Effect of administration
669.Paragraph 40 provides that, if the court makes an administration order, it shall dismiss any outstanding winding-up petitions that have not already been dealt with. However, if a company goes into administration as a result of a floating charge holder’s appointment of an administrator, then any winding-up petition that has not been dealt with shall be suspended.
670.As already mentioned, paragraph 39 sets out that, if an AR is in office, the court must dismiss an application for administration unless the appointee of the AR consents to the administration order or the court thinks that the appointee’s security may be set aside if an administration order were made. Paragraph 41 provides that, on the making of an administration order, an AR will vacate office, and a receiver will do so if requested by the administrator. The paragraph also secures the AR’s and receiver’s right to remuneration and any entitlement to an indemnity that they may have had, ahead of the claims of the security-holder who appointed them. However, the right to payment is subject to the moratorium under paragraph 43.
671.Paragraphs 42 and 43 provide that, once a company is in administration (i.e. an administration order has been made or the administrator has been appointed following the relevant filings by the directors, the company or the qualifying floating charge holder), the moratorium, which is a feature of administration, takes effect. Under paragraph 42 this means that a resolution cannot be passed, or an order made, to wind up the company except in certain circumstances (i.e. compulsory winding-up orders made on public interest petitions).
672.Paragraph 43 provides that no steps to enforce their rights can be taken by creditors without the consent of the administrator or the permission of the court.
673.Paragraph 44 provides that the moratorium referred to in paragraphs 42-43 will apply from the date that the application for the administration, or the notice of intention to appoint, is filed at court. The interim moratorium does not stop certain specified actions.
674.Paragraph 45 sets out that, while a company is in administration, every business document (e.g. invoices, orders for goods and services or business letters) issued by, or on behalf of, the company or the administrator must identify the administrator and state that the affairs, business and property of the company are being managed by him or her.
Process of Administration
675.A diagram showing the process of administration is at Annex G.
676.Paragraphs 46-48 provide that, in all cases, once the administrator has been appointed, he or she will send notice of the appointment to the company and its creditors as soon as is reasonably practicable and send notice to the Registrar of Companies within seven days of the appointment. He or she will also require, by notice, a representative of the company (e.g. officer of the company, employee) to provide a statement of the company’s affairs within eleven days of the notice being received. This statement must be verified by a statement of truth and give particulars of the company’s property, debts and liabilities, and the details of each creditor and their security.
Administrator’s proposals and meeting of creditors
677.A diagram showing the conclusion of administration is at Annex H.
678.Paragraph 49 provides that, as soon as reasonably practicable, or, in any event, within 8 weeks of the administration commencing, the administrator is required to make a statement setting out proposals for achieving the purpose of administration, although this period can be extended with the permission of the court or with the consent of the creditors (see paragraphs 107 and 108). The administrator will send a copy of the proposals to the Registrar of Companies, the company’s creditors and every member of the company (the last obligation may be fulfilled by publishing a notice). In cases where the business of the company had to be sold under a short timescale to maximise the economic value, the administrator will report these facts to the creditors in his or her proposal.
679.Each copy of the administrator’s proposals sent to creditors must be accompanied by an invitation to an initial creditors’ meeting, which must be held as soon as reasonably practicable, or, and in any event, within ten weeks of the administration commencing, and on a prescribed period of notice (paragraphs 50 and 51). The time periods may be extended with the permission of the court or the consent of creditors (see paragraphs 107 and 108). If the administrator does not consider that it is reasonably practicable to rescue the company and/or achieve a better result for the creditors than on a winding-up, his or her statement must state why (paragraph 49).
680.The administrator’s proposals will take into account the purpose of administration, i.e.:
to rescue the company as a going concern (paragraph 3(1)(a));
if that is not reasonably practicable, or would not yield the best outcome for creditors, to achieve a better result for the company’s creditors as a whole than would have been achieved if the company were wound up (without first being in administration) (paragraph 3(1)(b));
if it is not reasonably practicable to achieve 3(1)(a) or 3(1)(b), to realise the company’s property and make payments to preferential and secured creditors (paragraph 3(1)(c)).
681.The administrator will present a copy of his or her proposals at the initial creditors’ meeting. If the administrator concludes that the company can be rescued as a going concern, he or she will put the proposal to the creditors and they will decide whether to accept an arrangement under which they will agree to accept less than full payment of their debts. This will usually be through a CVA or a scheme of arrangement under section 425 Companies Act 1985. The creditors could decide to reject the proposals or, with the consent of the administrator, amend them.
682.If company rescue is not deemed reasonably practicable, or would not yield the best outcome for creditors, the administrator will explain why this is so, and put the proposal to the creditors setting out how he or she plans to achieve a better result for the company’s creditors as a whole (e.g. as a result of selling the company’s businesses as going concerns to one or more buyers). The creditors will vote on whether to accept, modify or reject the proposal.
683.Where it is anticipated that there will be no funds available from the insolvent estate for unsecured creditors, outside those flowing from the abolition of Crown preference, the administrator will not be required to call a meeting of the creditors. This will also be the case where the administrator thinks there are funds to pay all creditors in full or that the first two objectives cannot be achieved. However, within the prescribed period, such a meeting may be requisitioned by creditors whose debts amount to at least 10% of the total debts of the company (paragraph 52).
684.An administrator’s statement of proposals may not include any proposal that affects the right of a secured creditor to enforce his or her security without his or her consent. In addition, the statement of proposals may not include any action that would result in a preferential debt being paid otherwise than in a priority to a non-preferential debt (paragraph 73).
685.A creditors’ meeting may only modify the administrator’s proposals with his or her consent (paragraph 53). The administrator cannot subsequently make any substantial revisions to the proposals without first obtaining the agreement of the creditors (paragraph 54).
686.After the conclusion of the initial creditors’ meeting (and any subsequent meeting), the administrator will report any decision taken to the court and the registrar of companies. If the creditors fail to approve the proposals, the court may provide that the administrator’s appointment shall cease to have effect, adjourn the hearing conditionally or unconditionally, make an interim order, make an order on a suspended petition for winding up, or any other order deemed appropriate (paragraph 55). Paragraph 57 makes provision for the establishment of a creditors’ committee.
687.Anything that is required to be done at or by a creditors’ meeting may be done by correspondence, including communicating electronically and by telephone or fax (paragraphs 58 and 111).
