Insolvency proceedings and orders against debt avoidance

Part

ENF Enforcement

Chapter

Insolvency proceedings and orders against debt avoidance

Printed on: 21/11/2024

Rulebook at: 01/01/2007

ENF 10

Insolvency proceedings and orders against debt avoidance

ENF 10.1

Application

01/12/2004

ENF 10.1.1

This chapter applies to:

(1) firms;

(2) appointed representatives; and

(3) any other person who is carrying on regulated activities in breach of the general prohibition.

01/12/2004

ENF 10.2

Purpose

01/12/2004

ENF 10.2.1

The purpose of this chapter is to explain the FSA's policies on how it will:

(1) use its powers under the Act to apply to court for orders under existing insolvency legislation;

(2) exercise its rights in the Act to be involved in proceedings under that legislation.

01/12/2004

ENF 10.2.2

The FSA's effective use of its powers and rights in insolvency proceedings will help it pursue its regulatory objectives of maintaining market confidence, protecting consumers and reducing financial crime by, amongst other matters, enabling it to apply to court for action to:

(1) stop firms and unauthorised persons carrying on insolvent or unlawful business; and

(2) ensure the orderly realisation and distribution of their assets.

01/12/2004

ENF 10.3

Introduction

01/12/2004

ENF 10.3.1

This chapter outlines the FSA's:

(1) powers to seek administration, compulsory winding up and bankruptcy orders and, in Scotland, sequestration awards, from the court ENF 10.5), and its policies in relation to the use of those powers ENF 10.6);

(2) powers to apply to court to challenge acts and omissions in company moratoria and to challenge an approved voluntary arrangement in respect of a corporate or individual authorised person, and in Scotland, a trustdeed for creditors granted by an authorised person ENF 10.7), and its policy in relation to the use of those powers ENF 10.8);

(3) power to apply to court for orders against debt avoidance ENF 10.9), and its policy in relation to the use of that power ENF 10.10);

(4) rights in certain cases:

(a) to be informed of third party petitions for administration, compulsory winding up and bankruptcy orders and, in Scotland, sequestration awards;

(b) to receive information and (where relevant) to attend and be heard at meetings of creditors and creditors' committees in the following regimes:

(i) voluntary and compulsory winding up;

(ii) administrations;

(iii) receiverships and administrative receiverships;

(iv) bankruptcies and sequestrations;

(v) company moratoria and voluntary arrangements ;

(vi) individual voluntary arrangements;

(vii) trustdeeds for creditors in Scotland;

in respect of firms or former firms or others who are or have been carrying on a regulated activity while unauthorisedENF 10.11);

(5) arrangements for notification of petitions and other documents to which it is entitled ENF 10.12);

(6) policy in relation to the exercise of its rights to be heard and be involved in insolvency regimes affecting persons whether authorised or not ENF 10.13).

01/12/2004

ENF 10.3.2

The provisions of the Act relating to the FSA's powers and rights in insolvency proceedings refer to the underlying insolvency legislation, namely the Insolvency Act 1986 ('the 1986 Act'), as amended by the Insolvency Act 2000, the Bankruptcy (Scotland) Act 1985 ('the 1985 Act') and the Insolvency (Northern Ireland) Order 1989 ('the 1989 Order'). ENF 10.5, ENF 10.7, ENF 10.9 and ENF 10.11 outline the statutory background to the FSA's powers and rights in insolvency proceedings and summarise the relevant provisions of that underlying insolvency legislation.

01/12/2004

ENF 10.4

The FSA's general approach

01/12/2004

ENF 10.4.1

The FSA takes full account of the principle consistently adopted by the courts that recourse to insolvency regimes is a step to be taken for the benefit of creditors as a whole. It also takes full account of the fact that the court will have regard to the public interest when considering whether to wind up a body on the grounds that it is just and equitable to do so. The FSA will use its powers to seek insolvency orders with these matters in mind.

01/12/2004

ENF 10.4.2

The FSA will consider the facts of each particular case when it decides whether to use its powers and exercise its rights. The FSA will also consider the other powers available to it under the Act and to consumers under the Act and other legislation, and the extent to which the use of those other powers meets the needs of consumers as a whole and the FSA's regulatory objectives.

01/12/2004

ENF 10.5

Statutory background: The FSA's powers to seek insolvency orders

01/12/2004

Administration orders

ENF 10.5.1

Under section 359 of the Act (Petitions), the FSA may present a petition to the court under section 9 of the 1986 Act or article 22 of the 1989 Order, for an administration order in relation to a company or insolvent partnership which:

(1) is, or has been, an authorised person; or

(2) is, or has been, an appointed representative; or

(3) is carrying on, or has carried on, a regulated activity in contravention of the general prohibition.

01/12/2004

ENF 10.5.2

The court may make an administration order only if it is satisfied that a company or a partnership is, or is likely to become, unable to pay its debts. Sections 359(3) and (4) of the Act provide that a company or partnership is to be treated as unable to pay its debts for the purpose of section 8(1)(a) of the 1986 Act or article 21(1)(a) of the 1989 Order if it is in default on an obligation to pay a sum which is due and payable under an agreement where the making or performance of this agreement constitutes or is part of a regulated activity carried on by the company or partnership.

01/12/2004

ENF 10.5.3

In addition, a court may only make an administration order if it considers that making the order would be likely to achieve one or more of the following purposes:

(1) the survival of the company or partnership, and the whole or any part of its undertaking, as a going concern;

(2) the approval of a company voluntary arrangement;

(3) the sanctioning under section 425 of the Companies Act 1985 of a compromise arrangement between the company or partnership and any such persons as are mentioned in that section;

(4) a more advantageous realisation of the assets of the company or partnership than would be effected on a winding up.

01/12/2004

ENF 10.5.4

Under section 8(4) of the 1986 Act and article 21(4) of the 1989 Order, no administration order can be made in relation to an insurance company (within the meaning of the Insurance Companies Act 1982). Section 360 of the Act (Insurers) empowers the Treasury to order that provisions, or specified provisions, of the 1986 Act and the 1989 Order relating to administration orders are to apply in relation to insurance companies, with such modification as may be specified. As at the date of publication of this manual the Treasury has not yet made such an order.

