General provisions
703.Paragraphs 100 to 111 make general provisions relating to the appointment of joint and concurrent administrators (paragraph 100 to 103), matters of penalties (paragraph 106), time-limits (paragraph 107 to 110) and interpretation (paragraph (111).
704.Paragraphs 115 to 119 make provision for various issues of relevance to administration in Scotland, in particular, the interpretation of the expressions “filing in court” and “charge”, the application of the provisions concerning the disposal of property subject to security and hire purchase agreements, and they provide an express order of priority.
705.Schedule 17 contains minor and consequential amendments arising out of the changes to administration.
Section 249: Special administration regimes
706.This section applies to companies for which special arrangements for the administration procedure have been made by applying Part II of the Insolvency Act 1986, with modifications. These special administration schemes are:
water companies under the Water Industry Act 1991;
companies to which railway administration orders apply (railway companies under the Railways Act 1993 and companies involved in the Channel Tunnel Rail Link);
air traffic control companies under the Transport Act 2000;
London Underground PPP companies under the Greater London Authority Act 1999; and
building societies as defined by the Building Societies Act 1986.
707.The section provides an automatic saving provision for Part II as it is presently applied and modified by the various enactments listed above to continue to apply to companies subject to these regimes.
708.It also allows the Secretary of State (or HM Treasury in the case of building societies), by order, to amend the existing provisions in Part II (and to make consequential amendments of other enactments) as they are applied to the special regimes.
Section 250 & Schedule 18: Prohibition of appointment of administrative receiver & Schedule 2A to Insolvency Act 1986
709.This section inserts a new Chapter IV after Chapter III of Part III of the Insolvency Act 1986. Schedule 18 introduces new Schedule 2A to the Insolvency Act 1986 (inserted after Schedule 2).
710.Currently, a floating charge holder, whose security covers the whole or substantially the whole of the company’s property, may enforce their contractual right to realise their security by appointing an AR (often simply referred to as a receiver in Scotland). In order to restrict the use of administrative receivership, new section 72A of Chapter IV prohibits, subject to certain exceptions, the holder of a qualifying floating charge (as defined under paragraph 14 of Schedule B1) from appointing an AR. The section applies to any floating charge created on or after the date that it comes into force.
711.However, there are cases where administrative receivership plays a crucial role. These exceptions to section 72A are set out in sections 72B-72G.
712.Section 72B provides that an AR can be appointed in pursuance of an arrangement which is, or forms part of, a capital market arrangement (as defined by paragraph 1 of Schedule 2A of Insolvency Act 1986 – see section 250 and Schedule 18), i.e.:
it involves security that has been granted to a person holding a capital market investment issued by a party to the arrangement; or
at least one party to the arrangement guarantees the performance of the obligations of another party; or
at least one party provides security in respect of the performance of the obligations of another party; or
the arrangement involves the issue of options, futures or contracts for differences.
713.This only applies if the debt, or expected debt, is at least £50 million and involves the issue of capital market investments as defined by paragraphs 2 and 3 of new Schedule 2A to the Insolvency Act 1986 (paragraph 1(1) of Schedule 18).
714.Section 72C provides that an AR can be appointed in respect of the property of a project company of a public-private partnership (PPP) project with step-in rights:
a PPP project is one whose resources are provided partly by one or more public bodies and partly by one or more private bodies; or which is designed wholly or mainly to assist a public body in discharging a function.
a project has ‘step-in rights’ if the person who provides finance (including an indemnity) for the project has a conditional right that enables them to assume sole or principal contractual responsibility for carrying out all or part of the project or to make payments so to do.
715.Section 72D provides that an AR can be appointed if the floating charge is granted over the property of a project company of a utility project with step-in rights.
716.A utility project is a project designed wholly or mainly for the purpose of a regulated business (e.g. a project that is concerned with a business carried out requiring a licence granted under section 8 Railways Act 1993, or a licence granted under section 7A Gas Act 1986). A full list of such regulated businesses is given in paragraph 10 of Schedule 18.
717.Section 72E provides that an AR can be appointed in respect of an arrangement in relation to a project company of a financed project with step-in rights. This only applies if the project company incurs a debt of at least £50 million for the purposes of carrying out the project.
718.Section 72F provides that an AR can be appointed by someone entitled to do so in connection with a market charge within the meaning of the Companies Act 1989; a system-charge within the meaning of the Financial Markets and Insolvency Regulations 1996; and a collateral security charge within the meaning of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999.
719.Section 72G provides that an AR can be appointed if the floating charge is granted over a company which is registered as a social landlord under Part I of the Housing Act 1996 or Part 3 of the Housing (Scotland) Act 2001.
720.Section 72H inserts what will be new Schedule 2A into the Insolvency Act 1986, after the existing Schedule 2. It also gives the Secretary of State the power to amend the new provisions in Chapter IV to Part III of the Act. Specifically, the Secretary of State may, by order:
insert additional exceptions to new section 72A;
provide that an exception already provided for shall cease to have effect;
amend section 72A in consequence of any new exception (or removal thereof);
amend any of the exceptions 72B-72G;
amend Schedule 2A.
