ADMINISTRATION

RIARA LAW SCHOOL

 Introduction

• While the Insolvency Act fails to define administration, this can

be considered as a method of saving a company that is in
financial difficulty.
• Administration puts an insolvency practitioner in control of the
company with a defined plan that most time involves rescuing
the company from insolvency as a going concern.
• Section 522 of the Act identifies the following objectives of
administration:
• maintain the company as a going concern;
• achieve a better outcome for the company’s creditors as a whole
than would likely be the case if the company were liquidated
• realise the property of the company in order to make a
distribution to one or more secured creditors.
 Introduction

• The impetus for the development of this so called rescue culture

came from evidence to the Insolvency Law Review Committee also
known as the Cork Committee.
• The Cork Committee suggested the development of administration
which would have the effect of freezing the enforcement of rights
against the company by secured creditors or others during the
period of administration.
• The rescue culture is a philosophy of reorganizing companies so as
to restore them to profitable trading and enable them to avoid
liquidation.
• While administration may not always rescue a company, it may
facilitate the sale of the company as a going concern, or a more
advantageous realization of its assets and a better return for the
creditors than winding up.
 Introduction

• Administration orders and liquidations are mutually exclusive. Once

an administration order has been passed by the court, it is no longer
possible to petition the court for a winding up order against the
company. Similarly, however, once an order for winding up has been
made, an administration order cannot be granted.
• Section 528 provides that a company that is under liquidation cannot
be put under administration.
• Note however, that before an order of administration can be given
there has to be a reasonable basis for believing that the company can
actually be rescued.
• Look at section 522(4) which provides that the administrator cannot
perform any functions where he believes that it is not reasonably
practicable to achieve either of the objectives specified in the statute .
 Appointment of administrators

• Administrators may be appointed either by or without a court

order.
• Section 523 provides that administrators can be appointed by
floating charge holders or by directors of a company.
• Section 531 then provides that courts may issue administration
orders if satisfied that:
i. the company is or is likely to become unable to pay its debts; and
ii. the administration order is reasonably likely to achieve an
objective of administration.
• Before the court can make such an order a petition must be filed
by either the company, the directors, or creditors of the
company.
 Appointment by floating charge holders
• In order to qualify for this right, the floating charge must entitle the holder to
appoint an administrator.
• However, as provided for under section 535 the floating charge holder may only
appoint an administrator if:
• They have given three days written notice to the holder of any prior floating
charge where that person has the right to appoint an administrator
• their floating charge is enforceable
• The floating charge holder will file the following documents provided for under
section 537 at court:
i. A notice of appointment
ii. A statement by the administrator that he consents to the appointment
iii.A statement by the administrator that, in his opinion, the purpose of the
administration is likely to be achieved
iv. A statutory declaration that he qualifies to make the appointment
• Once these documents have been filed, the appointment is valid. The appointer
must notify the administrator and other people prescribed by regulations of the
appointment
 Appointment by the company or directors

• A company or its directors may appoint an administrator if:

i. The company has not done so in the last 12 months or been subject to a
moratorium as a result of a voluntary arrangement with its creditors in the
last 12 months
ii. The company is, or is likely to be, unable to pay its debts
iii.No petition for winding up nor any administration order in respect of the
company has been presented to the court and is outstanding
iv.the company is not in liquidation
v. No administrator is already in office
vi.No administrative receiver is already in office
• The company or its directors must give notice to any floating charge holders
entitled to appoint an administrator. This means that the floating charge
holders may appoint their own administrator within this time period, and so
block the company's choice of administrator.
• Section 548 provides that certain documents must be lodged with the court
on the appointment of the administrator.
 Special cases

• Section 557 provides that the liquidator of a company may make

an application to the Court for an administration order
• If the court grants the administration order they will discharge
any liquidation order existing in respect of the company and
identify the powers to be exercised by the administrator.
• Section 554 provides that on the application of a floating charge
holder the court may make an order of administration even if the
company is likely to be able to pay its debts. However, the Court
may make such an order only if it is satisfied that the applicant
could properly appoint an administrator under section 534
 The effects of appointing an administrator

• A moratorium over the company's debts commences (that is, no creditor can
enforce their debt during the administration period without the court's
permission). As provided for under section 559 there is a moratorium on all
insolvency proceedings against the company. The court or the administrator
must give permission for the following as provided for under section 560:
i. Security over company property to be enforced
ii. Goods held under hire purchase to be repossessed
iii.A landlord to conduct forfeiture by peaceable entry
iv.Commencement/continuation of any legal process against the company
• The powers of management are subjugated to the authority of the
administrator and managers can only act with his consent.
• All outstanding petitions for winding-up of the company are dismissed.
Section 558 specifically provides that any application for the liquidation of
the company that is then pending is suspended while the company is under
administration.
 The effects of appointing an administrator

• Section 562 provides that while a company is under

administration, the administrator shall ensure that all business
documents issued by or on behalf of the company or the
administrator, and all the company’s websites, state the name of
the administrator; and that the affairs and property of the
company are being managed by the administrator.
• Business document means:
i. an invoice;
ii. an order for goods or services;
iii.a business letter; or
iv.an order form
• If there is a failure to comply the company, and each officer of the
company who is in default commit an offence.
 The process of administration