01/12/2004

Winding up by the court

ENF 10.5.5

Under section 367 of the Act (Winding-up petitions), the FSA may present a petition to the court for the winding up of a body which:

(1) is, or has been, an authorised person; or

(2) is, or has been, an appointed representative; or

(3) is carrying on, or has carried on, a regulated activity in contravention of the general prohibition.

01/12/2004

ENF 10.5.6

Under section 355 of the Act (Interpretation of this Part), a 'body' is any body of persons over which the court has jurisdiction under any provision of the 1986 Act or the 1989 Order, or made under that Act or Order. It does not however include a body which is a building society, friendly society or industrial and provident society. For the purpose of section 367 of the Act, 'body' includes a partnership.

01/12/2004

ENF 10.5.7

Under section 367(3) of the Act, following a petition by the FSA, the court may wind up the body if:

(1) the body is unable to pay its debts; or

(2) the court is of the opinion that it is just and equitable that the body should be wound up.

01/12/2004

ENF 10.5.8

Section 367(4) and (5) of the Act state that the body is to be treated as unable to pay its debts, within the meaning of section 123 or 221 of the 1986 Act or article 103 or 185 of the 1989 Order, if it is indefault on an obligation to pay a sum due and payable under an agreement where the making or performance of this agreement constitutes or is part of a regulated activity carried on by the body.

01/12/2004

Voluntary winding up

ENF 10.5.9

Under section 365 of the Act (FSA's powers to participate in proceedings), if a company is being wound up voluntarily and it is:

(1) an authorised person; and

(2) not an insurance company carrying on long term insurance business;

the FSA may apply to the court, under section 112 of the 1986 Act, or article 98 of the 1989 Order, to determine any question which arises in the winding up of a company or to request the court to exercise all or any of the powers which the court might exercise if it were winding up the company.

01/12/2004

ENF 10.5.10

The FSA is entitled to be heard at any hearing of the court in relation to the voluntary winding up of the company.

01/12/2004

ENF 10.5.11

Under section 365(6) of the Act, the voluntary winding up of an authorised person that is a company does not bar the right of the FSA to have it wound up by the court.

01/12/2004

ENF 10.5.12

Under section 365(7) of the Act, if, while a company is being voluntarily wound up, a compromise or arrangement is proposed between the company and its creditors, or any class of creditors, the FSA may apply to the court, under section 425 of the Companies Act 1985 or article 418 of the Companies (Northern Ireland) Order 1986, for an order requiring the convening of a meeting of the creditors or class of creditors

01/12/2004

ENF 10.5.13

Under section 366 of the Act (Insurers effecting or carrying out long-term contracts of insurance), an insurance company carrying on long term insurance business may not be wound up voluntarily without the FSA's consent. If, in the case of such a company, notice of a general meeting is given specifying the intention to propose a resolution for voluntary winding up, a director of the company must notify the FSA as soon as practicable after he becomes aware of it. Where a moratorium is in place in relation to a company under Schedule A1 to the 1986 Act, the FSA may not petition for an administration order or winding up order in relation to the company while the moratorium is effective.

01/12/2004

Bankruptcy and, in Scotland, sequestration

ENF 10.5.14

(1) Under section 372 of the Act (Petitions), the FSA has power to present a petition to the court, under section 264 of the 1986 Act or article 238 of the 1989 Order, for the bankruptcy of an individual or, in Scotland, under section 5 of the 1985 Act for the sequestration of the estate of an individual. A petition may be presented only on the grounds that the individual appears to be unable to pay a regulated activity debt or appears to have no reasonable prospect of being able to pay a regulated activity debt.

(2) A regulated activity debt is an obligation to pay a sum due and payable under an agreement where the making or performance of this agreement constitutes or is part of a regulated activity carried on by the individual.

01/12/2004

ENF 10.5.15

Under section 372(4) of the Act, an individual appears to have no reasonable prospect of being able to pay a regulated activity debt if:

(1) the FSA has served a demand on him which requires him to establish, to the satisfaction of the FSA, that there is a reasonable prospect of his being able to pay a regulated activity debt, when it falls due; and

(2) at least three weeks have elapsed since the demand was served; and

(3) the individual has not complied with the demand and the court has not set it aside.

01/12/2004

ENF 10.5.16

A demand (see ENF 10.5.15 G (1)) is to be treated for the purposes of the 1986 Act or the 1989 Order as if it were a statutory demand under section 268 of the 1986 Act or article 242 of the 1989 Order. In relation to petitions served under section 5 of the 1985 Act, the FSA is to be treated as a qualified creditor and, when the petition is presented on the grounds that the individual appears unable to pay a regulated activity debt, that ground is to constitute apparent insolvency for the purposes of the 1985 Act.

01/12/2004

ENF 10.5.17

The FSA's power to petition only applies to individuals who are, or have been, authorised persons or who are carrying on, or have carried on, a regulated activity in contravention of the general prohibition.

01/12/2004

ENF 10.6

The FSA's policy: applications for insolvency orders.

01/12/2004

Determining whether a company or partnership is unable to pay its debts

ENF 10.6.1

(1) The FSA can petition for an administration order or compulsory winding up order on the grounds that the company or partnership is unable (or, in the case of administration orders, is likely to become unable) to pay its debts. The FSA does not have to be a creditor to petition on these grounds.

(2) Under sections 359 (Petitions) and 367 (Winding-up Petitions) of the Act, a company or partnership is deemed to be unable to pay its debts if it is in default on an obligation to pay a sum due and payable under an agreement where the making or performance of this agreement constitutes or is part of a regulated activity which the company or partnership is carrying on.

(3) The FSA would not ordinarily petition for an administration order unless it believes that the company or partnership is, or is likely to become, insolvent. Similarly, the FSA would not ordinarily petition for a compulsory winding up order solely on the ground of inability to pay debts (as provided in the Act), unless it believes that the company or partnership is or is likely to be insolvent.

