Part 1- Administration
This part is divided in to 9 sections.
Section 1 - Introduction and background (paragraphs 56.2 to 56.8).
Section 2 - Appointment of administrator by court (paragraphs 56.9 to 56.15).
Section 3 - Appointment of the administrator by the holder of a qualifying floating charge (paragraphs 56.16 to 56.20).
Section 4 - Appointment of the administrator by the company or directors (paragraphs 56.21 to 56.25)
Section 5 - Effect of administration (paragraphs 56.26 to 56.32).
Section 6 - The functions of the administrator (paragraphs 56.33 to 56.43).
Section 7 - The process of administration (paragraphs 56.44 to 56.55).
Section 8 - The outcome of the administration (paragraphs 56.56 to 56.67)
Section 9 - Subsequent winding up proceedings (paragraphs 56.68 to 56.74).
Section 1 - Introduction And Background
56.2 Introduction
The administration procedure was introduced by the IA1986 to provide a company facing financial difficulties with a breathing space during which time a rescue package or a scheme for the more advantageous realisation of assets could be put in place.
This procedure has been changed by the EA2002 with the aim of increasing its flexibility and making it quicker, cheaper and less bureaucratic. The EA2002, section 248 replaces Part II of the IA86, with a new Schedule B1, which makes provision about the administration of companies. Schedule B1 is inserted into the IA86 after Schedule A1.
One of the principal changes is that administration proceedings can now be commenced without a court order.
During the period of administration, the company will be managed by ‘the administrator’ (see paragraph 56.9) and there will be a moratorium on actions against the company (see paragraph 56.14).
Note: [EA2002 s248 Sch 16]
The administration provisions of the EA2002 came into effect on 15 September 2003.
The following paragraphs apply to all administration proceedings commenced on or after 15 September 2003. Where a petition for an administration order has been presented to the court before 15 September 2003 the previous law will continue to apply and the official receiver should refer to Chapter 56, Part 1, issued on 30 December 2002 (see annex 1).
Note: [EA2002(Commencement No.4 and Transitional Provisions and Savings) Order 2003 article 3(2)]
The Insolvency (Amendment) Rules 2010
(March 2011)
The Insolvency (Amendment) Rules 2010 came into force on 6 April 2010 and changed a number of procedures in administrations. The amendments apply where a company enters administration on or after 6 April 2010 except where:
a) it enters administration by virtue of an administration order under paragraph 10 of Schedule B1 on an application made before 6 April 2010
b) the administration is immediately preceded by a voluntary liquidation where the winding up resolution was passed before 6 April 2010, or
c) the administration is immediately preceded by a winding up by the court on a petition presented before 6 April 2010.
For the purpose of applying the transitional provisions in this part, reference will only be made to the date the company entered administration.
Note: [IAR 2010 Schedule 4]
56.4 Aims and objectives of administration
Administration proceedings are intended primarily to facilitate the rescue and rehabilitation of insolvent but potentially viable companies. An administrator’s objective is to consider and effect the reorganisation of a company in order to restore profitability and to carry on its business, in whole or in part, and/or to make proposals for a better result for the creditors over that which might occur on immediate winding up.
56.5 Purpose of administration
The administrator of a company must perform his/her functions with the objective of –
The administrator must perform his/her functions with the objective specified in (a) unless he/she thinks either-
Objective (c) may only be applied by the administrator if –
The administrator must perform his/her functions in the interests of the creditors as a whole (unless following objective (c)) and, in all cases, perform his/her functions as quickly and efficiently as possible.
Note: [Paragraph 3(1) and (2)] [Paragraph 3(3)][Paragraph 3(4)][Paragraph 3(2) and 4]
56.6 Which companies may consider administration
(amended March 2011)
The administration procedure applies to companies –
A company incorporated outside the UK that has a principal place of business in Northern Ireland may not enter administration under Schedule B1 unless it also has a principal place of business in England and Wales or in Scotland.
As a result of case law, the administration procedure may also apply in respect of bodies other than Companies Act companies. If the official receiver has a concern in a particular case as to whether administration is an appropriate procedure for a body other than a company registered under the Companies Act, he/she should contact Technical Section for advice.
Note: [Paragraph 111(1A) and 111(1B)] [Paragraph 111A]
56.7 Where an administrator may not be appointed
An administrator cannot be appointed where the company has gone into liquidation (either voluntary or compulsory) except on the application of the liquidator (paragraph 38). In addition, the holder of a qualifying floating charge can apply to the court for an administration order to be made if the company is in compulsory liquidation (paragraph 37).
Additionally the new administration procedure does not apply to certain specified financial services and insurance companies in relation to which the administration procedure applies in a modified form or to the following companies which have special administration regimes specified in other legislation;
Note: [Paragraphs 8, 37 and 38][EA2002 s249][ EA2002(Commencement No.4 and Transitional Provisions and Savings) Order 2003 article 3(3)][Paragraph 9(1)][Paragraph 9(2)][Water Industry Act 1991][The Railways Act 1993 s59][Channel Tunnel Rail Link Act 1996 s19][Transport Act 2000 s26][Greater London Authority Act 1999 s210][Building Societies Act 1986 s119]
56.8 Partnerships
(amended March 2011)
A partnership can apply for an administration order under the Insolvent Partnerships Order 1994, article 6 and Schedule 2. As a result of specific savings provisions in The Enterprise Act 2002 (commencement No.4 and Transitional Provisions and Savings) Order 2003 and the I(A)R2003 the former administration regime continued to apply to partnerships until 1 July 2005 when appropriate amendments were made to the IPO 1994 to allow the new regime to take effect, with appropriate modifications. Similarly, the former law on administration continued to apply to limited liability partnerships until 1 October 2005 when the new provisions of Schedule B1 became effective for LLPs .