• Section 563 provides that as soon as possible after the administrator’s

appointment he must give notice to the specified persons.
• Section 564 requires officers of the company and any persons involved in
the formation of the company to provide the administrator with a statement
of affairs. This statement must be submitted within 12 days from the day
when the administrator asks for it. It is in a prescribed form, and contains:
i. Details of the company's property
ii. The company's debts and liabilities
iii.The names and addresses of the company's creditors
iv.Details of any security held by any creditor
• Section 566 provides that the administrator will be required to set out
proposals on how to achieve the objectives of the administration. These
proposals must be sent to the creditors, the company and to the registrar
within 60 days from the date on which the company entered into
administration.
 The process of administration

• Section 568 requires the administrator to convene a creditors meeting within

70 days from the date on which the company went into administration.
• However, note that the requirement to call for a creditors meeting can be
dispensed with where the company has sufficient property to enable each
creditor of the company to be paid in full or the company has insufficient
property to enable a distribution to be made.
• Section 570 identifies the object of the creditors meeting as approval of the
administrator’s proposals with or without modification. The administrator is
expected to report the outcome of the meeting to the court.
• Section 572 provides that if the creditors fail to approve the proposals the
court may terminate the administration.
• During administration, a creditors committee may be established pursuant
to section 574 in order to provide some oversight over the administrator.
 Powers of the administrator

• The fourth schedule to the Act lists the following examples of powers:
i. Take possession of company property and sell it
ii. Borrow money and give security for the borrowing if the creditors give their
consent
iii.Appoint qualified persons such as solicitors and accountants to assist him
iv.Bring or defend proceedings against the company
v. Effect insurance policies on behalf of the company
vi.Use the company seal and execute documents on behalf of the company
vii.make arrangements and compromises with creditors
viii.make or defend an application for the liquidation of the company
ix.change the location of the company’s registered office
• Section 577 provides that administrators have the power to remove and
appoint directors of the company.
 Duties of the administrator

• Section 584 provides that as soon as he is appointed the

administrator should take control of the company’s property.
• Section 585 requires the administrator to manage the affairs of
the company in light of the proposals agreed upon and any
revisions thereto.
• Section 586 provides that the administrator is an agent of the
company and as such should act within the limits of his
authority.
 Protection of secured creditors

• Note that an administrator’s statement of proposals under

section 566 may not include action that:
i. affects the right of a secured creditor of the company to enforce
the creditor’s security;
ii. would result in a preferential debt of the company being paid
otherwise than in priority to its non preferential debts; or
iii.would result in one preferential creditor of the company being
paid a smaller proportion of that creditor’s debt than another.
• However, this rule will not apply where the respective creditor
consented to the proposals in question.
 End of administration

• Section 591 provides that a member or a creditor of a company

that is under administration may make an application to the
court for the removal of the administrator on the ground that he
has either acted or proposes to act in a way that will be
detrimental to the interests of the applicant.
• Additionally, an application may also be made if the
administrator is not performing his functions as quickly or as
efficiently as is reasonably expected.
• Section 593 provides that the appointment of an administrator
automatically ends at the end of twelve months from and
including the date on which it took effect. Consent may however
be given by the court or by the creditors to extend the duration of
administration.
 End of administration

• Section 595 provides that an administrator can make an application to the court
for an order terminating his appointment if:
i. the objective of the administration cannot be achieved
ii. the company should not have entered administration;
iii.if a creditors’ meeting requires the administrator to make such an application;
iv. the purpose of administration has been sufficiently achieved in relation to the
company
• Section 596 additionally provides that the administrator believes that the purpose
of administration has been sufficiently achieved he may lodge with the Court; and
with the Registrar, a notice containing prescribed information whereupon his
appointment will end.
• The court may terminate the appointment of an administrator on the application
of a creditor who alleges an improper motive according to section 597.
• Finally, as provided for under section 598 the court may terminate the
administration if they choose to liquidate the company in the public interest
instead.
 Replacement of administrators

• Administrators are free to resign from their position. They are however
required to give notice to the person who appointed them as stipulated in
section 603 of the Act.
• Additionally, the court is given residual power in section 604 to remove an
administrator whenever circumstances exist that make it inappropriate for the
administrator to continue in office
• Where an administrator ceases to be a qualified insolvency practitioner he has
to vacate the office.
• The death of the administrator will also result in a vacancy in the office.
• On the application of either the creditor’s committee of the company, the
directors or one or more creditors of the company the court may appoint a new
administrator to replace the previous one.
• Section 608 and section 610 provide that where the administrator was
appointed by floating charge holders or by the company respectively these
persons may appoint a replacement.
 Advantages of administration

• To the company:
i. The company does not necessarily cease to exist at the end of the
process, whereas liquidation will always result in the company
being wound up.
ii. It provides temporary relief from creditors to allow breathing
space to formulate rescue plans.
iii.It prevents any creditor applying for compulsory liquidation.
iv.It allows past transactions to be challenged.
• To the members:
i. They will continue to have shares in the company which has not
been wound up.
ii. If the administration is successful, regenerating the business
should enhance share value and will restore any income from the
business.
 Advantages of administration

• To the creditors:
i. Creditors should obtain a return in relation to their past debts
from an administration.
ii. Unsecured creditors will benefit from asset realizations.
iii.Any creditor may apply to the court for an administration order,
while only certain creditors may apply for other forms of relief
from debt. For example, the use of receivers or an application for
winding up.
iv.Floating charge holders may appoint an administrator without
reference to the court.
v. It may also be in the interests of the creditors to have a continued
business relationship with the company once the business has
been turned around.