Administration (law)

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As a legal concept, administration is a procedure under the insolvency laws of a number of common law jurisdictions, similar to bankruptcy in the United States. It functions as a rescue mechanism for insolvent entities and allows them to carry on running their business. The process – in the United Kingdom colloquially called "under administration" – is an alternative to liquidation, or may be a precursor to it. Administration is commenced by an administration order. A company in administrative receivership is operated by an administrator (as interim chief executive with custodial responsibility for the company's assets and obligations) on behalf of its creditors. The administrator may recapitalize the business, sell the business to new owners, or demerge it into elements that can be sold and close the remainder. Most countries distinguish between voluntary (board-decided) and involuntary (court-decided) receivership. In voluntary administrative receivership, the administrator is appointed by the company directors. In involuntary administrative receivership, the administrator is appointed by a judicial court. The legal terms for these processes vary from country to country, and the processes may overlap.

Insolvency is the state of being unable to pay the money owed, by a person or company, on time; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency.

Common law Law developed by judges

Common law is the body of law derived from judicial decisions of courts and similar tribunals. The defining characteristic of "common law" is that it arises as precedent. In cases where the parties disagree on what the law is, a common law court looks to past precedential decisions of relevant courts, and synthesizes the principles of those past cases as applicable to the current facts. If a similar dispute has been resolved in the past, the court is usually bound to follow the reasoning used in the prior decision. If, however, the court finds that the current dispute is fundamentally distinct from all previous cases, and legislative statutes are either silent or ambiguous on the question, judges have the authority and duty to resolve the issue. The court states an opinion that gives reasons for the decision, and those reasons agglomerate with past decisions as precedent to bind future judges and litigants. Common law, as the body of law made by judges, stands in contrast to and on equal footing with statutes which are adopted through the legislative process, and regulations which are promulgated by the executive branch. Stare decisis, the principle that cases should be decided according to consistent principled rules so that similar facts will yield similar results, lies at the heart of all common law systems.

In the United States, bankruptcy is governed by federal law, commonly referred to as the "Bankruptcy Code" ("Code"). The United States Constitution authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States". Congress has exercised this authority several times since 1801, including through adoption of the Bankruptcy Reform Act of 1978, as amended, codified in Title 11 of the United States Code and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

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Australia

In Australia, an external administrator, also called an insolvency practitioner, is an independent person that is formally appointed to control an insolvent company's affairs. External administrators can be appointed either by the company's directors, a secured creditor, or by a court, and include: provisional liquidators, liquidators, voluntary administrators, deed administrators, controllers, and receivers. [1] A receivership is when an external administrator known as a "receiver" is appointed by a secured creditor to sell off a company's assets in order to repay the secured debt, or by the court to protect the company's assets or carry out other tasks. [1]

Australia Country in Oceania

Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. It is the largest country in Oceania and the world's sixth-largest country by total area. The neighbouring countries are Papua New Guinea, Indonesia, and East Timor to the north; the Solomon Islands and Vanuatu to the north-east; and New Zealand to the south-east. The population of 26 million is highly urbanised and heavily concentrated on the eastern seaboard. Australia's capital is Canberra, and its largest city is Sydney. The country's other major metropolitan areas are Melbourne, Brisbane, Perth, and Adelaide.

In the United Kingdom, only an authorised or licensed insolvency practitioner may be appointed in relation to formal insolvency procedures.

A secured creditor is a creditor with the benefit of a security interest over some or all of the assets of the debtor.

Voluntary administration is when the directors of an insolvent company appoint an external administrator to investigate whether winding up the corporation can be prevented or delayed and to make recommendations to the directors and their creditors as to whether the company should enter into a deed of company arrangement, be wound up (liquidated), or be returned to the control of the directors. [2] The "deed of company arrangement" is a binding agreement between a business and its creditors overseen by a deed administrator relating to how the company's assets will be managed to ensure better returns for its creditors than an immediate winding up. [1]

A creditor is a party that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property and service. The second party is frequently called a debtor or borrower. The first party is called the creditor, which is the lender of property, service, or money.

