Part 7 – The duties of an administrator
March 2013
56.1.68 The administrator's duty to all creditors
The administrator must perform his/her functions in the interests of the creditors as a whole. Where the objective of the administration is to realise property on behalf of one, or more, secured or preferential creditors he/she, in carrying out this function, must not unnecessarily harm the interests of creditors as a whole [Note 1].
56.1.69 Other general duties of the administrator
The administrator must, upon his/her appointment, take into custody, or control, all of the company's property [Note 2]. He/she must manage the company's affairs, business and property in accordance with his/her proposals agreed by the creditors or as the court directs (see paragraph 56.1.94) [Note 3]. The administrator must perform his/her functions as quickly and efficiently as is reasonably possible (see paragraphs 56.1.70 and 56.1.71) [Note 4].
The administrator owes a duty of care to the company. This duty extends to the manner, and timing, of the disposal of the company assets. Where the administrator is in breach of this duty he/she will be personally liable for any loss incurred by the company. The administrator would be expected to carry out his/her duties to the standard of a professional insolvency practitioner of “ordinary skill” [Note 5].
56.1.71 Electronic communication
An administrator may use electronic means to send or deliver any notice or document where he/she is required to do so by statute provided the intended recipient consents and provides an electronic address [Note 6]. The administrator may, for example, issue his/her notice of appointment, statement of proposals, progress report, etc. by electronic means. Any document sent electronically must contain a statement that a hard copy may be supplied and provide contact details for making such a request [Note 7].
56.1.72 Communication by website
The administrator may satisfy his/her statutory requirement to give, deliver, or send a notice or document by making the information available for viewing or downloading on a website. The administrator must notify creditors of the website address and the password, if applicable. Creditors must be advised of their right to request a hard copy and be given the appropriate contact details. Information placed on the website by the administrator must remain available for a period of at least 3 months from the date of the notice [Note 8].
56.1.73 Duty to announce appointment
The administrator must send notice (Form 2.12B) of his/her appointment to the company and all the known creditors as soon as reasonably practicable. Within 7 days of his/her appointment (see paragraphs 56.1.24, 56.1.34 and 56.1.45) notice must be sent to the registrar of companies [Note 9].
56.1.74 Duty to advertise appointment
The administrator must publish a notice of his/her appointment in the London Gazette. The appointment may be further advertised in any other manner the administrator thinks fit. For post 6 April 2010 administrations the contents of the gazette and any advertisement are specified [Note 10].
56.1.75 Duty to obtain statement of affairs
The administrator, as soon as reasonably practicable after his/her appointment, must send a notice (Form 2.13B) requesting a statement of affairs to one or more representatives of the company. A representative of the company may be an officer, employee or former officer or employee [Note 11]. A person asked to submit a statement of affairs must do so within 11 days of receiving the notice. The administrator may extend this time period or release a person from this obligation if he/she thinks fit [Note 12].
The statement of affairs should be completed on Form 2.14B and verified by a statement of truth. The administrator should file a copy of the statement of affairs and statement of truth with the registrar of companies [Note 13]. The amount of information provided may be limited by the court where the administrator believes its publication may lead to violence against any person. Where the court makes such an order a copy of the revised statement of affairs and court order should be filed with the registrar of companies [Note 14].
56.1.77 Duty to make proposals to meet the purpose of the administration
The administrator must make a statement providing details of his/her proposals to achieve the purpose of the administration. The proposals should be made as soon as reasonably practicable within eight weeks of the date of the company entering administration unless the court or creditors allow a longer period [Note 15].
56.1.78 Statement of proposals
The statement of proposals must include, amongst any other matters set out in the Insolvency Rules 1986, the circumstances leading up to the administration, summary statement of affairs, details of how the administrator’s remuneration will be fixed and the objectives of the administration. For companies which enter administration on or after 6 April 2010 the statement must include details of any pre-administration costs charged or incurred (see paragraph 56.1.81 for further information) [Note 16]. The statement of proposals must be sent to the registrar of companies, all known creditors, and all members of the company [Note 17]. The statement of proposals must be presented to the initial meeting of creditors (see paragraph 56.1.83) [Note 18].