(4) While a default on a single agreement of the type mentioned in (2) is, under the Act, a presumption of an inability to pay debts, the FSA will consider the circumstances surrounding the default. In particular, the FSA will consider whether:

(a) the default is the subject of continuing discussion between the company or partnership and the creditor, under the relevant agreement, which is likely to lead to a resolution;

(b) the default is an isolated incident;

(d) the FSA has information to indicate that the company or partnership is able to pay its debts or, alternatively, that in addition to the specific default the company or partnership is in fact unable to pay its debts.

01/12/2004

Determining whether to seek any insolvency order

ENF 10.6.2

(1) Where the FSA believes that a company or partnership to which sections 359(1) and 367(1) of the Act applies (see ENF 10.5.1 G and ENF 10.5.5 G) is, or is likely to be, unable to pay its debts, the FSA will consider whether it is necessary to seek an administration order or compulsory winding up order from the court.

(2) The FSA's approach will be in two stages: the first is to consider whether it is appropriate to seek any insolvency order; the second is to consider which insolvency order will meet, or is likely to meet, the needs of consumers.

01/12/2004

ENF 10.6.3

In determining whether to seek an insolvency order, the FSA will consider all relevant factors, including:

(1) Whether the company or partnership has taken or is taking steps to deal with its insolvency, including petitioning for its own administration, placing itself in voluntary winding up or proposing to enter into a company voluntary arrangement, and the effectiveness of those steps;

(2) Whether any consumer or other creditor of the company or partnership has taken steps to seek an insolvency order from the court;

(3) the effect on the company or partnership and on the creditors of the company or partnership if an insolvency order is made;

(4) Whether the use of other powers available to the FSA will achieve the same or a more advantageous result in terms of the protection of consumers, and of market confidence and the restraint and remedy of unlawful activity:

(a) in the case of authorised persons and appointed representatives, the interests of consumers may, in certain circumstances, be met by the use of the FSA's intervention powers and by requiring restitution to consumers;

(b) in the case of unauthorised companies and partnerships, the FSA will consider whether the interests of consumers can be achieved by seeking an injunction to restrain continuation of the carrying on of the regulated activity and an order for restitution to consumers;

(c) when it considers whether these courses of action are appropriate, the FSA will take full account of their effects on the creditors of the body;

(5) the nature and extent of the body's assets and liabilities, and in particular whether the body holds client assets and whether its secured and preferred liabilities are likely to exceed available assets;

(6) Whether there is a significant cross border or international element to the business which the company or partnership is carrying on and the effect on foreign assets or on the continuation of the business abroad of making an insolvency order; and

(7) Whether there is a risk of creditors being preferred which may be an advantage in securing a moratorium in relation to proceedings against the body.

01/12/2004

ENF 10.6.4

After the FSA has determined that it is appropriate to seek an insolvency order, and there is no moratorium in place under Schedule A1 to the 1986 Act, it will consider whether this order should be an administration order or a compulsory winding up order.

01/12/2004

Determining which insolvency order to seek

ENF 10.6.5

(1) As stated in ENF 10.4 the FSA's general approach to the use of the power to seek an insolvency order from the court is to consider the needs of the consumers and the FSA's regulatory objectives.

(2) The FSA will consider whether to apply for an administration order or a compulsory winding up order having regard to the purpose achieved by the insolvency procedure. In addition, however, an administration order can be made only in relation to companies and partnerships and only where the court believes that making such an order will achieve one or more of the four purposes set out in section 8 of the 1986 Act (see ENF 10.5.3 G). The FSA will apply for an administration order only where it considers this will meet or is likely to meet one or more of these purposes.

(3) In addition, the FSA will consider, where relevant, factors including:

(a) the extent to which the financial difficulties are or are likely to be attributable to the management of the company or partnership or external factors, for example, market forces;

(b) the extent to which it appears to the FSA that the company or partnership may, through an administrator, be able to trade its way out of its financial difficulties;

(c) the extent to which the company or partnership can lawfully and viably continue to carry on regulated activities through an administrator;

(d) the extent to which the sale of the business in whole or in part as a going concern is likely to be achievable;

(e) the complexity of the business of the company or partnership;

(f) whether recourse to one regime or another is likely to result in delays in redress to consumers or an additional cost;

(g) whether recourse to one regime or another is likely to result in better redress to consumers;

(h) the adequacy and reliability of the company or partnership's accounting or administrative records;

(i) the extent to which the management of the company or partnership has co-operated with the FSA;

(j) in the case of an unauthorised company or a partnership carrying on a regulated activity as part of a larger enterprise, the scale and importance of the unauthorised activity in relation to the whole of the company's or partnership's business;

(k) the extent to which the management of the company or partnership is likely to cooperate in determining whether one or more of the purposes of an administration order can be met;

(l) in the case of an unauthorised company or partnership carrying on a regulated activity as part of a larger enterprise, the extent to which the company's or partnership's survival can be anticipated without the discontinuance of the unauthorised regulated activity;

(m) where an administrative receiver is in place, whether the debenture holder is likely to agree to an application for an administration order;

(n) where an administrative receiver is in place, whether the FSA has reason to believe that the debenture under which the administrative receiver has been appointed is likely to be released, discharged, avoided or challenged.

01/12/2004

Petitioning for compulsory winding up on just and equitable grounds

ENF 10.6.6

(1) The FSA has power under section 367(3)(b) of the Act to petition the court for the compulsory winding up of a company or partnership, on the grounds that it is just and equitable for the body to be wound up, regardless of whether or not the body is able to pay its debts. In some instances the FSA may need to consider whether to petition on both these grounds and on grounds of insolvency.

(2) When deciding whether to petition on these grounds the FSA will consider all relevant facts including:

(a) whether the needs of consumers and the public interest require the body to cease to operate;

(b) the need to protect consumers' claims and client assets;

(d) in the case of an authorised person, where the FSA considers that the authorisation should be withdrawn or where it has been withdrawn, the extent to which there is other business that the person can carry on without authorisation;

(e) in the case of an unauthorised body carrying on a regulated activity as part of a larger enterprise, the scale and importance of the unauthorised regulated activity and the extent to which the enterprise is likely to survive the restraint and remedying of that activity by the use of other powers available to the FSA;

(f) whether there is reason to believe that an injunction to restrain the carrying on of an unauthorisedregulated activity would be ineffective;

(g) whether the body appears to be or to have been involved in financial crime or appears to be or to have been used as a vehicle for financial crime.

