#16628 - Administration And Cv As - Business Law and Practice

ADMINISTRATION

Negotiation/ Informal Agreement with Creditors	Purpose	To provide some short-term relief from immediate debts. Administration or a CVA will rarely be a company’s first choice.
	Procedure	Approach lenders and/or creditors and informally renegotiate the terms of their arrangement e.g. time to pay, amount.
	Advantages	Can negotiate terms that sets payment at a later date when there are more funds available
	Disadvantages	Difficult to achieve with multiple creditors and may just be a means of prolonging the inevitable
	Feasibility	Yes when there is only one major creditor but may not accept
Administration	Purpose	A temporary measure to (Paragraph 3 Sch B1 IA 1986): 3(1)(a) rescue the company as a going concern 3(1)(b) achieve better result for the creditors as a whole than if company were wound up 3(1)(c) realise property to make a distribution to one or more secured/preferential creditors			May end in: Rescue as a going concern Sale as a going concern & liquidation Piecemeal sale of assets & liquidation
	Procedure	1(2)(b) Commences when the appointment of the administrator takes effect 43 A moratorium starts which prevents actions which hinder the administrators task – (although an interim moratorium can start before an administrator’s appointment (44)) this prevents: s.42(2) voluntary liquidation, s.42(3) compulsory liquidation, and s.43(2) third parties enforcing contractual rights. Sched A1 para 8 (pg.890) The moratorium ends on either the day of the meeting to consider CVA (2) or 28 days (3) whichever is earlier The administrator is an external manager, who is a qualified insolvency practitioner, who takes over the running of the company and puts together proposals to achieve the purposes of administration in 3(1) An administrator can be appointed by the court (less common), a qualified floating charge holder (QFCH) 14, the company, or the directors
	QFCH Para 14(1) The floating charge must be a qualifying floating charge – 2 stage test: 14(3) Relates to the whole, or substantially the whole, of the company’s undertaking 14(2) States that para 14 applies or purports to give the debenture holder the power to appoint an administrator Para 15(1)(a) Give at least 2 business days’ notice to any prior QFCH or written consent obtained prior to the appointment of administrator Para 18 Notice of appointment must include statutory declaration and be filed with the court stating that: That they have a qualifying floating charge It was enforceable Appointment is in accordance with the schedule Para 19 Appointment takes effect when the documents have been filed No appointment may be made my a QFCH if: 17 – administrative receiver is in place 7 – company is in administration 8 – company is in liquidation 17 – Provisional liquidator has been appointed		Company / Directors Appointment by Company: Ordinary resolution Appointment by Directors: Majority resolution (show of hands) Para 26 (1) – Notice to appoint an administrator must be given to any holder of qualifying floating charges and any person entitled to appoint an administrator or administrative receiver at least 5 business days before the appointment (3) the notice must identify the proposed administrator Para 27 (1)– The notice and any documents accompanying it must be filed with the court (2) the notice must include a statutory declaration that must state that: the company is or is likely to be unable to pay its debts not in liquidation there are no restrictions to appointment Para 29 – appointment of an administrator can be made once the 5 business days have passed. A notice of appointment, statutory declaration and statement from the administrator are then filed with the court. Appointment takes effect and the moratorium comes into effect at this point No appointment may be made if: 7 – company is in administration 8 – company is in liquidation 23(2) – company has been in administration or has entered into a CVA as a result of administration within the preceding 12 months
	Para 46 – on appointment, the administrator sends a notice of appointment (2) to the company immediately (3) to the creditors within 28 days of appointment (4) to the registrar of companies within 7 days Para 47 – after appointment the administrator of a company requests, the administrator submit a notice requesting a statement of affairs from the company Para 48 – the company must submit a statement of affairs within 11 days of receiving the notice from the administrator Para 49 – the administrator makes a statement setting out the proposals for achieving the purpose of the administration within 8 weeks of the appointment Para 51 – the administrator must hold a creditors meeting within 10 weeks beginning with the day the company enters administration, the creditors will consider the proposals Once the proposals have been approved, the administrator has 12 months from appointment to put the proposals into effect and to achieve the purposes of the administration – this period can be extended by the court or by the agreement of the creditors
	Powers of Administrator	Found in Schedule 1 page 937 Run the Company in place of the directors – carry on the business, sell assets, borrow money Has same powers of a liquidator regarding: undervalue transactions, preferences, floating charges and transactions defrauding creditors
	Advantages	Can negotiate terms that sets payment at a later date when there are more funds available
	Disadvantages	Difficult to achieve with multiple creditors and may just be a means of prolonging the inevitable
	Feasibility	Yes when there is only one major creditor but may not accept
Company Voluntary Arrangement (formal agreement with a company and its creditors)	Purpose	Agreement between an insolvent company and its creditors for repayment if its debts A CVA is more likely to succeed if it is first put into administration so it can benefit from the automatic To prevent the creditors from pushing the company into liquidation
	Procedure	Proposed by Directors		Proposed by Liquidator / Administrator
		Proposals for CVA prepared and directors appoint a nominee		Liquidator/Administrator is the nominee.
		Directors submit proposals and statement of company’s affairs to nominee. Nominee has 28 days to report to the court on the viability of the proposals.		Liquidator/Administrator is the nominee.
		Nominee sends members and creditors: A copy of the proposals and nominee’s comments on them Statement of affairs Notification of the qualifying decision procedure Send the members 14 days’ notice of members meeting to take place within 5 days after creditor’s decision
		Members’ and creditors’ considerations of the proposals must be concluded within 28 days of nominee’s report being filed at court Proposals will generally involve: “composition of debts” – creditors are only p aid a certain percentage of their debt “scheme arrangement” – company agrees to pay creditors in full, but over time, can involve debt for equity swap
		Proposals must be approved by at least 75% by value of the unsecured creditors who vote on them and must not be opposed by more than 50% As to members, the approval must be secured by 50% or more of those present and voting unless articles provide differently If members’ decision differs from creditors’ the latter will prevail unless a successful application is made to the court All creditors (except secured and preferential) are bound by the decision
		CVA commences on approval, directors remain in office and run the company with the nominee supervising the implementation of the proposals
	Advantages	Appropriate for a company with a sound underlying business which has run into cash-flow problems so can get back on its feet The will of the majority of creditors will determine the outcome of the CVA
	Disadvantages	No automatic moratorium so the company is still at risk of creditor action until the CVA is approved (except small companies (defined in 382 CA 2006) can apply to the court for a moratorium of up to 28 days) CVA cannot bind a secured creditor, they can still enforce their security

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#16628 - Administration And Cv As - Business Law and Practice

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