Administration

Question 1

What is administration?

Answer 1

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,

Question 2

What is meant by administration being a collective procedure?

Answer 2

Administrator acts in the interests of the creditors as a whole rather than on behalf of a particular creditor

Question 3

What are the two outcomes of administration?

Answer 3

• Rescue

- Liquidation

Question 4

Who are administrators?

Answer 4

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

Question 5

Where are the statutory objectives of administration found?

Answer 5

Section 8 and Schedule B1 IA 1986

Question 6

What is the statutory objective of an administrator?

Answer 6

“…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.”

Question 7

What kind of objectives are the statutory objectives of an administrator?

Answer 7

Cascading objectives - they guide the process

Question 8

The two procedures for appointing an administrator?

Answer 8

Court Procedure

Out of Court Procedure

Question 9

When may the court appoint an administrator?

Answer 9

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

Question 10

After application to the court, what else must be shown to allow them to appoint an Administrator ?

Answer 10

The appointment may only be made where the order is reasonably likely to achieve the purpose of the administration - Sch B1 para 11(b)

Question 11

AA Mutual International Insurance Co Ltd [2004] - FACTS

Answer 11

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.

Question 12

AA Mutual International Insurance Co Ltd [2004] PRECEDENT

Answer 12

The two factor test for court appointment of an administrator

Question 13

Case for court appointment of an admnistrator?

Answer 13

AA Mutual International Insurance Co Ltd [2004]

Question 14

Out of court procedure for appointing administrator?

Answer 14

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.

Question 15

What is a quality floating charge holder (QFCH)?

Answer 15

‘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

Question 16

What is the most common method of administrator appointment?

Answer 16

Directors using out of court procedure - Schedule B1 p22 IA 1986

Question 17

When can’t Directors use the out of court procedure?

Answer 17

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.

Question 18

What is the role of an administrator?

Answer 18

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

Question 19

How are Directors powers impacted by an administrator?

Answer 19

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

Question 20

How long does an administrator have to produce a report and proposals?

Answer 20

Up to 8 weeks, if rejected the company is put into liquidation

Question 21

What is the time limit on administrations?

Answer 21

12-month fixed time limit for the completion of administrations, although it is possible to obtain extensions

Question 22

Major advantage of administration?

Answer 22

A moratorium - Sch B1 para 42-44 IA 1986

Question 23

Sch B1 para 42-44 IA 1986

Answer 23

Allows company the benefit of a moratorium

Question 24

What happens during a moratorium?

Answer 24

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

Question 25

Powers of administrators widely under s14(1) IA 1986?

Answer 25

Do all such things as may be necessary for the management of the affairs, business and property of the company

Question 26

Where are the powers of an administrator found in statute?

Answer 26

s14 IA 1986

Question 27

Which case set out the approach of the court to administration?

Answer 27

Re T & D Industries Ltd [2000]

Question 28

Re T & D Industries Ltd [2000]

Answer 28

Commercial decisions are for the administrator and not the court and an application for directions should only be made where there is a point of principle in issue/ a dispute as to the appropriate course of action to be taken.
Where an administrator needs to make an urgent decision they should consult the creditors only to the extent possible.

Question 29

What is a pre-packaged sale in administration?

Answer 29

Where the business of an insolvent company is prepared for sale to a selected buyer prior to the company’s entry into administration.
The agreed sale is carried out by an insolvency practitioner shortly after their appointment

Question 30

Why are pre-packaged sales controversial?

Answer 30

Concern is that often creditors are given insufficient information to determine whether the sale was in their best interests

Question 31

How were concerns around pre-packaged sales addressed?

Answer 31

Calls for greater transparency, and the Association of Business Recovery Professionals issued a Statement of Insolvency Practice (SIP) in 2013, requiring clear, comprehensive and timely explanations to creditors following pre-packaged sales.

Question 32

Who issued a Statement of Insolvency Practice (SIP) in 2013?

Answer 32

Association of Business Recovery Professionals

Question 33

What was the Statement of Insolvency Practice in 2013?

Answer 33

Document requiring clear, comprehensive and timely explanations to creditors following pre-packaged sales.

Question 34

What is administrative receivership?

Answer 34

Allows a secured creditor to appoint an administrative receiver to seek repayment of the secured debt

Question 35

What is meant by administrative receivership being an individual procedure?

Answer 35

Benefitting only the appointing creditor, rather than a collective procedure which looks to benefit all creditors such as administration

Question 36

When was the use of AR restricted?

Answer 36

15 September 2003 when the Enterprise Act 2002 came into force

Question 37

What are the restrictions on administrative receivership since 15 Sept 2003?

Answer 37

Administrative receivers can only be appointed by qualifying floating charge holders:
• Where the charge was created prior to 15 September 2003 or
• Where one of the statutory exceptions applies

Question 38

Why was administrative receivership restricted?

Answer 38

There is no statutory moratorium with administrative receivership which means that the procedure often leads into liquidation