Sections 251 and 252: Abolition of Crown Preference & Unsecured creditors
721.The White Paper ‘Productivity and Enterprise: Insolvency – A Second Chance’ made a commitment to abolish the Crown’s preferential status in insolvency, and to ensure that the benefit went to unsecured creditors for companies that have given floating-charges after the provision has come into force.
722.As a preferential creditor, the Crown can currently claim its debts from an insolvent company or bankrupt estate ahead of secured creditors, who hold a floating charge, and unsecured creditors. The Crown’s preferential debts are described in sections 386 and 387 of, and Schedule 6 to, the Insolvency Act 1986, and include arrears of PAYE, NIC, and VAT for the following periods:
debts due to the Inland Revenue for 12 months prior to the relevant date (category 1 of Schedule 6);
debts due to Customs and Excise for the 6 to 12 months prior to the relevant date (category 2 of Schedule 6);
social security contributions for the 12 months prior to the relevant date (category 3 of Schedule 6)..
723.The Act will abolish the Crown’s preferential status.
724.The relevant date is defined by section 387 Insolvency Act 1986.
725.Preferential status will remain for:
contributions to occupational pension schemes (category 4);
remuneration of employees for the relevant period (category 5); and
levies on coal and steel production under the European Coal and Steel Community (ECSC) Treaty.
726.In addition, Schedule 17 removes section 189(4) of the Employment Rights Act 1996. As a result, the Secretary of State will no longer be paid in priority to any remaining preferential claims lodged in the insolvency proceedings by former employees. The Secretary of State will remain a preferential creditor where he has “stepped into an employee’s shoes” and made payments from the National Insurance Fund to cover all or part of any employee’s preferential claims.
Section 251: Abolition of Crown Preference
727.Section 251subsection (1) removes paragraphs 1 and 2 (debts due to Inland Revenue), paragraphs 3-5C (debts due to Customs and Excise), and paragraphs 6 and 7 (social security contributions) from Schedule 6 to the Insolvency Act 1986, putting into effect the abolition of Crown preference. Subsection (2) makes similar changes for Scotland.
Section 252: Unsecured creditors
728.This section inserts a new section 176A (Share of assets for unsecured creditors) after section 176 of the Insolvency Act 1986. Section 176A provides for a prescribed part (a percentage share of the company’s net property (as defined)) to go to unsecured creditors, although the percentage itself will be prescribed by Statutory Instrument (subsections (7)-(8)), the setting of which percentage will be subject to consultation.
729.Where a company has gone into liquidation, administration, provisional liquidation or receivership, the office-holder will make part of the company’s net property available to unsecured creditors (i.e. after taking into account any preferential debts, any liability subject to a fixed charge and the costs of realising the company’s property). However, it will not be necessary for the office-holder to distribute funds to unsecured creditors if they are less than the prescribed minimum, and he or she thinks that the cost of making a distribution would be disproportionate to the benefits. Where the prescribed part is greater than or equal to the minimum, but the costs of distribution are disproportionate to the benefits, the office holder will be able to apply to the court to waive the requirement.
Sanction of actions in relation to antecedent recoveries
Sections 253 and 262: Liquidator’s powers & Powers of trustee in bankruptcy
730.The Insolvency Act 1986 contains measures to enable liquidators and trustees in bankruptcy to take legal action to seek financial restitution for losses caused to the insolvent estate. The provisions providing for the actions in question are: sections 213 (fraudulent trading); 214 (wrongful trading); 238 (transactions at an undervalue – corporate); 239 (preferences – corporate); 242 (gratuitous alienations – Scotland); 243 (unfair preferences – Scotland); 339 (transactions at an undervalue – bankruptcy); 340 (preferences – bankruptcy) and 423 (transactions defrauding creditors).
731.These sections provide that the liquidator (section 253), or trustee in bankruptcy (section 262) must have sanction (i.e. approval), usually of the creditors or the court, before taking such antecedent recovery action.
Section 254: Application of insolvency law to foreign company
732.This section will allow, for example, the Secretary of State to apply the rescue provisions of the Insolvency Act 1986 to foreign incorporated companies through detailed secondary legislation. Part V of the Insolvency Act 1986 allows unregistered companies to be wound up by the court, such companies include foreign registered companies. Once this secondary legislation has been approved then such companies (particularly those with assets, creditors and employees in this country) will be able to make use of the rescue provisions, whereas currently the only option available is to be wound up by the court as an unregistered company.
Section 255: Application of law about company arrangement or administration to non-company
733.This section allows HM Treasury, with the concurrence of the Secretary of State, to make an order to provide for company arrangement and administration provisions to apply to certain non-companies, namely industrial and provident societies and friendly societies. This will enable the Government to apply those insolvency procedures, with any modifications that are necessary, to some or all of these societies through secondary legislation. The power will not be exercised without full consultation with all interested parties. The order may not apply in relation to a society which is registered as a social landlord under Part I of the Housing Act 1996 or Part 3 of the Housing (Scotland) Act 2001.