Notes: [Insolvent Partnerships Order 1994][ EA2002(Commencement No.4 and Transitional Provisions and Savings) Order 2003 article 3(3)] [Insolvent Partnerships (Amendment) Order 2005][Limited Liability Partnerships (Amendment) Regulations 2005].
An administrator is a person or persons appointed under Schedule B1 to manage the company’s affairs, business and property. An administrator is an officer of the court whether or not he is appointed by court order. A person may be appointed as administrator of a company only if he is qualified to act as an insolvency practitioner in relation to a company. Two or more persons can be appointed as administrator of a company and they can act jointly or concurrently
The administrator may be appointed;
Note: [Paragraph 1, 5 and 6] [Paragraph 100][Paragraph 10] [Paragraph 14][Paragraph 22]
Section 2 - Appointment Of Administrator By Court Order
56.10 Who may apply for an administration order
All or any of the following parties can make an application for an administration order;
Note: [Paragraph 12] [s7(4)] [FSMA2000 s359][Banks (Administration Proceedings) Order 1989 (SI No 1276)]
56.11 The application for an administration order
(amended March 2011)
Where it is proposed to apply to court for an administration order the application (administration application) must be in the prescribed form and supported by a witness statement complying with Rule 2.4. Both documents must be filed at court and served on those persons listed in paragraph 12(2) and rule 2.6(3) (including anyone who has appointed or is entitled to appoint, either an administrative receiver or administrator under paragraph 14).
Notes: [Paragraph 12(2)][r2.2 to 2.14 as amended by IAR 2010][Form 2.1B]
56.12 Affidavit in support of the application
(amended March 2011)
The administration application must contain a statement of the applicant’s belief that the company is, or is likely to become, unable to pay its debts. There is an exception for those cases where the applicant is the holder of a qualifying floating charge and is making the application in accordance with Paragraph 35 instead of appointing an administrator by the out of court route under Paragraph 14. The witness statement in support must contain the information listed in rule 2.4(2) and the written consent to act from the proposed administrator.
Note: [r2. 4 as amended by IAR 2010]
56.13 Conditions for making an administration order
The court may make an administration order only if it is satisfied –
Note: [Paragraph 11] [Paragraph 3]
56.14 Intervention by holder of floating charge
Where the application for the administration order is made by a person other than a holder of a qualifying floating charge a holder of a qualifying floating charge may apply to the court to have a specified person appointed as administrator (and not the person specified by the administration applicant). The court will grant this application unless it thinks it right to refuse the application because of the particular circumstances of the case.
Note: [Paragraph 36]
56.15 Where the official receiver is provisional liquidator
Where the official receiver is the provisional liquidator he/she must be served with a copy of the administration application and should ensure that he/she is present or legally represented at the hearing. If an administration order is made the court will discharge the winding-up petition and the official receiver will need to seek directions from the court on how to proceed under the order by which he/she was appointed.
Note: [r2.6(3)(b)]
56.16 When the appointment of the administrator takes effect
The appointment of the administrator takes effect at the time specified by the administration order or, where no time is specified by the order, when the order is made.
Note: [Paragraph 13(2)]
Section 3 - Appointment Of Administrator By The Holder Of a Qualifying Floating Charge
The holder of a qualifying floating charge in respect of a company’s property may appoint an administrator of the company under paragraph 14 of Schedule B1. An administrator may not be appointed under paragraph 14 while a floating charge on which the appointment relies is not enforceable (i.e. the floating charge holder must be entitled to call in their security).
Note: [Paragraph 14, 16]
56.18 Qualifying floating charge
A person is the holder of a qualifying floating charge if he holds a charge created by an instrument which
The qualifying floating charge (either itself or together with other charges held by the floating charge holder) must relate to the whole or substantially the whole of the company’s property.
Where there are prior qualifying floating charges the applicant must give at least two business days notice of the appointment to the holder of those charge(s) or obtain his/her written consent to the appointment.
The holder of a qualifying floating charge can file a copy of their formal notice of intention to appoint an administrator (Form 2.5B) with the court and, thereby, obtain an interim moratorium on any actions being taken against the company until the appointment is made (or the expiry of 5 business days from that filing) or simply obtain the written consent from the holders of the prior qualifying floating charges informally.
Note: [Paragraph 14][Paragraph 15] [Paragraph 44(2)]
56.19 Restrictions on power to appoint
An administrator of a company may not be appointed under Paragraph 14 ("without court order") where a provisional liquidator has been appointed under section 135 or an administrative receiver is in office.
Note: [Paragraph 17]
(amended March 2011)
A person who appoints an administrator under paragraph 14 must file a notice of appointment, in Form 2.6B, with the court. This notice must include a statutory declaration, completed not more than 5 business days before it is filed at court, that the person who makes the appointment holds an enforceable qualifying floating charge and that the appointment is made in accordance with Schedule B1. It must also identify the administrator and be accompanied by his/her consent to act and written statement in Form 2.2B.