(3) Where appropriate the FSA will also take the following factors into account:

(a) the complexity of the body (as this may have a bearing on the effectiveness of winding up or any alternative action);

(b) whether there is a significant cross border or international element to the business being carried on by the body and the impact on the business in other jurisdictions;

(d) the extent to which the body's management has cooperated with the FSA.

01/12/2004

Petitioning for compulsory winding up of a company or partnership already in voluntary winding up

ENF 10.6.7

Section 365(6) of the Act (FSA's powers to participate in proceedings) makes clear that the FSA may petition for the compulsory winding up of a company even if that company is already in voluntary winding up. This power is already available to creditors and contributories of companies in voluntary winding up, although it is rarely exercised. In many instances where there is concern about the way in which a voluntary winding up is proceeding, any creditor or contributory of a company in voluntary winding up (or its liquidator) may apply to the court for it to exercise any power which it would have in a compulsory winding up. For example, the court can be asked to direct the liquidator to investigate a transaction which the company undertook before the winding up. Under section 365(2) of the Act, the FSA also has the power to make such an application.

01/12/2004

ENF 10.6.8

(1) Given the powers available to creditors (or contributories), the FSA anticipates that there will only be a limited number of cases where it will exercise the right under section 365(6) to petition for the compulsory winding up of a company already in voluntary winding up. The FSA will only be able to exercise this right where one or both of the grounds on which it can seek compulsory winding up are met (see ENF 10.5.7 G).

(2) Factors which the FSA will consider when it decides whether to use this power (in addition to the factors identified in ENF 10.6.5 G and ENF 10.6.6 G in relation to the FSA's decisions to seek compulsory winding up) include:

(a) whether the FSA's concerns can properly and effectively be met by seeking a specific direction under section 365(2) of the Act;

(b) whether the affairs of the company require independent investigation of the kind which follows a compulsory winding up order and whether there are or are likely to be funds available for that investigation;

(d) the extent to which there are creditors who are or are likely to be connected to the company or its directors and management;

(e) the extent to which the directors and management of the company are cooperating with the liquidator in voluntary winding up;

(f) the need to protect and distribute consumers' claims and assets;

(g) whether a petition by the FSA for compulsory winding up is likely to have the support of the majority or a large proportion of the creditors; and

(h) the extent of any resulting delay and additional costs.

01/12/2004

ENF 10.6.9

Where the FSA is requested by a Home State regulator of an EEA firm or a Treaty firm to present a petition for the compulsory winding up of that firm, the FSA will first need to consider whether the presentation of the petition is necessary in order to comply with a Community obligation.

01/12/2004

Power to apply to court for a provisional liquidator

ENF 10.6.10

Where a petition has been presented for the winding up of a body, the court may appoint a provisional liquidator in the interim period pending the hearing of the petition. An appointment may be sought and made to:

(1) enable the affairs of the company or partnership to be conducted in the proper manner; or

(2) protect assets in the possession or under the control of the company or partnership (in particular where there is a risk that the assets will be dissipated); or

(3) allow the winding up process to start before the determination of the petition where the public interest requires it.

01/12/2004

ENF 10.6.11

In cases where it decides to petition for the compulsory winding up of a body under section 367 of the Act, the FSA will also consider whether it should seek the appointment of a provisional liquidator. The FSA will have regard, in particular, to the extent to which there may be a need to protect consumers' claims and consumers' funds. Where the FSA decides to petition for the compulsory winding up of a company or partnership on the just and equitable ground, and where the company or partnership is solvent but may become insolvent, the FSA will also consider whether the appointment of a provisional liquidator would serve to maintain the solvency of the company or partnership.

01/12/2004

The FSA's use of its power to petition for a bankruptcy order or a sequestration award in relation to an individual

ENF 10.6.12

(1) The FSA recognises that the bankruptcy of an individual or the sequestration of an individual's estate are significant measures which may have significant personal and professional implications for the individual involved. In considering whether to present a petition the FSA's principal consideration will be the protection of consumers and its regulatory obligations.

(2) The FSA is also mindful that whilst the winding up of an unauthorised company or partnership should bring an end to any unlawful activity, this is not necessarily the effect of bankruptcy or sequestration. The FSA may, in certain cases, consider the use of powers to petition for bankruptcy or sequestration in conjunction with the use of other powers to seek injunctions and other relief from the court. In particular, where the individual controls assets belonging to consumers and holds, or appears to hold, those assets on trust for consumers, those assets will not vest in the insolvency practitioner appointed in the bankruptcy or sequestration. The FSA will in those circumstances consider whether separate action is necessary to protect the assets and interests of consumers.

01/12/2004

ENF 10.6.13

(1) If an individual appears to be unable to pay a regulated activity debt, or to have no reasonable prospect of doing so, then section 372 of the Act permits the FSA to petition for the individual's bankruptcy, or in Scotland, for the sequestration of the individual's estate. The FSA will petition for bankruptcy or sequestration only if it believes that the individual is, in fact, insolvent.

(2) In determining this, as a general rule, the FSA will serve a demand requiring the individual to establish, to the FSA's satisfaction that there is a reasonable prospect that he will be able to pay the regulated activity debt.

(3) The FSA will consider the response of each individual to that demand on its own facts and in the light of information, if any, available to the FSA. Exceptionally, the FSA may not first proceed to serve a demand if:

(a) the individual is already indefault of a regulated activity debt which has fallen due and payable; and

(b) the FSA is satisfied, either because the individual has confirmed it or on the information already available to the FSA, that the individual is insolvent and has no reasonable prospect of paying another regulated activity debt when it falls due.