56.1.79 Statement of proposals – limited disclosure
The administrator, in post 6 April 2010 administrations, may limit the disclosure of any of the prescribed items in his/her statement of proposals with the agreement of the court. The administrator may apply to the court for such an order where he/she thinks that full disclosure would prejudice the conduct of the administration and/or lead to violence against any person [Note 19].
56.1.80 Statement of proposals – secured creditors and priority of debts
The administrator’s statement of proposals may not include any action which affects the right of a secured creditor to enforce his/her security or affects the priority of a preferential creditor. Where a secured or preferential creditor agrees to any restriction on his/her rights this may be reflected in the administrator’s statement of proposals [Note 20].
56.1.81 Pre-administration expenses – post 6 April 2010
Where the administrator, or other qualified person, has charged fees or incurred expenses (pre-administration costs) with a view to a company entering administration details must be included in the administrator’s statement of proposals (see paragraph 56.1.78) [Note 21].
56.1.82 Payment of unpaid pre-administration costs
In administrations after 6 April 2010 any unpaid pre-administration costs may be paid in full, or partially, with the agreement of the creditors’ committee. Where there is no creditors’ committee or the administrator believes the determination is insufficient he/she can seek the approval from a meeting of creditors. Ultimately the administrator can make an application to the court to approve the payment of any unpaid pre-administration expenses [Note 22]. When approved pre-administration costs have the same priority as the administrator’s remuneration [Note 23].
56.1.83 Duty to call an initial creditors’ meeting
Each copy of the administrator’s statement of proposals sent to creditors (see paragraph 56.1.78) must be accompanied by an invitation to an initial creditors’ meeting (Form 2.20B), except in the circumstances outlined in paragraph 56.1.84. The meeting must be held as soon as reasonably practicable and within ten weeks of entering administration [Note 24]. The ten week limit may be extended with the permission of the court or with the consent of the creditors [Note 25]. Creditors should be given not less than 14 days notice of the meeting [Note 26]. The administrator must gazette the notice of meeting and may further advertise it if he/she thinks fit [Note 27].
56.1.84 Circumstances where no initial meeting is required
The administrator is not required to call an initial meeting where the statement of proposals states:
Where the administrator decides not to call an initial meeting of creditors his/her reasons must be included in the statement of proposals [Note 29].
56.1.85 No initial meeting – creditors' right to call one
The creditors on receiving notice from the administrator that he/she does not intend to hold an initial meeting can request an initial meeting within 8 business days of the issue of the statement of proposals [Note 30]. The administrator must call an initial meeting if it is requested by creditors whose debts amount to 10% of total liabilities [Note 31].
The chairman of the initial meeting will be the administrator or his/her suitable qualified nominee [Note 32]. The creditors at the initial meeting may approve the statement of proposals without modification, or with modification if agreed by the administrator. The creditors can accept or reject the statement of proposals by a majority, in value, of those voting in person or by proxy. However, any resolution is invalid if those voting against it total more than half in value of the company's creditors to whom notice of the meeting was sent and who are not, to the best of the chairman's belief, persons connected with the company [Note 33].
56.1.87 The initial meeting – minutes
The chairman of the meeting must ensure that accurate minutes of the meeting are kept. The minutes must state who attended, either in person or by proxy and their claim, details of any creditors' committee elected (see paragraph 56.1.88) and a record of any resolutions passed [Note 34]. The rules governing the conduct of meetings are contained in Chapter 6 of Part 2 of the Insolvency Rules 1986.
The initial meeting may elect a creditors' committee to assist the administrator in his/her duties and provide a line of communication between him/her and the creditors. The creditors' committee, by giving at least 7 days notice, can require the administrator to attend upon them and provide information about the exercise of his/her functions [Note 35]. The rules governing the operation of the creditors committee are contained in Chapter 7 of Part 2 of the Insolvency Rules 1986.
56.1.89 Administrator's report on the initial meeting
After the conclusion of the initial creditors' meeting the administrator must give notice, on Form 2.23B, of the result, together with the proposals, to the court, the registrar of companies, all known creditors and to any other person who received the original notice [Note 36].