Where an urgent appointment is required at a time when the court is closed for business, the notice of appointment may be filed with the court by fax or e-mail using Form 2.7B. The appointor must then take copies of the notice and the supporting documents to the court on the next day that it is open.
Note: [Paragraph 18] [ r 2.16 – r 2.19 as amended by IAR 2010]
56.21 Commencement of appointment
The appointment of the administrator takes effect on the date and time that the notice of appointment is filed with the court under Paragraph 18 (see paragraph 56.20).
Note: [Paragraph 19] [r 2.17 and 2.19(5)]
56.22 Application where company in liquidation
The holder of a qualifying floating charge, who would otherwise have been able to appoint an administrator under Paragraph 14, can make an administration application to the court when a winding-up order has been made. The liquidator may also make such application. If the court makes an administration order it shall discharge the winding-up order and make provision for any such matters as may be prescribed.
Note: [Paragraph 37 and 38]
Section 4- Appointment Of Administrator By Company Or Directors
56.23 Power to appoint
The company or the directors of a company may appoint an administrator.
Note: [Paragraph 22]
56.24 Restrictions on power to appoint
An administrator of the company may not be appointed by the company or its directors under Paragraph 22 during the period of 12 months beginning;
An administrator of the company may not be appointed by the company or its directors if:-
Note: [Paragraph 23 and 24] [Paragraph 25]
56.25 Notice of intention to appoint
(amended March 2011)
The company or its directors must give at least five business days’ written notice to any person who is or may be entitled to appoint an administrative receiver or an administrator under Paragraph 14 (holder of a qualifying floating charge). Notice must also be given to any enforcement officer charged with execution against the company, any person who has distrained against the company, any supervisor of a voluntary arrangement and the company itself (if it is not intending to make the appointment). The notice must identify the proposed administrator and must be in the prescribed form (Form 2.8B).
A copy of the notice of intention to appoint an administrator must be filed at court at the same time that it is sent to the holders of the qualifying floating charges etc. and it must contain a statutory declaration (made within 5 business days of the filing) that;
and it must be accompanied by a record of the decision of the directors or the resolution of the company to appoint an administrator.
Note: [Paragraph 26][Paragraph 27][r 2.20 – 2.22]
56.26 Notice of appointment
(amended March 2011)
Notice of the appointment of the administrator in the prescribed form (Form 2.9B or 2.10B), with the required accompanying documents, must be filed with the court and include a statutory declaration (made within 5 business days of the filing) that,
The notice of appointment must also identify the administrator and be accompanied by his/her consent to act and written statement in Form 2.2B.
Note: [Paragraph 29][r2.23 to 2.26][Paragraph 29(3)]
56.27 Commencement of appointment
The appointment of the administrator takes effect from the date and time that notice of the appointment is filed with the court (see paragraph 56.26).
Note: [Paragraph 31]
Section 5 - Effect Of Administration
56.28 Effect of the application for administration order
(amended March 2011)
Unless an administrative receiver has already been appointed, the application for an administration order and in any other case the filing of a prescribed notice of intention to appoint an administrator, triggers an interim moratorium under which the provisions of Paragraphs 42 and 43 will apply for a limited period .This moratorium has a general freezing effect on creditors’ rights but does not destroy them. The creditor can at any time apply to the court for permission to enforce those rights. Once the company enters administration a permanent moratorium under Paragraphs 42 and 43 will apply.
Where an administrative receiver has been appointed, prior to the application for the administration order, the moratorium period does not start unless and until the debenture holder, gives his/her consent to the administration order being made.
Note: [Paragraph 42, 43 and 44][Paragraph 44(6)]
56.29 Effect of administration
(Amended July 2011)
When an administration takes effect;
56.29A Effect of Administration on Winding-up
(Amended July 2011)
Where an administrator is appointed by a floating charge-holder [Note 8] any petition for the winding up of that company will be suspended unless the winding-up petition
was presented -
a) in the public interest [Note 9]; or,
b) against a ‘Societas Europaea’(SE) where the SE is in violation of the requirement for its head office in the member state where its registered office is situated [Note 10]; or,
c) upon a petition of the Financial Services Authority [Note 11].
Where an administrator becomes aware that any petition under the provisions mentioned above was presented prior to his/her appointment he/she is required to apply to court for directions [Note 12].
In cases where the winding-up petition is presented under any of the above provisions the court may make the order sought. If a winding-up order is made the court shall order that the appointment of the administrator shall either, cease to have effect or shall continue [Note 13]. If the court orders that the appointment shall continue to have effect it may also specify which powers will continue to be exercisable by the administrator [Note 14].
56.30 Effect of administration on rights of creditors
There is a significant amount of case law dealing with the effect of administration on the rights of creditors. One leading case is Atlantic Computer Systems Plc [1992] Ch 505. The conclusion drawn from this case is that the moratorium is intended to assist the company to achieve the purposes of the administration. The decision to grant permission to take action against the company, for example, for the repossession of goods on hire-purchase, must strike a balance between the interests of the lessor and the interest of the general body of creditors. Each case will be decided on its merits.
56.31 Effect of administration on administrative receivership
The legislation provides that there cannot be an administrator and administrative receiver in office at the same time. Where an administrative receiver is in office at the time of its being made the court will dismiss the administration application, unless the person by or on behalf of whom the receiver was appointed has consented to the administration order or the court is satisfied that the security was void or otherwise open to challenge.