01/12/2004

ENF 10.6.14

If the FSA believes that the individual is insolvent, the factors it will consider when it decides whether to seek a bankruptcy order or sequestration award include:

(1) whether others have taken steps to deal with the individual's insolvency, including a proposal by the individual of a voluntary arrangement, a petition by the individual for his own bankruptcy or sequestration, or a petition by a third party for the individual's bankruptcy or the sequestration of the individual's estate;

(2) whether the FSA can deal with the individual using other powers available to it under the Act, without the need to seek a bankruptcy order or sequestration award;

(3) the extent of the individual's insolvency or apparent insolvency;

(4) the number of consumers affected and the extent of their claims against the individual;

(5) whether the individual has control over assets belonging to consumers;

(6) the individual's conduct in his dealings with the FSA, including the extent of his cooperation with the FSA;

(7) whether the individual appears to be, or to have been, involved in financial crime;

(8) the adequacy of the individual's accounts and administration records;

(9) in the case of an unauthorised individual who is carrying on or who has carried on a regulated activity, the nature, scale and importance of that activity and the individual's conduct in carrying on that activity;

(10) whether there would be an advantage in securing a moratorium in respect of proceedings against the individual; and

(11) whether there are any special personal or professional implications for that individual if a bankruptcy order or sequestration award is made.

01/12/2004

ENF 10.7

Statutory background: the FSA's powers to challenge voluntary arrangements

01/12/2004

ENF 10.7.1

Under section 357(3) of the Act (FSA's powers to participate in proceedings [individual voluntary arrangements], the FSA is entitled to attend a creditors' meeting, called to approve proposals for an individual voluntary arrangement. The FSA has no power under the Act to attend the meeting of creditors at which proposals for a company's voluntary arrangement are approved, other than in the case of certain small companies for whom a moratorium is in place under Schedule A1 to the 1986 Act (see ENF 10.7.5 G).

01/12/2004

ENF 10.7.2

However, in relation to a company which is or has been an authorised person or appointed representative or is carrying on or has carried on a regulated activity in contravention of the general prohibition, where a member applies to the court to challenge a decision taken at the creditors' meeting, the FSA has the right to be heard by the court on that application.

01/12/2004

ENF 10.7.3

(1) Under section 356 of the Act (FSA's powers to participate in proceedings [company voluntary arrangements], if a voluntary arrangement has been approved in respect of a company which is an authorised person, the FSA may make an application to the court where it considers that:

(a) the voluntary arrangement approved at the relevant meetings of creditors unfairly prejudices the interests of a creditor, member or contributor of the company; or

(b) there has been some material irregularity at or in relation to the meetings; or

(2) In addition, the FSA may make an application to the court if it or any of the company's creditors or any other creditor is dissatisfied by any act, omission or decision of the supervisor of the voluntary arrangement.

(3) If a person other than the FSA makes such an application to the court, the FSA is entitled to be heard at any hearing relating to the application.

(4) Section 357 contains the same provision in relation to a voluntary arrangement approved in respect of an individual who is an authorised person.

(5) In addition, the FSA is empowered to apply to the court if it or the debtor or any creditor or any other person is dissatisfied with any act, omission or decision made by the supervisor of the individual's voluntary arrangement.

01/12/2004

ENF 10.7.4

Under section 358 of the Act (FSA's powers to participate in proceedings [trust deeds for creditors in Scotland]), if, in Scotland, a trustdeed has been granted by or on behalf of a debtor who is an authorised person, the FSA has the rights of a qualifying creditor under paragraph 7 of Schedule 5 to the 1985 Act. Consequently, the FSA may, subject to the time limits applying to that paragraph, petition for sequestration of the debtor's estate on the grounds of unduly prejudicial distribution of the estate.

01/12/2004

ENF 10.7.5

(1) Under paragraph 44 of Schedule A1 to the 1986 Act, the FSA is empowered to apply to the court to challenge certain actions by a nominee or by directors of a company for whom a moratorium has been obtained and any voluntary arrangement subsequent to that moratorium under Schedule A1 of the 1986 Act.

(2) Schedule A1 to the 1986 Act applies to certain small companies. It does not apply to insurance companies, authorised institutions or former authorised institutions within the meaning of the Banking Act 1987 [now repealed] parties to a marketcontract, a money marketcontract or a related contract, companies whose property is subject to a market charge, money market charge or a system charge, or where the company is a participant within the meaning of the Settlement Finality Regulations or any of its properties is subject to a collateral security charge within the meaning of these Regulations.

01/12/2004

ENF 10.7.6

The FSA's powers under Schedule A1 to the 1986 Act may be exercised by it in relation to a company which is or has been an authorised person or appointed representative or is carrying on or has carried on a regulated activity in contravention of the general prohibition.

01/12/2004

ENF 10.8

The FSA's policy: applications in relation to voluntary arrangements

01/12/2004

ENF 10.8.1

In general terms, the approval of a voluntary arrangement (in relation to companies, partnerships and individuals) requires more than 75% of the creditors to whom notice of a meeting has been sent and who are present in person or by proxy. The arrangement must also not be opposed by more than 50% of creditors given notice of the meeting and who have notified their claim, but excluding secured creditors and creditors who are, in the case of companies or partnerships, connectedpersons and, in the case of individuals, associates. The FSA will therefore not normally challenge an arrangement approved by a majority of creditors.

01/12/2004

ENF 10.8.2

Exceptionally, the FSA will consider making such a challenge after considering, in particular, the following matters:

(1) the ratio of consumer to non-consumer creditors;

(2) Whether the FSA has concerns, or is aware of concerns of creditors, about the regularity of the meeting or the identification of connected or associated creditors and the extent to which creditors with those concerns could themselves make the application;

(3) whether the company, partnership or individual has control of consumer assets which might be affected by the voluntary arrangement;

(4) the complexity of the arrangement;

(5) the nature and complexity of the regulated activity;

(6) the company's, partnership's or individual's previous dealings with the FSA, including the extent of its cooperation with the FSA and its compliance history; and

(7) whether the FSA is aware of any matters which would materially affect the rights and expectations of creditors under the voluntary arrangement as approved.

01/12/2004

ENF 10.8.3

Similarly, the FSA will not normally petition for sequestration of a debtor's estate following the grant of a trustdeed, if the trustdeed has been, or appears likely to be, acceded to by a majority of creditors.

