Live Session 2 - Extending and Exiting Administration

Question 1

How long does an administration order last

Answer 1

Unless period of administration is extended by the Court or by creditor consent, it will automatically terminate at the end of 12 months from when company entered administration.

Question 2

Can an administration be extended once 12 month period has passed.

Answer 2

No. As it automatically terminates it can’t be extended once 12 month period passed.

Therefore administrator must act in good time to ensure extension of time can be obtained before the end of 12 months.

Note: Court has discretion to hear application for extension after term ends but is unlikely to be sympathetic.

Question 3

Who can grant an administrator an extension

Answer 3

1. Creditors

2. Court

Question 4

How many extensions may creditors give. What are the circumstances when creditors may not grant extension.

Answer 4

Creditors can only grant consent to extend the administration ONCE, and can not give if Court has previously granted an extension.

In exam: Ask creditors for extension first, if necessary subsequent extensions can be made through court

Question 5

How long can creditors give for an extension

Answer 5

12 months.

Question 6

Who approves request to creditors for extension

Answer 6

It depends on who will receive distributions from the administration.

1. If only secured creditors will receive payment - only they vote for the extension. Need unanimous approval.
2. If secureds and prefs will be paid - All secured creditors + 50% of prefs responding to vote must approve
3. If secured, prefs and unsecured creditors other than prescribed part - all secured + 50% of unsecured

Question 7

How much notice is required to be given

Answer 7

At least 14 days. Consider timing in exam, must obtain extension prior to end of 12 months.

Question 8

What happens if creditors do not approve extension

Answer 8

Administrator can apply to court for extension.

Question 9

How long may the Court grant an extension for

Answer 9

Court can extend administration for longer than 12 months PROVIDED THAT the period of extension is specified. It can’t be extended indefinitely.

Question 10

When must application for Court extension be filed in court

Answer 10

Application must be filed at least ONE MONTH prior to the cessation of the administration.

If not, administrator must explain reason for delay and risk court disallowing some or all costs of application.

Question 11

What must be filed at Court to request extension

Answer 11

1. Notice of Application
2. Progress Report

Not required, but common practice to file a witness statement setting out reason for application for extension.

Question 12

Do creditors need be notified of application for extension

Answer 12

No. Creditors do not need to be served copy of application.

But, if creditor is likely to be hostile, may be better to give notice - 14 days - and give opportunity to be heard in Court

Question 13

What needs to be done after extension granted and when

Answer 13

ASARP after extension granted, administrator must notify Registrar and creditors.

Remember, if creditors grant extension, need to notify all creditors, Court and Registrar ASARP afterwards.

Question 14

What happens to the progress report filed at court to support application for extension.

Answer 14

Administrator must send progress report issued to Court within one month of the end of the reporting period.

There is a penalty for failing to notify Court/ Creditors/ ROC by a fine and daily default fine.

Should also notify everyone who received notice of the appointment.

An extension triggers the start of a new reporting period.

Question 15

What are the options available to administrator to exit an administration

Answer 15

1. Filing to place company into CVL - most popular for exam
2. Obtain creditor approval for CVA
3. Obtain approval from creditors and Court for Scheme under the Companies Act
4. Petition to Court for compulsory winding up
5. File for dissolution - next most popular for exam
6. Hand company back to directors
7. Allow administration to lapse at end of 12 months
8. Apply to Court to end administration

Question 16

What are the preconditions to file for a CVL exit

Answer 16

1. Total amount which each secured and preferential creditors will receive has been paid or set aside - not these classes of creditors do not need to be paid in full. AND
2. There will be a distribution to unsecured creditors in excess of prescribed part

Administrator must state in their proposal how it is proposed that the administration will end.

Question 17

If CVL is proposed as an exit route in the proposal, what information needs to be provided in the proposal

Answer 17

Where CVL is intended exit route, proposal must state:

1. Details of proposed liquidator - tends to be same IP as administrator
2. Statement that creditors may nominate their own choice of liquidator before the proposals are approved.
3. Statement that if no other liquidator is appointed the administrator will be the liquidator.

Question 18

What happens to creditors committee in the administration when a CVL Liquidator is appointed

Answer 18

An administration creditors committee will become the liquidation creditors committee

Question 19

What is the procedure for exiting an administration by CVL

Answer 19

1. Send notice to Registrar that company is moving from administration to CVL (Para 83 notice)
2. Attach R&P and progress report to Para 83 Notice.
3. ASARP after Para 83 notice registered by Registrar, send final report & R&P to:
   - Court
   - All creditors
   - Anyone else who received notice of appointment

Question 20

When does the administration come to an end/ CVL start

Answer 20

Administration ends with effect from date of registration of Para 83 Notice. Court of Appeal held that the date of receipt of the notice will be the effective date, regardless of whether the steps required to register the notice have been completed.

CVL starts the same date.

Question 21

How can creditors be notified of the impending move from CVL

Answer 21

Consider the new rules re permission to use e-mail, upload documents to a website etc. (details included elsewhere).

Question 22

What are the advantages of exiting an administration by CVL.