Where an administration order takes effect in respect of a company any administrative receiver must vacate office and surrender all assets to the administrator. In any administration any receiver of part of the company’s property must vacate office if required to do so by the administrator. An administrative receiver or receiver has a charge on the assets in respect of his/her remuneration and expenses and any indemnity to which he/she is entitled out of the assets of the company. On a company entering administration he/she is discharged from his/her duty to pay preferential debts.
Note: [Paragraph 39][Paragraph 41]
56.32 Notification of administration orderAdministrator’s liability under contracts of employment
The administrator is taken to adopt an employee’s contract of employment if the employee continues in the employment of the company for more than 14 days after the appointment of the administrator. The liabilities incurred under employment contracts adopted by the administrator rank ahead of the administrator’s claims for remuneration and expenses. Liabilities under employment contracts adopted by an administrator are restricted to wages and salary as defined in Paragraph 99(6) in respect of services provided during the period of the administration.
Notes: [Paragraph 99(5) and (6)] [r 2.67 as amended by IAR 2010]
56.33 Notification of administration order
(amended March 2011)
During the period of the administration every business document issued by or on behalf of the company or the administrator, and all the company’s websites, must state the administrator’s name and that the company’s affairs business and property are being managed by him/her.
Note: [Paragraph 45]
Section 6 - Functions Of An Administrator
56.34 General power to manage
The administrator acts as the company’s agent and has a general power to do anything necessary or expedient for the management of the company’s affairs, business and property. The administrator of the company also has the powers specified in Schedule 1 but they are not restrictive. Generally, anything that the company or its directors could do the administrator also has power to do. This general power extends to the disposal of assets and the administrator does not have to wait until creditors have approved his/her proposals before disposing of the company’s property (Re T & D Industries PLC and Another [1999] All ER (D) 1239).
Note: [Paragraph 59, 60 and 69, Schedule 1]
Additional powers
56.35 Power over the existing management of the company
The administrator has the power to remove a director of the company or appoint a new director (whether or not to fill a vacancy) and can call a meeting of the members or creditors of the company. Where any management power of the company or its directors could interfere with the administrator’s powers, it cannot be exercised without the consent of the administrator. The directors, however, retain their duties under the Companies Act 2006 to keep accounting records and file accounts and returns.
The administrator of a company may apply to the court for directions in connection with his/her functions.
Note: [Paragraph 61, 62 and 64] [Paragraph 63]
56.36 Power to request supplies of gas, water etc.
The administrator may request the supply of gas, electricity, water and telecommunications services, from a public supplier, during the period of the administration, without being required to pay charges outstanding at the date the company entered administration.
Note: [s233]
56.37 Power to take control of the company’s property
The court may order that any person who has any property, books, papers or records to which the company appears entitled should surrender those items to the administrator.
Note: [s234]
56.38 Power to enquire into company’s dealings
The officers of the company have a statutory duty to provide information to the administrator and in the event of their non-cooperation he/she may request they be privately examined.
Note: [s235, s236 and s237]
56.39 Power to challenge antecedent transactions
The administrator can apply to court for an order that any transactions entered into by the company that were a transaction at an undervalue, a preference, or an extortionate credit transaction be set aside. Certain floating charges created within a year of the date on which the company entered administration could also be declared invalid. (Further details of antecedent transactions can be found in Chapters 31.4A and 31.4B)
Note: [s423, s238, 239 s244 and s245]
56.40 Power to deal with the charged property - floating charge
An administrator has wide-ranging powers to deal with and dispose of charged property.
Property which is subject to a floating charge may be dealt with by the administrator as if it were not subject to the charge and without the consent of the charge holder(s) or the court. However, after such disposal the charge holder shall have the same priority in respect of payment from the sale proceeds.
Notes: [Paragraph 70)]
56.41 Power to deal with charged property – fixed charge
Property which is subject to a fixed charge, and goods subject to hire purchase, conditional sale, chattel leasing and retention of title agreements may be disposed of by an administrator without the consent of the owner or charge-holder if he/she has the permission of the court. The court will only grant permission where it thinks that the disposal of the property would be likely to promote the purpose of administration in respect of the company. The net sale proceeds must be used to pay the former owner or the amount due to the secured creditor unless the sale was below market value, when the difference between the sale proceeds and the market value as determined by the court must be paid to the former owner or the charge-holder from the administration funds.
Note: [Paragraph 71 and 72]
56.42 Distribution to creditors [Paragraph 65]
The administrator of a company may make a distribution to a creditor of the company. As in the winding up of a company section 175 applies and preferential debts must be paid in priority to other debts in accordance with section 175 (preferential creditors). The administrator may not make a distribution under paragraph 65 to a creditor who is neither a preferential or secured creditor without the permission of the court.
The administrator of the company may make a payment not in accordance with paragraph 65 or paragraph 13 of Schedule 1 if he/she thinks it likely to assist achievement of the purpose of administration.
Note: [Paragraph 65] [r2.68 to 2.71][Paragraph 66]
Section 7 - Process Of Administration
56.43 General duties
The administrator must perform his/her functions in the interests of the creditors of the company as a whole. Where the objective of the administration is to simply realise property in order to make a distribution to one or more secured or preferential creditors (paragraph 3(1)(c)) he/she may perform his/her functions only if he/she does not unnecessarily harm the interests of the creditors of the company as a whole.