01/12/2004

ENF 10.8.4

The FSA will consider making a challenge in relation to acts, omissions or decisions of a nominee during a moratorium having regard to the following matters in particular:

(1) whether the FSA is aware of matters indicating that the proposed voluntary arrangement does not have a reasonable prospect of being approved and implemented or that the company is likely to have insufficient funds available to it to carry on its business during the moratorium;

(2) whether consumer assets held by the company are or may be placed at risk; and

(3) in the case of an unauthorised company, whether that company is able to carry on its business lawfully during the moratorium without undertaking any regulated activity in contravention of the general prohibition.

01/12/2004

ENF 10.9

Statutory background: the FSA's power to apply for orders against debt avoidance

01/12/2004

ENF 10.9.1

Under section 375 of the Act (Provisions against debt avoidance: FSA's right to apply for an order), the FSA may apply to the court, under section 423 of the 1986 Act or article 367 of the 1989 Order, for an order where a transaction is entered into at an undervalue and where:

(1) at the time the transaction was entered into, the debtor was carrying on a regulated activity (whether or not in contravention of the general prohibition); and

(2) a victim of the transaction is, or was, party to an agreement entered into with the debtor, the making and performance of which constituted or was part of a regulated activity carried on by the debtor.

01/12/2004

ENF 10.9.2

The FSA's application is to be treated as made on behalf of every victim of the transaction. Under section 423 of the 1986 Act or article 367 of the 1989 Order, the court may make such order as it thinks fit to restore the position to what it would have been if the transaction had not been entered into and to protect the interests of persons who are victims of the transaction.

01/12/2004

ENF 10.10

The FSA's policy: applications for orders against debt avoidance

01/12/2004

ENF 10.10.1

When it decides whether to make an application for an order against debt avoidance, the FSA will consider all relevant factors, including the following:

(1) the extent to which the relevant transactions involved dealings in consumers' funds;

(2) whether it would be appropriate to petition for a winding-up order, bankruptcy order, or sequestration award, in relation to the debtor and the extent to which the transaction could properly be dealt with in that winding up, bankruptcy or sequestration;

(3) the number of consumers or other creditors likely to be affected and their ability to make an application of this nature; and

(4) the size of the transaction.

01/12/2004

ENF 10.11

Statutory background: the FSA's rights to information in insolvency regimes

01/12/2004

Administration

ENF 10.11.1

Under section 361 of the Act (Administrator's duty to report to the FSA), if an administration order is in force in relation to a company or partnership as a result of a petition presented by a person other than the FSA, and it appears to the administrator that the company or partnership is carrying on, or has carried on, a regulated activity in contravention of the general prohibition, the administrator must report the matter to the FSA without delay.

01/12/2004

ENF 10.11.2

Under section 362 of the Act (FSA's powers to participate in proceedings), if a person other than the FSA petitions the court for an administration order in relation to a company or partnership which:

(1) is, or has been, an authorised person; or

(2) is, or has been, an appointed representative; or

(3) is carrying on, or has carried on, a regulated activity in contravention of the general prohibition;

then the FSA is entitled to be heard at the hearing of the petition and at any other hearing of the court in relation to the company's or partnership's administration.

01/12/2004

ENF 10.11.3

Under section 362(3), any notice or other document required to be sent to a creditor of such a company or partnership in administration (see ENF 10.11.2 G) must also be sent to the FSA.

01/12/2004

ENF 10.11.4

Under section 362(4), the FSA may apply to the court, under section 27 of the 1986 Act or article 39 of the 1989 Order, if it believes that the company's affairs, business and property are being or have been managed by the administrator in a manner which is unfairly prejudicial to the interest of its creditors and members generally, or to some part of its creditors and members, or that any act or proposed act or omission of the administrator is or would be prejudicial.

01/12/2004

ENF 10.11.5

Under section 362(5), the FSA may appoint a person to:

(1) attend any meeting of creditors of the company or partnership summoned under any enactment;

(2) attend any meeting of a creditors' committee established in the administration, under section 26 of the 1986 Act or article 38 of the 1989 Order;

(3) make representations as to any matter for decision at such a meeting.

01/12/2004

ENF 10.11.6

Under section 362(6), if, during the course of the administration of a company, a compromise or arrangement is proposed between the company and its creditors, or any class of creditors, the FSA may apply to the court under section 425 of the Companies' Act 1985 or article 418 of the Companies' (Northern Ireland) Order 1986, for an order requiring a meeting of the creditors or class of creditors to be summoned.

01/12/2004

Compulsory winding up

ENF 10.11.7

Under section 369 of the Act (Insurers: service of petition etc. on the FSA), if a person other than the FSA presents a petition for the winding up of an insurance company which is an authorised person, the petitioner must serve a copy of the petition on the FSA. In addition, if a person other than the FSA applies to have a provisional liquidator appointed in respect of an insurance company which is an authorised person, that person must serve a copy of the application on the FSA.

01/12/2004

ENF 10.11.8

Under section 370 of the Act (Liquidator's duty to report to the FSA), if a company or partnership is in voluntary liquidation, or is being wound up on a petition presented by a person other than the FSA, and it appears to the liquidator that the company or partnership is carrying on, or has carried on, a regulated activity in contravention of the general prohibition, the liquidator must report the matter to the FSA without delay.

01/12/2004

ENF 10.11.9

Under section 371 of the Act (FSA's powers to participate in proceedings), if a person other than the FSA presents a petition for the winding up of a body which is, or has been, an authorised person or appointed representative, or is carrying on, or has carried on, a regulated activity in contravention of the general prohibition, the FSA is entitled to be heard on the petition and any other hearing of the court in relation to the body under or by virtue of Part IV or V of the 1986 Act or Part V or VI of the 1989 Order .

01/12/2004

ENF 10.11.10

Under section 371(3) of the Act, any notice or other document required to be sent to a creditor of the body must also be sent to the FSA.

01/12/2004

ENF 10.11.11

Under section 371(4) of the Act, a person appointed for the purpose by the FSA is entitled:

(1) to attend any meeting of creditors of the body;

(2) to attend any meeting of a creditors' committee established under section 101, 141 or 142 of the 1986 Act or article 87 or 120 of the 1989 Order; and

(3) to make representations about any matter which is to be decided at such a meeting.

