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UK INSOLVENCY LAW
United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for corporations formed under the Companies Act
- The main sources of law include the Insolvency Act 1986 , the Insolvency Rules 1986 , the Company Director Disqualification Act 1986 , the Employment Rights Act 1996. Part XII, the Insolvency Regulation (EC) 1346/2000 and case law. Numerous other Acts, statutory instruments and cases relating to labour, banking, property and
conflicts of laws also shape the subject. Corporate insolvency Corporate insolvencies happen because companies become excessively indebted. Under UK law, a company is a separate legal person from the people who have invested money and labour into it, and it mediates a series of interest groups. Invariably the shareholders, directors and employees' liability is limited to the amount of their investment, so against commercial creditors they can lose no more than the money they paid for shares, or
the purpose of suing directors to compensate creditors, or for directors to be disqualified, a company must be shown to have fewer overall assets than liabilities on its balance sheet. If debts cannot be paid back to everybody in full, creditors necessarily stand in competition with one another for a share of the remaining assets. For this reason, a statutory system of priorities fixes the order among different kinds of creditor for payment. Re Peveril Gold Mines Ltd [1898] 1 Ch 122 is a UK insolvency law case concerning liquidation when a company is unable to repay its
debts. It held that a member cannot be prevented by a company constitution from bringing a winding up petition. It is, however, possible for a member to make a shareholder agreement and thus contract out of the right to bring a winding up petition outside of the company. JUDGMENT Lord Lindley MR held that the member was entitled to do so. He said ‘these registered limited companies are incorporated on certain conditions; they continue to exist on certain conditions; and they are liable to be dissolved on certain
of association. Shareholders in these companies require protection just as much as creditors—perhaps even more; shareholders are not partners for all purposes; they have not all the rights of partners; they have practically no voice in the management of the concern. Their security in a great measure depends on the directors adhering to the requirements of the Act.” Any one who is familiar with the Companies Acts knows perfectly well that these registered limited companies are incorporated on certain conditions; they continue to exist
on certain conditions; and they are liable to be dissolved on certain conditions. The important sections of the Act of 1862, with regard to dissolution, are ss. 79 and 82. Sect. 79 states the circumstances under which such a company may be dissolved by the Court, and s. 82 states the persons who may petition for a dissolution. Any article contrary to these sections—any article which says that the company is formed on the condition that its life shall not be terminated when any of the circumstances mentioned in s. 79 exist, or which limits the right of a
not be terminated under the circumstances, or on the application of the persons, mentioned in the Act is to say that it is formed contrary to the provisions of the Act, and upon conditions which the Court is bound to ignore. The view taken by Byrne J. was right, and the appeal must be dismissed. Chitty LJ and Vaughan Williams LJ concurred. Lord Davey said: ‘Of course, individual shareholders may deal with their own interests by contract in such way as they may think fit. But such contracts, whether made
by all or some only of the shareholders, would create personal obligations, or an exceptio personalis against themselves only, and would not become a regulation of the company, or be binding on the transferees of the parties to it, or upon new or non-assenting shareholders.’