The administrator of the company must perform his/her functions as quickly and efficiently as is reasonably practicable.
The administrator of the company must, on his/her appointment, take into custody or control all of the property to which he/she thinks the company is entitled.
The administrator of the company must manage the company’s affairs, business and property in accordance with the proposals approved under paragraphs 53 or 54 or as the court directs (see paragraph 56.47).
Note: [Paragraphs 3(2) and 3(4)] [Paragraph 4][Paragraph 67][Paragraph 68]
56.44 Duty of care
The administrator owes the company a duty of care which extends to the manner and timing of his/her disposal of the company’s assets. He/she will be personally liable for any loss suffered by the company if he/she breaches that duty. His/her conduct will be judged by the standards of a professional insolvency practitioner of ordinary skill (Re Charnley Davies Limited [1990] BCC 605).
56.45 Duty to announce appointment
(amended March 2011)
The administrator must send notice (in Form 2.12B) of his/her appointment to the company and all the creditors of whose claim and address he/she is aware as soon as is reasonably practicable (see paragraph 56.56A regarding electronic delivery). Notice must also be given to the Registrar of Companies within 7 days of the date of the administration order or the date the administrator received notice of appointment (as applicable).
The administrator must publish a notice of his/her appointment as soon as reasonably practicable in the London Gazette. The appointment may additionally be advertised in such other manner as the administrator thinks fit. For administrations on or after 6 April 2010, the Rules specify the contents of the gazette and any advertisement.
Note: [Paragraph 46] [ r2.27 as amended by the Insolvency (Amendment) Rules 2009 and IAR 2010 ] [r 12A.33 – 41]
56.46 Duty to require statement of affairs
(amended March 2011)
As soon as is reasonably practicable after appointment the administrator must (using Form 2.13B) require from one or more representatives of the company (e.g. the officers of the company, employees or any other relevant persons specified in Paragraph 47(3)) the submission of a statement of affairs of the company. A person required to submit a statement of affairs must do so before the end of 11 days beginning with the date that he/she received the notice of requirement. The administrator may extend this time period or release any person from this obligation if he/she thinks fit.
Note: [Paragraph 47 and 48, r2.28 to 2.32 as amended by IAR 2010]
(amended March 2011)
The administrator must, as soon as reasonably practicable and, in any event within eight weeks of the date of the company entering administration, or such longer period as the court or the creditors may allow, make a statement of proposals for achieving the purpose of administration. This statement must be sent to the Registrar of Companies, all known creditors and all members of the company (see paragraph 56.56A regarding electronic delivery). It must also be laid before the meeting of creditors called for that purpose, if any (see paragraph 56.48). Details of the required contents for the statement of proposals are set out in Rule 2.33 ,(as amended). For companies which enter administration on or after 6 April 2010 the administrator’s statement must include a statement of any pre-administration costs which have been charged or incurred (see also paragraph 56.66A).
In a post 6 April 2010 case, where the administrator thinks that it would prejudice the conduct of the administration, or might lead to violence against any person, for any of the prescribed matters in his/her statement to be disclosed, the administrator may apply to the court for an order of limited disclosure.
The administrator’s statement of proposals may not include any action which affects the rights of a secured creditor to enforce his/her security, or which would result in a preferential debt being paid otherwise than in priority to a non-preferential debt unless the affected creditor consents to that action.
Note: [Paragraph 49][Paragraphs 107] [r2.33 as amended by IAR 2010 and r 2.33A][Paragraph 73]
56.48 Duty to call a creditors’ meeting
(amended March 2011)
Each copy of the administrator’s statement of proposals sent to creditors (see paragraph 56.46) must be accompanied by an invitation (Form 2.20B) to an initial creditors’ meeting to consider his/her statement of proposals, giving not less than 14 days notice. The meeting must be held as soon as reasonably practicable, and, in any event, within ten weeks of the company entering administration although this period may be extended with the permission of the court or with the consent of the creditors. Notice of the meeting must also be gazetted and may be advertised if the administrator thinks fit.
The administrator of the company is not required to call an initial creditors’ meeting where the statement of proposals states that the administrator thinks:
Where the administrator has decided not to call a meeting of creditors his/her reasons must be included in the proposals.
The administrator shall summon an initial creditors' meeting if it is requested by creditors of the company whose debts amount to at least 10% of the total debts of the company, but only if requisitioned within 8 business days of the date when the proposals were sent out.
At the initial meeting the creditors may approve the proposals without modification, or with modifications if agreed by the administrator. A resolution to approve or reject the proposals is passed when a majority in value of the creditors present and voting in person or by proxy, vote in favour of it. Any resolution is invalid if those voting against it include 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. (The chairman will be the administrator or a nominee of his.)
Notes: [Paragraph 51][r2.34, r2.35(4)as amended by IAR 2010][Paragraph 107 and 108][Paragraph 52][r2.33(n)][r 2.37 as amended by IAR 2010][Paragraph 53][r2.43][r2.36(1)]
56.49 Creditors’ committee
The creditors’ meeting may establish a creditors’ committee to assist the administrator in his/her duties and provide a line of communication between the administrator and the creditors. The creditors’ committee can require the administrator to attend on them on at least 7 days notice, at which he/she must provide them with information about the exercise of his/her functions.
Notes: [Paragraph 57][r2.50 to r2.65 as amended by IAR 2010]
56.50 Report the outcome of creditors meeting
After the conclusion of any creditors’ meeting to consider proposals or revised proposals the administrator must give notice of the result of the meeting to the court, the Registrar of Companies and all known creditors.