01/12/2004

ENF 10.11.12

Under section 371(5), if, during the winding up of a company, a compromise or arrangement is proposed between a company and its creditors or any class of creditors, the FSA may apply to the court under section 425 of the Companies Act 1985 or article 418 of the Companies (Northern Ireland) Order 1989 for an order requiring a meeting of the creditors or class of creditors to be summoned.

01/12/2004

Voluntary liquidation

ENF 10.11.13

Under section 365(4) of the Act, in the case of a company which is being wound up voluntarily and is an authorised person (not an insurer) carrying on long term insurance business, any notice or other document required to be sent to a creditor of the company must also be sent to the FSA.

01/12/2004

ENF 10.11.14

Also, section 365(5) of the Act permits a person appointed for the purpose by the FSA:

(1) to attend any meeting of creditors of the company summoned under any enactment;

(2) to attend any meeting of a creditors' committee summoned under section 101 of the 1986 Act or article 87 of the 1989 Order;

(3) to make representations as to any matter for decision at that meeting.

01/12/2004

Receivership

ENF 10.11.15

Section 363 of the Act (FSA's powers to participate in proceedings) entitles the FSA to be heard on applications and to receive reports about receiverships, where a receiver has been appointed in relation to a company which:

(1) is, or has been, an authorised person; or

(2) is, or has been, an appointed representative; or

(3) is carrying on, or has carried on, a regulated activity in contravention of the general prohibition.

01/12/2004

ENF 10.11.16

Under section 363(2) of the Act, the FSA is entitled to be heard on an application, under section 35 or 63 of the 1986 Act or article 45 of the 1989 Order, by a receiver, or a person by whom or on whose behalf the receiver has been appointed, for directions in relation to any particular matter arising in connection with the performance of the receiver's functions.

01/12/2004

ENF 10.11.17

Under section 363(3) of the Act, the FSA is entitled to apply to the court, under sections 41(1)(a) or 69(1)(a) of the 1986 Act or article 51(1)(a) of the 1989 Order, if the Receiver:

(1) defaults in filing, delivering or making any return, account or other document or in giving any notice which a receiver is, by law, required to file, deliver, make or give; or

(2) (when the company is in liquidation) fails to render appropriate accounts of his receipts or payments and to vouch them and pay over to the liquidator the amount of property payable to him, when required by the liquidator to do so.

01/12/2004

ENF 10.11.18

Under section 363(4) of the Act, where the receiver makes a report under section 48(1) or 67(1) of the 1986 Act or article 15(1) of the 1989 Order, that report must be sent to the FSA by the receiver.

01/12/2004

ENF 10.11.19

Under section 363(5), a person appointed for the purpose by the FSA is entitled to:

(1) attend any meeting of creditors of the company under any enactment;

(2) attend any meeting of a creditors' committee established under sections 49 or 68 of the 1986 Act or article 59 of the 1989 Order;

(3) make representations as to any matter for decision at such meetings.

01/12/2004

ENF 10.11.20

Under section 364 of the Act (Receiver's duty to report to the FSA), if a receiver has been appointed in relation to a company and it appears to the receiver that the company is carrying on, or has carried on, a regulated activity in contravention of the general prohibition, the receiver must report this to the FSA without delay.

01/12/2004

Bankruptcy and sequestration

ENF 10.11.21

Under section 373 of the Act (Insolvency practitioner's duty to report to the FSA), if a bankruptcy order or, in Scotland, a sequestration award is in force in relation to an individual, following a petition presented by a person other than the FSA, and it appears to the insolvency practitioner that the individual is carrying on, or has carried on, a regulated activity in contravention of the general prohibition, the insolvency practitioner must report this to the FSA without delay. For these purposes 'individual' includes, in Scotland, an entity under section 6(1) of the 1985 Act.

01/12/2004

ENF 10.11.22

Under section 374 of the Act (FSA's powers to participate in proceedings), if a person other than the FSA presents a petition to the court for:

(1) a bankruptcy order to be made against an individual; or

(2) the sequestration of an individual's estate; or

(3) the sequestration of the estate belonging to or held jointly by an entity mentioned in section 6(1) of the 1985 Act;

and that individual or entity is or has been an authorised person, or is carrying on or has carried on a regulated activity in contravention of the general prohibition, then the FSA is entitled to be heard at the hearing of the petition and at any other hearing relating to the bankruptcy or sequestration under Part IX of the 1986 Act, Part IX of the 1989 Order or the 1985 Act. A copy of the insolvency practitioner's report prepared under section 274 of the 1986 Act or article 248 of the 1989 Order must be sent to the FSA.

01/12/2004

ENF 10.11.23

Section 374(4) of the Act permits a person appointed for the purpose by the FSA:

(1) to attend any meeting of creditors of the individual or entity;

(2) to attend any meeting of a creditors' committee established under section 301 of the 1986 Act or article 274 of the 1989 Order;

(3) to attend any meeting of commissioners held under paragraph 17 or 18 of Schedule 6 to the 1985 Act;

(4) to make representations as to any matter for decision at such meetings.

01/12/2004

Company Moratoria

ENF 10.11.24

Under paragraph 44 of schedule A1 to the 1986 Act, where a moratorium is in place or a voluntary arrangement has been approved under that schedule in relation to a company to which the schedule applies (see ENF 10.7.5 G) and which is or has been an authorised person or an appointed representative or is carrying on or has carried on a regulated activity in contravention of the general prohibition, the FSA has the right:

(1) To receive any notice or other documents required by schedule A1 to the 1986 Act to be sent to a creditor;

(2) To be heard in any application for leave in relation to disposal of charged property (paragraph 20 of schedule A1);

(3) To be heard in any application made other than by the FSA to challenge the actions or omissions of a nominee (paragraphs 26 and 27 of schedule A1 to the 1986 Act);

(4) To attend and participate in but not vote at any meeting of creditors of the company or of the moratorium committee ;

(5) To be heard in any application by a member of the company in relation to a decision taken by the creditors' meeting under paragraph 36 of schedule A1 to the 1986 Act;

(6) To be heard in any application made other than by the FSA to challenge a decision to approve a voluntary arrangement in relation to the company under paragraph 38 of schedule A1 to the 1986 Act;

(7) To apply to the court and be heard in an application by a person other than the FSA to challenge any act, omission or decision of the supervisor under paragraph 39 of schedule A1 to the 1986 Act;

(8) To apply to the court and to be heard on any application to the court by a person other than the FSA to challenge the actions of the company's directors under paragraph 40 of schedule A1 to the 1986 Act.

