(b) Administration, on the other hand is a means of safeguarding the continued existence of business enterprises in fi nancial difficulties, rather than merely ensuring the payment of creditors. Administration was fi rst introduced in the Insolvency Act 1986. The aim of the administration order is to save the company, or at least the business, as a going concern by taking control of the company out of the hands of its directors and placing it in the hands of an administrator. Alternatively, the procedure is aimed at maximising the realised value of the business assets.
Once an administration order has been issued, it is no longer possible to commence winding up proceedings against the company or enforce charges, retention of title clauses or even hire-purchase agreements against the company. This major advantage was in no small way undermined by the fact that, under the previous regime, an administration order could not be made after a company has begun the liquidation process. Since companies are required to inform any person who is entitled to appoint a receiver of the fact that the company is applying for an administration order, it was open to any secured creditor to enforce their rights and to forestall the administration procedure. This would cause the secured creditor no harm, since their debt would more than likely be covered by the security, but it could well lead to the end of the company as a going concern.
The Enterprise Act 2002 introduced a new scheme, which limited the powers of fl oating charge holders to appoint administrative receivers, whose function had been essentially to secure the interest of the fl oating charge holder who had appointed them, rather than the interests of the general creditors. By virtue of the Enterprise Act 2002, which amends the previous provisions of the Insolvency Act 1986, fl oating charge holders no longer have the right to appoint administrative receivers, but must now make use of the administration procedure as provided in that Act. As compensation for this loss of power the holders of fl oating charges are given the right to appoint the administrator of their choice.
The function of the administrator is to:
– Rescue the company as a going concern, or
– Achieve a better result for the company’s creditors as a whole than would be likely if the company were to be wound up, or
– Realise the value of the property in order to make a distribution to the secured or preferential creditors.
The administrator is only permitted to pursue the third option where:
– He thinks it is not reasonably practicable to rescue the company as a going concern, and
– Where he thinks that he cannot achieve a better result for the creditors as a whole than would be likely if the company were to be wound up, and
– If he does not unnecessarily harm the interests of the creditors of the company as a whole.
An application to the court for an administration order may be made by a company, the directors of a company, or any of its creditors, but in addition the Enterprise Act allows the appointment of an administrator without the need to apply to the court for approval. Such ‘out of court’ applications can be made by the company or its directors, but may also be made by any fl oating charge holder.
During the administration process the administrator has the powers to:
– do anything necessary for the management of the company
– remove or appoint directors
– pay out monies to secured or preferential creditors without the need to seek the approval of the court
– pay out monies to unsecured creditors with the approval of the court
– take custody of all property belonging to the company
– dispose of company property. This power includes property which is subject to both fi xed and fl oating charges, which may be disposed of without the consent of the charge holder, although they retain fi rst call against any money realised by such a sale.
The administration period is usually 12 months, although this may be extended by six months with the approval of the creditors, or longer with the approval of the court. When the administrator concludes that the purpose of their appointment has been achieved, a notice to this effect is sent to the creditors, the court and the companies registry. Such a notice terminates the administrator’s appointment. If the administrator forms the opinion that none of the purposes of the administration can be achieved, the court should be informed and it will consider ending the appointment. Creditors can always challenge the actions of the administrator through the courts. |