Note: [Paragraph 53] [r2.46 as amended by IAR 2010] [Form 2.23B]
56.51 Correspondence instead of a creditors meeting
Anything that is required or permitted to be done at a creditors’ meeting can be done by correspondence between the administrator and creditors, in accordance with Paragraph 58 and the rules. The correspondence may be by telephonic or other electronic means.
Notes: [Paragraph 58] [r2.48] [Paragraph 111(1)]
56.52 General rights of creditors
Creditors whose debts amount to 10% of the total debts of the company may request an administrator to convene a meeting of creditors.
A creditor or member may apply to the court claiming that –
The court can make any order it thinks appropriate.
Note: [Paragraph 56] [r 2.37 as amended by IAR 2010] [Paragraph 74]
56.53 Approval of proposals
If the administrator’s proposals are approved he/she will carry on as administrator within the scope of those proposals. If the administrator wishes to substantially revise his/her proposals he/she must send out revised proposals to all creditors and call a further meeting of creditors to approve the revised proposals.
Note: [Paragraph 54]
56.54 Failure to obtain approval of the proposals
If the meeting of creditors does not approve the proposals, or the revised proposals, the court may provide that the appointment of the administrator shall cease to have effect from a specified time, or adjourn the hearing, conditionally or unconditionally, or make an interim order or other order as it thinks fit including an order on a petition for winding up suspended while the company is in administration. The court can allow the administration to continue but, in practice, if an administrator is unable to produce proposals acceptable to the creditors, the company will be forced into another form of insolvency proceedings.
Note: [Paragraph 55]
56.55 Duty to submit conduct reports on directors
Administrators have a duty to report to the Secretary of State on the conduct of directors and shadow directors. The official receiver can check what type of report has been submitted on ISCIS and may obtain sight of any adverse report, on a confidential basis, by contacting the Intelligence Directorate within IES. .
Notes: [Company Directors Disqualification Act 1986 s7(3)][Forms D6 and D7]
56.56 Duty to file accounts
(amended March 2011)
The administrator must prepare a progress report including a receipts and payments account for every six month period from the date of his/her appointment until the date he/she ceases to act. The administrator must send a copy of the progress report to the Registrar or Companies and the creditors within one month of the end of the period covered by the report, unless the court extends the period on the administrator’s application. Where the company entered administration before 6 April 2010 the administrator must also file a copy of the progress report with the court.
In administrations entered on or after 6 April 2010, the progress report must include details of the basis fixed for the administrator’s remuneration together with a statement of the remuneration charged and the expenses incurred. The report must also advise creditors of their right to request further information under Rule 2.48A and their right to challenge the remuneration and expenses under Rule 2.109.
Note: [r2.47 as amended by IAR 2010][r2.48A][r2.109]
56.56A – Electronic communication and use of websites
(March 2011)
With effect from 6 April 2010, where an administrator is required by the Act or the Rules to give, send or deliver any notice or document he/she may use electronic means to do so provided that the intended recipient has consented to such delivery and provided an electronic address for this. An administrator could, for example, issue the notice of appointment, statement of proposals or progress report by electronic means. Any document delivered by the administrator electronically must contain a statement that a hard copy may be requested and give contact details for making such a request.
The administrator may also 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 any required password. Again creditors must be advised of their right to request a hard copy and be given contact details for making such a request. Information placed on a website by the administrator must remain available for a period of at least 3 months from the date of the notice.
Note [s 436B, r12A.6 – 12A.11] [s246B, r12A.12 -12A.13]
Section 8 - The Outcome Of The Administration
56.57 Automatic end of administration
The appointment of an administrator shall cease to have effect at the end of the period of one year beginning with the date on which it takes effect. This period may be extended:
The administrator’s term of office may be extended by consent only once, may not be extended by consent after extension by court order and may not be extended after the specified period has expired.
Note: [Paragraph 76, 77 and 78][Paragraph 78(4)]
56.58 Court ending administration on the application of administrator
The administrator may apply to the court for the administration to cease to have effect from a specified time if;
Note: [Paragraph 79]
56.59 Termination of administration where objective achieved
Where the administration is pursuant to an administration order and the administrator thinks that the purpose of the administration has been sufficiently achieved he/she may apply to the court for the administration to cease to have effect from a specified time. Where the administrator of the company has been appointed under Paragraph 14 or 22 by the holder of a floating charge or by the company or its directors respectively, and the administrator thinks that the purpose of administration has been sufficiently achieved he may file the relevant notice of the outcome (Form 2.32B) and a final progress report with the court and the Registrar of Companies and his/her appointment will cease to have effect from the date and time the notice is filed with the court.
Note: [Paragraph 79 and 80][r2.113]
56.60 Court ending administration on application of creditor
A creditor of the company may apply to the court for the appointment of an administrator to cease to have effect at a specified time. This application must allege an improper motive on the part of the person who (in the case of an administration order) made the application for the administration order or (in any other case) the person who appointed the administrator.
On the application by the creditor the court may adjourn the hearing conditionally or unconditionally, dismiss the application, make an interim order or make any other order it considers appropriate.
Note: [Paragraph 81]
56.60A Court ending administration on application of creditor
A creditor of the company may apply to the court for the appointment of an administrator to cease to have effect at a specified time. This application must allege an improper motive on the part of the person who (in the case of an administration order) made the application for the administration order or (in any other case) the person who appointed the administrator.
