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This Act made a considerable impact on personal bankruptcy, which is beyond
the scope of this website, but had substantial company law effects too. The
position of the holder of a floating charge was dramatically affected, removing
the ,right to appoint a receiver (for charges created from 15.9.2003), and corporate
insolvency generally was recast, by shifting the emphasis from liquidation to
company administration.
Company Administration
Since Enterprise Act came into effect, the emphasis in corporate insolvency
has shifted from liquidation to company administration. The purposes of administration
must be to rescue the company as a going concern or, if that cannot be achieved,
to achieve a better result for creditors than would be possible in winding up;
or to realise the assets to pay creditors. A major change was that an administrator
can now be appointed without application to the court by the holder of a floating
charge (who cannot appoint receiver if charge created from 15.9.2003), or by
the directors or by the company itself. Alternatively, the court can appoint.
Appointment by floating charge holder
A debenture holder can appoint an administrator if s/he has a floating charge
over the whole or substantially the whole of company's assets, the charge has
crystallised, and the debenture provides for the appointment of administrator
or administrative receiver. Notice must be given to any prior charge-holder.
If the debenture was created after 15.9.2003 the debenture-holder cannot appoint
an administrative receiver.
Appointment by company or its directors
The directors can appoint an administrator, or the appointment can be by ordinary
resolution of general meeting. The company must give 5 working days' notice
to any floating charge holder, who can concur in the appointment, or appoint
their own administrator (or receiver if a pre-15.9.2003 debenture.)
Appointment by the court
If winding up proceedings are pending the appointment has to be by the court.
Note that every administrator is an officer of the court, even if not appointed
by court
Effect of appointment of administrator
The appointment creates a moratorium for the company, during which no liquidation,
enforcement or other proceedings can be taken against it without the court's
consent. An administrator (insolvency practitioner) is appointed to attempt
to achieve the purposes of the administration. The administrator has statutory
powers to manage the company, sell property etc. If s/he comes to the conclusion
that the purposes of the administration cannot be achieved then s/he must resign
and the administration comes to an end.
Administrator's role
Note the purposes of the administration (set out above). The administrator produces
a set of proposals to rescue the business (or part of it) or to realise its
assets. The proposals cannot go against rights of secured creditors (unless
they consent), and may (and often will) include a company voluntary arrangement.
Having devised the proposals for the administration, the administrator calls
a creditors' meeting. The proposals must be approved by a simple majority of
unsecured creditors. There will not be a creditors' meeting if either creditors
can be paid in full, or there is not enough to pay them anything.
Since the Enterprise Act, many corporate voluntary arrangements (CVAs) are
brought about by administration, which gives the company the protection of a
moratorium while the scheme is being devised. A CVA needs the approval of the
general meeting and meeting of creditors. If approved, the arrangement binds
all members and creditors affected.
'Ring fencing' money for ordinary creditors
The Enterprise Act 2002 added new sec72A to Insolvency Act 1986, which allows
the Secretary of State to make regulations that part of assets that are subject
to a floating charge are available to ordinary creditors. The regulations are
in the Insolvency Act
1986 (Prescribed Part) Order 2003 SI 2003/2097. The amount ring fenced is
50% of first £10,000, plus 20% of the rest, to a maximum value of £600,000
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