Answer 22

1. Liquidator has no limit to investigative powers.
2. Problems re 12 month expiry and seeking extensions are pre-empted by appointment of liquidator
3. Liquidator has statutory power to disclaim onerous property - administrator can’t.
4. Liquidator has full power to compromise claims with creditors and the lack of time limit provides time to negotiate and settle complex claims.

Question 23

What are the pre-conditions to seek to exit an administration through dissolution of the company

Answer 23

1. Dissolution is only available where the administrator thinks that the company has no property which might permit a distribution to creditors.

Question 24

Do you need to apply to Court to exit an administration via dissolution

Answer 24

No.

Question 25

What is the procedure to end an administration by dissolution.

Answer 25

1. File copy of notice, Para 84 Notice and send it, together with final progress report to the registrar
2. ASARP after filing Para 84 Notice and report with Registrar, send it to all parties who received notice of administration.
3. On registration of Para 84 Notice the administration ceases to have effect.
4. Three months thereafter the company is dissolved.

Question 26

When might dissolution be used as an exit strategy

Answer 26

1. When all distributions have been made and there are no further funds available for distributions.
2. Consider doing for a pre-pack/ sale of business in the exam.

Question 27

When might an administrator petition Court to exit administration through compulsory liquidation

Answer 27

1. May be appropriate where creditors want a thorough investigation into allegations of fraud against directors.
2. When the Company should not have entered administration
3. Administrator thinks that the purpose of the admin can not be achieved
4. The creditors meeting requires the administrator to apply to end the administration - if this happens the administrator must submit a statement advising whether he agrees with creditor requirement.

Question 28

What must be included in administrators’ petition to Court to for compulsory winding up

Answer 28

1. Name of Administrator
2. Court file number
3. Date company entered administration
4. Contain application requesting that the appointment of administrator ceases to have effect.
5. Statement that he has given applicant/ appointer for administration 5 business days notice - application must also include any responses received.

The application must be supported by a final progress report from date of commencement/ from date of end of last reporting period.

Question 29

Who must be given notice of administrators application - and how much notice should they be given

Answer 29

Administrator must give 5 business days notice to applicant for administration order of his intention to apply for a winding up petition.

The notice must state whether the administrator intends to seek appointment as compulsory liquidator

Question 30

Who will the Court appoint as Compulsory Liquidator

Answer 30

Court will either appoint administrator or Official Receiver.

Question 31

What happens to creditors committee on subsequent appointment of liquidator or Official Receiver

Answer 31

1. In liquidation, administration creditor committee continues so long as at least 3 members agree. Liquidator must issue a certificate of continuance
2. If OR appointed as compulsory liquidator, administration creditors committee will not continue.

Question 32

Why might it be inappropriate for the Court to appoint the administrator as compulsory liquidator

Answer 32

1. If creditors are unhappy with conduct of administrator and have requested administrator to apply for compulsory liquidation with the intention that there will be an investigation into the administrators actions
2. If administrator wishes to decline the appointment due to potential or perceived conflict of interest

Question 33

When would exiting through a CVA be used

Answer 33

Exiting through CVA is consistent with objective of rescuing company as a going concern.

Question 34

When can a CVA proposal be put to creditors

Answer 34

CVA proposal can be included as strategy to achieve purpose of administration to rescue company as a going concern in administrators proposal.

Question 35

What are the drawbacks of using a CVA exit as part of administrator proposal

Answer 35

1. Supervisor of a CVA has no power to challenge antecedent transactions and has no power to compel directors co-operation.

The administrator does have these powers, but successful proposal voting in favour of CVL exit means purpose of the administration has been achieved and administrator is obliged to take steps to end administration.

Question 36

What is a similarity between CVA supervisor and administrator

Answer 36

CVA Supervisor, like an administrator, can’t disclaim onerous assets or bring actions against directors for misfeasance.

Question 37

What are the advantages of exiting via a CVA

Answer 37

1. Directors will remain involved with management of company and may maximise ‘buy in’ of current management team.
2. Proposal can contain detailed provisions on agreement/ compromising of claims.

Question 38

What needs to happen for the administrator to let the administration lapse at end of 12 months

Answer 38

The appointment ceases to have an effect at the end of one year.

Administrator is not required to give notice if intend to let appointment lapse.

At expiry of one year, ASARP and NO LATER than 5 business days from date of cessation, must file notice and final progress report with Court.

Copy of report and notice must be sent to Registrar and all those who received a copy of administrators proposal ASARP.

Question 39

Describe how to exit administration when purpose has been achieved.

Answer 39

Where out of court administrator has achieved objective, administrator files notice with Court and Registrar and administration appointment ceases to have effect.

Appropriate when administrator has secured survival of company as a going concern or when CVA proposal has been approved by creditors.

Question 40

When can creditors apply to Court to remove administrator

Answer 40

1. Creditor can apply to court on grounds that appointers/ applicants had an “improper motive” to appoint administrator
2. Creditors can also apply on the basis that their interests are, or will be, unfairly harmed by administration.