Insolvency - administration + receivership

Question 1

What is the primary aim of the objectives in company administration?

Answer 1

• To rescue the company to solvency
• To achieve a better result for the creditors than otherwise
• To realise the property to make a distribution to one or more secure or preferential creditors

Rescue, result, realisation

Question 2

What interests do administrators act in during the administration process?

Answer 2

Interests of all creditors – collective procedure

Question 3

Who are administrators in the context of company administration?

Answer 3

Officers of the court

Question 4

What are the two ways of triggering an administration?

Answer 4

• In court appointment
• Out of court procedure

Question 5

What is the in-court appointment procedure?

Answer 5

1. Company, directors, one or more creditors, the supervisor of a CVA or liquidator applies to the court
2. Interim moratorium comes into effect on application and lasts until resolved

Question 6

Who can initiate the out of court procedure for appointing an administrator?

Answer 6

Company or directors, qualifying floating charge holder

Question 7

What does QFC stand for in the context of company administration?

Answer 7

Qualifying floating charge - a charge which relates to the whole or substantially the whole of the company’s property or has the power to appoint an administrator or administrative receiver in its document of creation

Question 8

What must directors do if there is no QFC holder to trigger administration??

Answer 8

File notice of intention to appoint at court and not less than 10 business days later file a notice of appointment at court

Question 9

What must directors do if there is a QFC holder to trigger administration?

Answer 9

1. Send notice to the QFC holder
2. QFC has 5 business days to appoint its own choice of administrator

Question 10

What must a QFC holder do to appoint an administrator out of court?

Answer 10

Enforce security in accordance with terms of QFC and file notice of appointment at court (no need for insolvency)

Question 11

What must a lower ranking QFC holder do when there are multiple QFC holders but it has used the out of court procedure for administration?

Answer 11

Give 2 business days’ notice to the holders of a QFC which has priority

Question 12

What powers does an administrator have?

Answer 12

• Power to carry out the business, take possession and sell property, borrow money and execute documents, remove and appoint property, dispose of property subject to a fixed charge (subject to court approval)
• Directors cannot exercise management powers without administrator’s consent
• Once appointed, the administrator has up to eight weeks to produce a report setting out proposals for the future of the company’s business.

Question 13

Can directors exercise management powers during administration?

Answer 13

No, directors cannot exercise management powers without the administrator’s consent.

Question 14

What is the time frame for an administrator to produce a report?

Answer 14

Once appointed, the administrator has up to eight weeks to produce a report setting out proposals for the future of the company’s business.

Question 15

What is the fixed time limit for the completion of administrations?

Answer 15

There is a 12-month fixed time limit for the completion of administrations, although extensions are possible.

Question 16

What is a moratorium during the period of administration?

Answer 16

During the period of administration, no receiver, order to wind up, steps to enforce security, legal proceedings, or forfeiting of a lease can occur.

Question 17

What are pre-packaged sales?

Answer 17

Pre-packaged sales are controversial as they aim to protect the goodwill and continuity of the business while achieving certainty of result for creditors.

Question 18

What are concerns regarding pre-packaged sales?

Answer 18

There is a concern that the sale won’t happen at the proper price.

Question 19

What restrictions apply to pre-packaged sales?

Answer 19

Pre-packaged sales are restricted unless the sale has been approved in advance by the creditors or the buyer has obtained an evaluator’s qualifying report.

Question 20

What is Receivership?

Answer 20

Receivership only benefits one creditor.

Question 21

What is Administrative Receivership?

Answer 21

A rare procedure where a secured creditor with fixed and floating charges over all of the company’s assets may appoint an Administrative Receiver (AR).

The AR takes control of the secured assets, sells them, and uses proceeds to repay debts to creditors.

Question 22

What are Fixed Charge Receivers?

Answer 22

Fixed Charge Receivers are appointed to enforce the security and recover the debt that is owing to their appointor.

They do not have to be licensed insolvency practitioners and owe their duties primarily and exclusively to the appointer.

Question 23

What are Court Appointed Receivers?

Answer 23

Court Appointed Receivers are relatively rare and are appointed by the court, with powers and duties set out in a court order.

They are often appointed under the Proceeds of Crime Act.