Administrating last rites

Some of you may remember from the last recession a figure called the administrative receiver’, an insolvency practitioner appointed by a bank to take over the affairs of a troubled corporate borrower.

His main responsibility was to satisfy the debts of the secured lender appointing him from the assets of the company, which would then invariably go into liquidation. The role of the AR was abolished by the Enterprise Act 2002 for new securities and superseded by ‘the administrator’ as the main alternative to outright winding up.

Administration is a somewhat kindlier remedy for insolvency in that:

  • the administrator has a general duty to all creditors not just the appointer
  • subject to certain conditions, an administrator can now be appointed directly by a debenture holder without he need for court orders
  • the appointment ring-fences the company from enforcement by other creditors and gives a breathing space
  • the company may trade on as a going oncern at least for a time
  • a ‘prescribed part’ of the assets of the ompany must be earmarked for, and
    distributed to, unsecured creditors

under administration, there is a fighting chance of survival. Statistically, most companies in administration do not escape winding-up, but generally achieve a better result for their creditors than would a simple cessation of business.

One phenomenon of this recession has been the growth of ‘pre-packs’ – companies prepared or sale pre-administration and whose assets are sold as soon as an appointment is made.

This is perfectly legal, but because the most likely buyer is existing management, it does invite comparison to the old ‘phoenix company’ scandals of the past.

IP standards of practice are being reviewed to counter concerns regarding this as well
as other potential problems arising from administrations.

For more detailed information please contact Andrew Fleming on 01473 230033 or email arf@blockslegal.co.uk