When a creditor petitions the court seeking a court liquidation (a court-mandated winding up) of an insolvent company, the court appoints a "provisional liquidator" to temporarily preserve the company's assets while the winding-up application is pending. [1] [2] Administrators are required to be registered liquidators since they have broad powers to deal with company property. The appointment of an administrator "freezes" any legal proceedings against the company, and control of the company is given entirely to the administrator. Directors of the company are prohibited from acting in their capacity as directors for the duration of the administration, while administrators are personally liable for any debts incurred by the company in the course of the administration. [3]

Canada

The Bankruptcy and Insolvency Act provides mechanisms for consumer and general proposals in order to give time for an insolvent person to be able to reorganize his affairs. [4] For insolvent companies (or affiliated groups) owing more than $5 million, a more flexible regime is available under the Companies' Creditors Arrangements Act ("CCAA"). [5] [6]

<i>Bankruptcy and Insolvency Act</i> the statute that regulates the law on bankruptcy and insolvency in Canada

The Bankruptcy and Insolvency Act ("BIA") is one of the statutes that regulates the law on bankruptcy and insolvency in Canada. It governs bankruptcies, consumer and commercial proposals, and receiverships in Canada.

United Kingdom

In UK law, the administration regime is governed by the Insolvency Act 1986, as amended by the Enterprise Act 2002. An "administrator" can be appointed without petitioning the court by the holder of a floating charge (created since 15 September 2003), by the company or by its directors. Other creditors must petition the court to appoint an administrator. The administrator must act in the interests of all the creditors and attempt to rescue the company as a going concern. If this proves impossible the administrator must work to maximise the recovery of the creditors as a whole. Only then may the administrator attempt to realise property in favour of one or more secured creditors. A firm is usually in administration for no more than 12 months, after which an extension from the court can be produced at the courts discretion. [7] Administration is analogous to going into "Chapter 11" in the United States, although there are certain key differences, mainly stemming from the fact that English law does not include the debtor in possession concept. During the reorganisation period, as a result, the administrator usually runs the business rather than the directors, and any additional liquidity requirements effectively have to be met by funds provided by existing creditors rather than by any super-senior 'DIP financing'.

Insolvency Act 1986 United Kingdom legislation

The Insolvency Act 1986 is an Act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK.

Enterprise Act 2002 United Kingdom legislation

The Enterprise Act 2002 is an Act of the Parliament of the United Kingdom which made major changes to UK competition law with respect to mergers and also changed the law governing insolvency bankruptcy. It made cartels illegal with a maximum prison sentence of 5 years and states that level of competition in a market should be the basis for investigation.

A floating charge is a security interest over a fund of changing assets of a company or other legal person. Unlike a fixed charge, which is created over ascertained and definite property, a floating charge is created over property of an ambulatory and shifting nature. Examples of such property are receivables and stocks. The floating charge The floating charge 'floats' or 'hovers' until the point at which it is converted into a fixed charge. Once it becomes a "fixed charge" the charge attaches to the specific assets of the business. This conversion of the floating charge into a fixed charge can trigger common law jurisdictions]] it is an implied term in security documents creating floating charges that a cessation of the company's right to deal with the assets in the ordinary course of business leads to automatic crystallisation. Additionally, security documents will usually include express terms that a default by the person granting the security will trigger crystallisation.

The administrator is an officer of the court and an agent of the company, and is not personally liable for any contracts they make on behalf of the company. They have the power to do anything necessary or expedient for the management of the affairs, business and property of the company. The new administration regime introduced by the Enterprise Act 2002 replaces the previous situation where administrative receivership was available as an alternative to administration, which has traditionally been a more rescue-oriented insolvency regime. This regime allowed the holder of a floating charge to appoint an administrative receiver to realise assets in his favour, and also to block an administration order sought by a borrower. This was felt to be too favourable to the floating charge holder at the expense of other creditors. Holders of a floating charge created prior to 15 September 2003 retain their right to appoint an administrative receiver, but all purported rights to do so created after that date will be construed as rights to appoint an administrator, subject to certain specific, rare exceptions. A court order is issued that forbids any form of legal or insolvency action without the court's permission. An application to the court for an administration order may be made by the company, the directors, a creditor or any combination of them. The Enterprise Act 2002 amended the Insolvency Act 1986 to provide an out-of-court process to appoint an administrator to the holder of a floating charge or the company or its directors. This is considerably cheaper and simpler than the previous system, which involved an application to court.

Administration order

In the United Kingdom, an administration order is a process designed to protect limited companies from their creditors while a debt restructuring plan is carried out and presented to creditors and courts. This administration order process requires a licensed insolvency practitioner to act as the administrator appointed by the court.

