Administration Flashcards
What is administration?
Procedure which aims to rescue a company which is insolvent if at all possible, or to achieve a better result for creditors if not. It is a “collective” procedure,
What is meant by administration being a collective procedure?
Administrator acts in the interests of the creditors as a whole rather than on behalf of a particular creditor
What are the two outcomes of administration?
- Rescue
- Liquidation
Who are administrators?
Administrators are qualified insolvency practitioners who may be appointed by the court or under the out of court procedure
They are required to perform their functions in the interests of the company’s creditors as a whole and owe duties to both the court and to the creditors collectively
Where are the statutory objectives of administration found?
Section 8 and Schedule B1 IA 1986
What is the statutory objective of an administrator?
“…must perform his functions with the objective of:
(a) rescuing the company as a going concern, or
(b) achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up…,
(c) realising the property in order to make a distribution to one or more secure or preferential creditors.”
What kind of objectives are the statutory objectives of an administrator?
Cascading objectives - they guide the process
The two procedures for appointing an administrator?
Court Procedure
Out of Court Procedure
When may the court appoint an administrator?
Where the company is or is likely to become unable to pay its debts (Sch B1 para 11(a)) on the application of:
- The company
- The directors
- One or more creditors
After application to the court, what else must be shown to allow them to appoint an Administrator ?
The appointment may only be made where the order is reasonably likely to achieve the purpose of the administration - Sch B1 para 11(b)
AA Mutual International Insurance Co Ltd [2004] - FACTS
The applicant was an insurance company which sought an administration order. The court found that it was probable that the applicant would be unable to pay its debts as it had no income. The administration was also held to be reasonably likely to achieve better results for the creditors as a whole than winding up, therefore the application was granted.
AA Mutual International Insurance Co Ltd [2004] PRECEDENT
The two factor test for court appointment of an administrator
Case for court appointment of an admnistrator?
AA Mutual International Insurance Co Ltd [2004]
Out of court procedure for appointing administrator?
The following parties may appoint an administrator using the out of court procedure:
• The company or the directors (Sch B1 para 22 IA 1986); or
• A qualifying floating charge holder (Sch B1 para 14 IA 1986). This is often a bank.
What is a quality floating charge holder (QFCH)?
‘QFCH’ - this means the holder of a floating charge created after 15 September 2003 relating to the whole or substantially the whole of the company’s property
What is the most common method of administrator appointment?
Directors using out of court procedure - Schedule B1 p22 IA 1986
When can’t Directors use the out of court procedure?
Where a creditor has presented a petition for the winding up of the company.
Here the directors can apply to court for an administration order or the qualifying floating charge holder can use the out of court procedure to appoint an administrator.
What is the role of an administrator?
The administrator is an officer of the court and owes its duty to all of the company’s creditors to achieve the purposes of the administration
How are Directors powers impacted by an administrator?
The directors can’t exercise any of their management powers without the consent of the administrator.
Administrator takes on the running of the business with the aim of achieving the purpose of the administration
How long does an administrator have to produce a report and proposals?
Up to 8 weeks, if rejected the company is put into liquidation
What is the time limit on administrations?
12-month fixed time limit for the completion of administrations, although it is possible to obtain extensions
Major advantage of administration?
A moratorium - Sch B1 para 42-44 IA 1986
Sch B1 para 42-44 IA 1986
Allows company the benefit of a moratorium
What happens during a moratorium?
1) No order or resolution to wind up the company can be made or passed
2) No administrative receiver of the company can be appointed
3) No steps can be taken to enforce any security over the company’s property or to repossess goods subject to security, hire purchase and retention of title
4) No legal proceedings, execution or other process can be commenced or continued against the company or its property
5) A landlord cannot forfeit a lease of the company’s premises by means of peaceable re-entry