On the application by the creditor the court may adjourn the hearing conditionally or unconditionally, dismiss the application, make an interim order or make any other order it considers appropriate.
Note: [Paragraph 81]
56.61 Public interest winding up
(amended March 2011)
Where a provisional liquidator is appointed or an order is made for the winding up of a company in administration either in the public interest under section 124A or 124B or on the petition of the Financial Services Authority under the FSMA2000 section 367, the court must order :
a. that the appointment of the administrator will cease to have effect, or
b. that the appointment of the administrator shall continue to have effect.
If the appointment of the administrator is to continue the court may also specify which powers contained in Schedule B1 are exercisable by the administrator and make specific modifications to Schedule B1 as it applies to the administrator.
Notes: [Paragraph 82, s124A, s 124B, FSMA2000 s367]
56.62 Voluntary liquidation following administration
(amended March 2011)
Where the administrator thinks that the total amount which each secured creditor of the company is likely to receive has been paid to him/her or set aside for him/her and that a distribution will be made to unsecured creditors he/she may file a notice to this effect with the court and the Registrar of Companies who must register it. The administrator should also send a copy of the notice to each creditor of the company. As soon as reasonably practicable after the notice has been registered, the administrator must send a final progress report to the Registrar of Companies and to all those who received notice of his/her appointment.
On the registration of this notice the administration ceases to have effect and the company is wound up voluntarily as if a resolution for voluntary winding up under section 84 were passed on the day on which the notice was registered. The administrator must provide details of the proposed liquidator in his/her proposals and the creditors may nominate a different liquidator (by proposing and agreeing an amendment to the administrator’s proposals detailing this outcome) but if no alternative liquidator is nominated the person detailed by the administrator will be the liquidator.
Notes: [Paragraph 83][r2.117A][s84]
56.63 Moving from administration to dissolution
If the administrator of a company thinks that the company has no property which might permit a distribution to its creditors he/she must file a notice to this effect with the court and the Registrar of Companies. He/she should also send a copy of the notice to each creditor of the company.
On the registration of the notice the administration ceases to have effect and at the end of three months beginning with the date of the filing of the notice the company will be dissolved unless the court orders otherwise.
Notes: [Paragraph 84][r2.118 as amended by IAR 2010]
56.64 Vacation of office
(amended March 2011)
Where a person ceases to be the administrator of a company (whether because he/she vacates office by reason of resignation, death or otherwise, because he/she is removed from office or because his/her appointment ceases to have effect) he/she is discharged from liability in respect of any action or inaction of his/her as administrator.
The discharge given by Paragraph 98 does not prevent the exercise of the court’s powers under Paragraph 75 to examine the conduct of the administrator in respect of any alleged misfeasance (see paragraph 56.57).
Where an administrator has died the discharge takes effect from the time that notice of his/her death is given to the court under rule 2.124 or such time as the court may determine.
Where the administrator was appointed other than by court order (i.e. under Paragraph 14 or 22) he/she may be discharged from liability at the time appointed by resolution of the creditors’ committee or, if there is no creditors’ committee by resolution of the creditors. In any case, the discharge can take effect at a time specified by the court.
Notes: [Paragraph 98][Paragraph 75][Paragraph 98(2)(a)][r2.124 as amended by IAR 2010]
The administrator can be replaced when he/she;
The appointor of the original administrator or the court may appoint the replacement administrator.
Note: [Paragraph 90 to 94]
56.66 Remuneration of administrator
(amended March 2011)
The administrator is entitled to receive remuneration for his/her services. The basis of the administrator’s remuneration is fixed, in the first instance, by the creditors’ committee. If there is no creditors’ committee, the creditors as a whole may fix the basis of remuneration, either at the meeting to approve the proposals, or at a meeting called for the purpose of fixing the basis of remuneration.
The basis of remuneration will be fixed:
In a company which entered administration on or after 6 April 2010, the Rules provide that the basis of remuneration may be fixed as any one or more of the three bases set out above, with different bases and/or varying percentages set for different activities carried out by the administrator.
If the creditors’ committee or the creditors do not fix the basis of remuneration the administrator can make an application for the court to fix his/her basis of remuneration.
In fixing the basis of remuneration the creditors must have regard to the complexity (or otherwise) of the case, any exceptional responsibility that falls on the administrator, in connection with the company’s affairs, the effectiveness with which the administrator has carried out his/her duties and the value and nature of the property with which he/she has to deal. In post 6 April 2010 administrations, the court must also have regard to these same factors where the administrator has made application to the court to fix the basis of remuneration.
If the administrator considers that the basis of remuneration fixed by the creditors’ committee is inappropriate or the rate or amount insufficient he/she may request that it be changed or increased by resolution of the creditors.
If the administrator considers that the basis of remuneration or the rate or amount of remuneration fixed by the creditors’ committee or by resolution of the creditors is inappropriate or insufficient he/she can apply to the court to have it changed or increased.
In pre 6 April 2010 administrations any creditor of the company who considers the administrator’s remuneration is excessive can, with the support of at least 25% in value of the creditors (including that creditor), apply to the court for the remuneration to be reduced. The court may, if it thinks that no sufficient cause is shown for a reduction, dismiss the application without a hearing. If the court considers the application to be well founded it shall make an order that the remuneration be fixed at a reduced rate.
