating charge Re Hawk Insurance Co Ltd - Correct Answers: A group of creditors with sufficiently similar interests to allow them to "consult together wth a view to their common interests" constitutes a class Joint Administrators of Rangers Football Club, Noters - Correct Answers: • An administrator must perform his functions in the interests of the company's creditors as a whole. - Where the company in administration is insolvent, an administrator may have to decline to perform a contractual obligation of the company in pursuit of the statutory objective or objectives in his proposals if that is in the interests of the company's creditors as a whole. • Should he do so, the court would no (absent exceptional circumstances) force the company to perform those contractual obligations to the detriment of the creditors as a whole.