Administration in United Kingdom law
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Administration in United Kingdom law is the main kind of procedure in
History
The
Appointment
In general the conditions for a court to grant an administration order are first, whether the company is insolvent, or 'is or is likely to become unable to pay its debts'. Second, it has to be shown that one of the purposes of administration in paragraph 3 will be achieved.
Floating charge holders
When applying to the court, the petitioners for administration may be either the company's directors, or any creditor.[4] But an important change since the Enterprise Act 2002 is that it is also possible for a director and, crucially, the holder of a floating charge over the company's whole property to apply for appointment of an administrator out of court.[5] If a director applies for an out of court appointment, they must give 5 days' notice to any such qualifying floating chargee, who may in turn intervene in court to have their own 'specified person' appointed as the administrator.[6] The court may refuse if the 'particular circumstances of the case' (undefined) suggest otherwise.[7] The effect is that the holder of a qualifying floating charge is in a robust position to have their preferred insolvency practitioner installed.
Pre-packaged administration
Because an administrator can, since the
The potential downside is that because a deal is already agreed among the controlling interested parties (directors, insolvency practitioners and usually the major secured creditor) before broader consultation, unsecured creditors are left behind as the momentum behind the deal carries events forward. The concern in the business community is thus that a plan gets foisted on creditors without much time for consideration that works most in favour of the people who ran the company or the large secured lender. In Re Kayley Vending Ltd, which concerned an in-court appointed administrator,[10] HH Judge Cooke held that a court will ensure that applicants for a prepack administration provide enough information for a court to conclude that the scheme is not being used to disadvantage unsecured creditors. Moreover, while the costs of arranging the prepack before entering administration will count for the purpose of administrator's expenses, it is less likely to do so if the business is sold to the former management. Here the sale of a cigarette vending machine business was to the company's competitors, and so the deal was sufficiently "arm's length" to raise no concern. In their conduct of meetings, the Court of Appeal made clear in Revenue and Customs Commissioners v Maxwell that administrators appointed out of court will be scrutinised in the way they treat unsecured creditors. Here the administrator did not treat the Revenue as having sufficient votes against the company's management buyout proposal, but the court substituted its judgment and stated the number of votes allowed should take account of events all the way in the run up to the meeting, including in this case the Revenue's amended claim for unlawful tax deductions to the managers' trust funds and loans to directors.[11]
Moratorium
When an administrator is appointed, they will replace the directors.
Administrators' duties
Just as for
Rescue the company
While the moratorium is in effect the administrator's core purpose and duty under paragraph 3 is to rescue the company, or if impracticable, typically transfer the business as a going concern, or as a last resort break up the business and distribute proceeds to creditors.[19] This and other duties, found in Schedule B1, paragraph 3, are theoretically meant to be exercised for the benefit of the creditors as a whole. There is some tension, however, between the duties on paper, and the administrator being appointed in fact by secured creditors, or through a pre-packaged insolvency.
Once in place, the first task of an administrator is to design a restructuring proposal. This should be given to the registrar and unsecured creditors within 8 weeks, followed by a creditor vote to approve the plans by simple majority. If creditors do not approve the court may make an order as it sees fit.[20] Until then, the powers of administrator extend under Schedule B1, paragraph 59 to 'anything necessary or expedient for the management of the affairs, business and property of the company'.[21]
In
Duty of care
An administrator's further duties allow a broad scope for the administrator to exercise good
See also
Notes
- ^ See E McKendrick, Goode on Commercial Law (4th edn Penguin 2010) 928 and Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2003] BCC 885, on the "rescue culture".
- ^ Insolvency Act 1986, schedule B1, para 11
- ^ See also Re AA Mutual International Insurance Co Ltd [2004] EWHC 2430, [2005] 2 BCLC 8, Lewison J held the test for debts in para 11(a) is "more probable than not", while for achieving purposes in para 11(b) it was "real prospect".
- ^ Insolvency Act 1986 Schedule B1, para 12
- ^ Insolvency Act 1986 Schedule B1, paras 22 and 14
- ^ Insolvency Act 1986 Schedule B1, paras 22-26
- ^ Insolvency Act 1986 Schedule, para 36
- Institute of Chartered Accountants, Statement of Insolvency Practice 16, known as "SIP 16", para 1
- ^ See generally, V Finch, 'Pre-packaged Administrations: Bargaining in the Shadows of Insolvency or Shadowy Bargains?' [2006] JBL 568, 569
- ^ [2009] EWHC 904 (Ch), [2009] BCC 578
- ^ [2010] EWCA Civ 1379
- ^ Insolvency Act 1986 Schedule B1, para 67
- ^ Insolvency Act 1986 Schedule B1, paras 40–44
- ^ [2001] Ch 57
- ^ [1992] Ch 505
- ^ Insolvency Act 1986 Schedule B1, para 76
- UK company law cases such as Peskin v Anderson [2001] BCC 87C or Percival v Wright
- ^ [2003] EWCA Civ 1506, [2004] BCC 111
- ^ Insolvency Act 1986 Schedule B1, para 3
- ^ See Insolvency Act 1986 Schedule B1, paras 49-55
- ^ Insolvency Act 1986 Schedule B1, paras 60-66 whereby a list of specific powers, set out in Schedule 1, are referred to. Administrators may also replace directors, call creditor meetings, apply to court for directions, control company officers, and distribute assets to creditors in accordance with statutory priorities or to fulfil the administration's purpose.
- ^ [2004] EWHC 932, [9], referring to the judgment of Neuberger J in Re T&D Industries plc [2000] BCC 956. See also Royal Trust Bank v Buchler [1989] BCLC 130.
- UK company law
- ^ Insolvency Act 1986 Schedule B1, para 4
- ^ Or "prejudice" as the statute said at the time, under the former Insolvency Act 1986 section 27