56.1.90 Correspondence in place of a creditors' meeting
Anything that is required or permitted to be done at a creditors' meeting, including the initial creditors' meeting, can be achieved by correspondence between the creditors and the administrator. A resolution to authorise this may be passed (see paragraph 56.1.86) by circulating Form 2.25B to creditors [Note 37]. The correspondence may be by telephonic or other electronic means [Note 38].
56.1.91 Approval of the administrator’s proposals
Where the administrator’s proposals are approved he/she will carry on as administrator. The administrator must manage the company’s affairs in accordance with these proposals [Note 39]. The administrator may make minor revisions to the proposals without the consent of creditors. However any substantial changes must be circulated to creditors and agreed at a further meeting of creditors [Note 40].
56.1.92 Failure to obtain creditors’ approval for the proposals
The administrator must report to the court where his/her proposals have not been approved by the creditors at the meeting (see paragraph 56.1.89). The court does not have the power to impose the administrator’s proposals on the creditors however it may,
The administrator may have an opportunity to prepare revised proposals and obtain the agreement of creditors. If the administrator is unable to produce proposals which are acceptable to the creditors it is likely that another form of insolvency proceedings will follow.
56.1.93 Creditors’ right to call further meetings of creditors
Creditors have the right to request a further meeting of creditors to discuss the administration. The administrator must call a further meeting if creditors whose debts amount to 10 % of the total debts request one using Form 2.21B [Note 42]. The meeting must be held within 28 days of receiving the notice [Note 43]. The expenses for holding the meeting will be paid by the creditor making the request [Note 44]. The court may also direct the administrator to call a meeting of creditors [Note 45].
56.1.94 Creditors and members right to apply to court
During the period of the administration a creditor or member may apply to the court if they believe:
The court may grant relief, dismiss the application, adjourn the meeting with or without conditions, make an interim order or make any order it feels appropriate. Although, in practice, the court appears to be reluctant to interfere in the day to day management of the administration [Note 47].
56.1.95 The attitude of the court
The court has been reluctant to give directions to an administrator in the day to day management of the administration where he/she acted in accordance with the Insolvency Act 1986 and the approval of the creditors' meeting [Note 48]. The court will not interfere where the administrator takes action in the interests of the creditors as a whole simply because it affected one creditor differently [Note 49].
56.1.96 Duty to file progress reports
The administrator must prepare a progress report, including amongst other things, his/her remuneration and expenses (see paragraph 56.1.97) and a receipts and payments account, for every six month period from the date of his/her appointment to the date he/she ceases to act. The progress report must be sent to the registrar of companies and the creditors within one month of the end of the of the period covered by the report. The administrator may apply to the court to extend this period. Where the date of administration was pre 6 April 2010 the administrator must file a copy of his/her progress report with the court [Note 50].
56.1.97 Details of the administrator’s remuneration and expenses - post 6 April 2010
In administrations entered on or after 6 April 2010 the progress report must include an explanation as to how the administrator’s remuneration is calculated, details of the remuneration charged and expenses incurred. The progress report should advise creditors of their right to request further information [Note 51] and their right to challenge the remuneration and expenses [Note 52].
56.1.98 Duty to submit conduct reports on directors
The administrator has a duty to report on the conduct of the directors, de facto directors, shadow directors or partners etc. to the Secretary of State [Note 53]. The official receiver should check ISCIS under the Conduct Assessment tab to check what type of conduct report has been submitted by the administrator. A copy of any adverse report may be obtained, on a confidential basis from the Intelligence arm of IES.
56.1.99 Misfeasance – application for examination by the court
A person who is or was, or purports to be or have been, an administrator may be examined by the court on the application of:
The application must allege that the administrator has misapplied or retained money or other property of the company, has become accountable for money or other property of the company, has breached a fiduciary or other duty in relation to the company or has been guilty of misfeasance [Note 55]. Where the administrator has been discharged (see paragraph 56.1.112) the permission of the court is required before an application for an examination can be made [Note 56].
56.1.100 Misfeasance – court order
On concluding the examination the court may order the person to repay, restore or account for any monies or property, to pay interest, or pay compensation for the breach of duty or misfeasance [Note 57]. A claim for breach of duty or misfeasance cannot be made against an administrator by an unsecured creditor unless it can be shown that a special relationship between them existed. This is because the administrator does not generally owe a duty of care to unsecured creditors [Note 58].
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