01/12/2004

ENF 10.12

The FSA's arrangements for notification of petitions and other documents

01/12/2004

ENF 10.12.1

ENF 10.12.2 G to ENF 10.12.4 G contain information for insolvency practitioners and others about sending copies of petitions, notices and other documents to the FSA, and about making reports to the FSA. Insolvency practitioners and others have duties to give that information and those documents to the FSA under various sections in Part XXIV of the Act (Insolvency). ENF 10.12.2 G identifies the relevant sections of the Act and paragraphs of ENF 10.11 that explain some of the duties.

01/12/2004

ENF 10.12.2

Insolvency regime and relevant sections of the Act and ENF 10.11

Insolvency regime

Relevant sections of the Act and paragraphs of ENF 10.11

Administration

Sections 361 and 362(3) - see ENF 10.11.1 G and ENF 10.11.3 G

Compulsory winding up

Sections 369, 370, and 371(3) - see ENF 10.11.7 G, ENF 10.11.8 G and ENF 10.11.10 G

Voluntary liquidation

Section 365(4) - see ENF 10.11.13 G

Receivership

Sections 363(4) and 364 - see ENF 10.11.18 G and ENF 10.11.20 G

Bankruptcy and sequestration

Sections 373 and 374(3) - see ENF 10.11.21 G and ENF 10.11.22 G

Company moratoria

Paragraph 44 of schedule A1 to the 1986 Act - see ENF 10.11.24 G (1)

Individual voluntary arrangements

Section 357(3) - not in ENF 10.11 - relates to notices of the result of the creditors' meetings.

Trust deeds for creditors

Section 358(2)(a) and (b) - not in ENF 10.11 - relates to copies of trust deeds and copies of certain other documents of information sent to creditors.
Section 358(4) - not in ENF 10.11 - relates to notices of any meeting of creditors held in relation to the trust deed.

01/12/2004

ENF 10.12.3

Unless ENF 10.12.4 G applies, the information and documents identified in ENF 10.12.2 G should be sent to the Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS marked 'Insolvency Information'. If the person who is subject to the insolvency regime ('the insolvent person') is an authorised person, the information and documents should, in the first instance, be addressed to the insolvent person's supervisory contact at the FSA (if known).

01/12/2004

ENF 10.12.4

This paragraph applies if the insolvent person is an authorised person and the sender of the information or documents knows that the insolvent person's supervisory contact operates from Edinburgh. In this case information or documents should, in the first instance, be sent to the Financial Services Authority, Quayside House, 127 Fountainbridge, Edinburgh EH3 8DJ.

25/07/2005

ENF 10.13

The FSA's policy: rights on petitions by third parties and involvement in creditors meetings

01/12/2004

ENF 10.13.1

Section 362 of the Act (FSA's powers to participate in proceedings [administration orders]) gives the FSA the right to be heard at the hearing of a petition by a third party for an administration order in respect of an authorised person, appointed representative or an unauthorised company or partnership which is carrying on or has carried on a regulated activity while unauthorised. The FSA has the same right to be heard on a petition by a third party for compulsory winding up (section 371 of the Act (FSA's powers to participate in proceedings [winding up by the court]) and bankruptcy or sequestration (section 374 of the Act (FSA's powers to participate in proceedings [Bankruptcy]). The FSA also has the right to be heard in any hearing in court following the making of such an order.

01/12/2004

ENF 10.13.2

The FSA will exercise the right to be heard on a third party's petition or in subsequent hearings only where it believes it has information that it considers relevant to the court's consideration of the petition or application. These circumstances may include:

(1) where the FSA has relevant information which it believes may not otherwise be drawn to the court's attention; especially where the FSA has been asked to attend for a particular purpose (for example to explain the operations of its rules);

(2) where the FSA believes that the insolvency order being sought by a third party is inappropriate to meet the needs of consumers and the public interest; and

(3) where the FSA believes that the making of an insolvency order will affect the FSA's exercise of its other powers under the Act, and wishes to make the court aware of this.

01/12/2004

ENF 10.13.3

The making of an insolvency order operates to stay any proceedings already in place against the company, partnership or individual, and prevents proceedings being commenced while the insolvency order is in place. Proceedings can continue or be commenced against those persons only with the court's permission. This may affect the effectiveness of the FSA's use of its powers to seek injunctions and restitutionary orders from the court. The FSA will draw the court's attention to this potential effect where the FSA believes it is a relevant consideration, but it is a matter for the court to determine its relevance in a particular case.

01/12/2004

ENF 10.13.4

The FSA is given power to receive the same information as creditors are entitled to receive in the winding up, administration, receivership or voluntary arrangement of an authorised person, of appointed representatives and of persons who have carried out a regulated activity while unauthorised. The FSA is also entitled to attend and make representation at any creditors' meeting or (where relevant) creditors' committee meeting taking place in those regimes. When it decides whether to exercise its power to attend and make representations at meetings the factors which the FSA will take into account include:

(1) the extent of claims by consumers upon the body or individual;

(2) the extent to which consumer assets are held by the body or individual on behalf of consumers;

(3) the extent to which the FSA is aware of concerns of consumers (or other creditors or contributories) about the way in which the insolvency regime is proceeding;

(4) whether the circumstances which gave rise to the insolvency regime might have general implications for others carrying on regulated business;

(5) whether the creditors include shareholders, directors, or other persons who have a connection with the management or ownership of the body or are associated with the individual;

(6) the complexity or specialisation of the business of the body or individual; and

(7) where there is a significant cross border or international element to the business which the company, partnership or individual is carrying out.

01/12/2004