In post 6 April 2010 administrations, any secured creditor of the company, or any unsecured creditor with either the permission of the court or the support of at least 10% in value of the unsecured creditors (including that creditor), may make application to the court where they consider that the administrator’s remuneration or expenses are excessive, or that the basis of remuneration is inappropriate. The creditors can seek an order to reduce the amounts or amend the basis of remuneration. The court may, if it thinks that no sufficient cause is shown for a reduction, ,dismiss the application without a hearing. If the court considers the application to be well founded, it must make one or more of the orders detailed in Rule 2.109(4). An application to challenge the administrator’s remuneration or expenses must be made within 8 weeks after receipt by the applicant of the progress report which first reports the remuneration or expenses in question.
Note: [r2.106 ,r2.107,r2.108,r2.109 all as amended by IAR 2010]
56.66A Pre-administration expenses
(March 2011)
This paragraph applies where a company has entered administration on or after 6 April 2010 (see paragraph 56.3).
Where the administrator, or another qualified person, has charged fees or incurred expenses before the company entered administration but with a view to its doing so, the administrator must include the details in his/her statement of proposals under Rule 2.33 (see paragraph 56.47). These are referred to as ‘pre-administration costs’.
The creditors’ committee may determine whether, and to what extent, the pre-administration costs which were unpaid when the company entered administration, are approved for payment. Where there is no creditors’ committee or the committee does not make the determination or the administrator considers the determination insufficient, the administrator can seek approval from a meeting of creditors and can ultimately make application to the court.
If approved, the priority for payment of the pre-administration costs is the same as for the administrator’s remuneration.
Note: [r2.33 as amended by IAR 2010] [r 2.67A] [r2.108] [r.2.67(1)(h) as amended by IAR 2010]
Section 9 - Subsequent Winding-Up Order
56.67 Petition to wind up following administration
Where the administration fails to return the company to solvency it is possible that liquidation will follow. Administration proceedings and liquidations (except where a winding-up order is made on a petition presented in the public interest (see paragraph 56.61)) cannot run concurrently, only consecutively. A petition for winding up presented prior to a company going into administration cannot rest on the court file during an administration since such petitions are dismissed on the making of an administration order or suspended if the company is enters administration by an appointment under paragraph 14 and whilst the administration is in force a petition to wind up cannot be presented without the permission of the court.
If an administrator wishes a compulsory liquidation to follow on from the administration, he/she should present a petition for winding up on behalf of the company as its administrator. The petition must contain an application under Paragraph 79(2) requesting that the appointment of the administrator shall cease to have effect.
Where an administrator is applying for his/her appointment to cease to have effect and a creditor is seeking a winding-up order the creditor must obtain the leave of the court to present a winding-up petition. This should be returnable on the date set to hear the administrator’s application for his/her appointment to cease to have effect so that the winding-up order can be made immediately on the appointment ceasing to have effect.
Notes: [Paragraph 42][s124][r4.7(7); Form 4.12] [Paragraph 79(2)] [Paragraph 85]
56.68 Appointment of administrator as liquidator
The court may appoint the administrator as liquidator of the company on the making of the winding-up order.
Note: [s140(1)]
56.69 Initial action by official receiver on making of winding-up order.
(amended March 2011)
When the winding-up order is made the official receiver should write to the former administrator to obtain copies of;
56.70 Duty of administrator after winding-up order
The administrator is an agent of the company and has a duty to co-operate with the current office holder. The official receiver may require the attendance for interview of any former administrator of the company.
Note: [s235]
56.71 Official receiver’s duties where the administrator becomes the liquidator
Where the court appoints the former administrator as liquidator on the making of the winding-up order, the official receiver remains under a duty to;
Note: [s132][r4.21(4)][r4.43][Company Directors Disqualification Act 1986 s7(3) Forms D1 and D3]
56.72 Fixing of administrator’s remuneration
Where the official receiver is liquidator of a company and the former administrator applies to the court to fix his/her (the administrator’s) remuneration, the court or the applicant may request the official receiver to attend the hearing. The official receiver should attend and is entitled to the costs of doing so. The costs should be paid by the applicant and may be calculated on a time and rate basis. Where neither the official receiver nor the former administrator is liquidator of the company, the official receiver should suggest that it would be more appropriate for the liquidator to attend the hearing.
If the official receiver becomes aware that the administrator has previously received remuneration and expenses before creditors under contracts covered by paragraph 99(5) (see paragraph 56.68), this should be brought to the attention of the court as it might be relevant in determining whether the former administrator’s release is appropriate. Consideration should also be given to whether these monies are recoverable under Paragraph 75 where there has been a possible breach of duty.
Note: [Paragraph 75]
56.73 The relevant date
(amended March 2011)
Where a winding-up order is made immediately following the discharge of an administration order, the relevant date for the calculation of preferential claims in the winding up is the date on which the company entered administration. The period during which transactions at an undervalue and preferences may be ‘attacked’ by the liquidator, is calculated from the date that the administration application was made or the date on which the company entered administration (according to the type of appointment) not the date of the petition which lead to the winding-up order.
Notes: [s387(3)(a)][s238, 239, s240(3)& s245(5)]
56.74 Order of payment of administration expenses
The order of payment of expenses in an administration is set out in Rule 2.67
Note: [r2.67 as amended by IAR 2010]
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