Pre-pack administration

A pre-pack is the process of selling the assets of a company immediately after it has entered administration. It is sometimes the case that the previous directors or management purchase the assets of the company from the administrator and set up a new company. This process has advantages in that it enables the administrator to realise a greater amount for the assets due to business continuity and that the goodwill of the company is preserved. The employees of the company are also usually transferred to the new company, preserving jobs. Pre-packs have attracted criticism because of the appearance it gives to unconnected parties that the company has just continued without its creditors. SIP 16 was introduced in January 2009 to assist Insolvency Practitioners in pre-pack cases. [8] It was designed to make the process more transparent for creditors, and to ensure that fair value was obtained for the assets.

In November 2009, the Office of Fair Trading announced a study into corporate insolvencies, with particular focus on pre-pack administrations, [9] to report on whether the insolvency market is operating efficiently, with enough freedom of competition between insolvency practitioners and whether consumers and creditors are being treated as fairly as possible. An example of a pre-pack is the sale of the assets of Cobra Beer to Coors immediately after Cobra Beer entered administration. This allowed the brand to continue and saved jobs, [10] but also left suppliers out of pocket by an estimated £75 million.

Individual administration order in England, Wales and Northern Ireland

In this process, a debtor who has enough money left over after priority creditors and essential expenses may be able to arrange an individual voluntary arrangement. [11] (Debtors with less serious problems may prefer a debt management plan.)

Republic of Ireland

The Republic of Ireland operates a similar process called examinership, but companies require permission from the High Court to enter and leave examinership.

New Zealand

In New Zealand, voluntary administration is covered by the Companies Act 1993, [12] [13] as amended under the Companies (Voluntary Administration) Regulations Bill in 2007. [14]

See also

Notes

  1. 1 2 3 4 "Insolvency: A Glossary of Terms" (PDF). Information Sheet 41. Australian Securities & Investments Commission. December 2008. Retrieved 30 November 2016.
  2. 1 2 Roman Tomasic; Stephen Bottomley; Rob McQueen (2002). Corporations Law in Australia. Federation Press. pp. 740–742. ISBN   978-1-86287-314-8.
  3. Australian Securities & Investments Commission (5 October 2016) [2001]. "Corporations Act 2001: Volume 1, No. 50; Compilation No. 73". C2016C00922. Federal Registrar of Legislation. Retrieved 30 November 2016.
  4. "The Bankruptcy and Insolvency Act". www.bankruptcy-canada.ca.
  5. "Bankruptcy and Insolvency at Glance". ic.gc.ca. 2012.
  6. "Bankruptcy Law in Canada and B.C." slocombe-trustee.com.
  7. "Administration". sfpgroup.com. SFP Group 2014 - All Rights Reserved. Retrieved 23 March 2014.
  8. "Insolvency: so what is a pre-pack?". Accountancy Age . 11 June 2009. Archived from the original on 2010-06-16. Retrieved 10 January 2017.
  9. Pre-pack administrations to be investigated by OFT, Business Sale Report , 24 November 2009
  10. Pre-packs overtake normal administrations, Accountancy Age, 18 June 2009
  11. [ dead link ] Money management – In England Archived 2010-01-23 at the Wayback Machine Citizens Advice Bureau.
  12. "Voluntary administration". Companies Office/Business.govt.nz. Archived from the original on 2017-04-21. Retrieved 2017-05-03.
  13. "Company insolvency options". New Zealand Insolvency and Trustee Service.
  14. "Companies (Voluntary Administration) Regulations 2007". New Zealand Legislation/Parliamentary Counsel Office.

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Liquidation is the process in accounting by which a company is brought to an end in the United Kingdom, Australia, New Zealand, Republic of Ireland, Cyprus and United States. The assets and property of the company are redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation. The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.

In law, receivership is a situation in which an institution or enterprise is held by a receiver—a person "placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights"—especially in cases where a company cannot meet financial obligations or enters bankruptcy. The receivership remedy is an equitable remedy that emerged in the English chancery courts, where receivers were appointed to protect real property. Receiverships are also a remedy of last resort in litigation involving the conduct of executive agencies that fail to comply with constitutional or statutory obligations to populations that rely on those agencies for their basic human rights.

An officer of the Insolvency Service of the United Kingdom, an official receiver (OR) is an officer of the court to which they are attached. The OR is answerable to the courts for carrying out the courts' orders and for fulfilling their duties under law. They also act on directions, instructions and guidance from the service's Inspector General or, less often, from the Secretary of State for Business, Energy and Industrial Strategy.

In law, a liquidator is the officer appointed when a company goes into winding-up or liquidation who has responsibility for collecting in all of the assets under such circumstances of the company and settling all claims against the company before putting the company into dissolution. Liquidator is a person officially appointed to 'liquidate' a company or firm. Their duty is to ascertain and settle the liabilities of a company or a firm. If there are any surplus assets,they are distributed to the contributories.

United Kingdom insolvency law

United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. "Insolvency" means being unable to pay debts. Since the Cork Report of 1982, the modern policy of UK insolvency law has been to attempt to rescue a company that is in difficulty, to minimise losses and fairly distribute the burdens between the community, employees, creditors and other stakeholders that result from enterprise failure. If a company cannot be saved it is "liquidated", so that the assets are sold off to repay creditors according to their priority. The main sources of law include the Insolvency Act 1986, the Insolvency Rules 1986 ), the Company Directors Disqualification Act 1986, the Employment Rights Act 1996 Part XII, the Insolvency Regulation (EC) 1346/2000 and case law. Numerous other Acts, statutory instruments and cases relating to labour, banking, property and conflicts of laws also shape the subject.

Company Directors Disqualification Act 1986 United Kingdom legislation

The Company Directors Disqualification Act 1986 forms part of UK company law and sets out the procedures for company directors to be disqualified in certain cases of misconduct.

Under UK insolvency law an insolvent company can enter into a company voluntary arrangement (CVA). The CVA is a form of composition, similar to the personal IVA, where an insolvency procedure allows a company with debt problems or that is insolvent to reach a voluntary agreement with its business creditors regarding repayment of all, or part of its corporate debts over an agreed period of time. The application for a CVA can be made by the agreement of all directors of the company, the legal administrators of the company, or the appointed company liquidator.

Pre-packaged insolvency is a kind of bankruptcy procedure, where a restructure plan is agreed in advance of a company declaring its insolvency. In the United States pre-packs are often used in a Chapter 11 filing. In the United Kingdom, pre-packs have become popular since the Enterprise Act 2002, which has made administration the dominant insolvency procedure. Such arrangements are also available in Canada under the Companies' Creditors Arrangements Act.

Administration in United Kingdom law is the main kind of procedure in UK insolvency law when a company is unable to pay its debts. The management of the company is usually replaced by an insolvency practitioner whose statutory duty is to rescue the company, save the business, or get the best result possible. It is the equivalent of Chapter 11, Title 11, United States Code, although with significant differences. While creditors with a security interest over all a company's assets could control the procedure previously through receivership, the Enterprise Act 2002 made administration the main procedure.

<i>Buchler v Talbot</i>

Buchler v Talbot[2004] UKHL 9 is a UK insolvency law case, concerning the priority of claims in a liquidation. Under English law at the time the expenses of liquidation took priority over the preferred creditors, and the preferred creditors took priority over the claims of the holder of a floating charge. However, a crystallised floating charge theoretically took priority over the liquidation expenses. Accordingly the courts had to try and reconcile the apparent triangular conflict between priorities.

British Virgin Islands company law

British Virgin Islands company law is primarily codified in the BVI Business Companies Act, 2004, and to a lesser extent by the Insolvency Act, 2003 and the Securities and Investment Business Act, 2010. The British Virgin Islands has approximately 30 registered companies per head of population, which is probably the highest ratio of any country in the world. Annual company registration fees provide a significant part of Government revenue in the British Virgin Islands, which accounts for the comparative lack of other taxation. Accordingly, company law forms a much more prominent part of the law of the British Virgin Islands than might otherwise be expected.

British Virgin Islands bankruptcy law

British Virgin Islands bankruptcy law is principally codified in the Insolvency Act, 2003, and to a lesser degree in the Insolvency Rules, 2005. Most of the emphasis of bankruptcy law in the British Virgin Islands relates to corporate insolvency rather than personal bankruptcy. As an offshore financial centre, the British Virgin Islands has many times more resident companies than citizens, and accordingly the courts spend more time dealing with corporate insolvency and reorganisation.

Cayman Islands bankruptcy law

Cayman Islands bankruptcy law is principally codified in five statutes and statutory instruments:

Anguillan bankruptcy law

Anguillan bankruptcy law regulates the position of individuals and companies who are unable to meet their financial obligations.

Australian insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is principally governed by the Corporations Act 2001. Under Australian law, the term insolvency is usually used with reference to companies, and bankruptcy is used in relation to individuals. Insolvency law in Australia tries to seek an equitable balance between the competing interests of debtors, creditors and the wider community when debtors are unable to meet their financial obligations. The aim of the legislative provisions is to provide:

Provisional liquidation is a process which exists as part of the corporate insolvency laws of a number of common law jurisdictions whereby after the lodging of a petition for the winding-up of a company by the court, but before the court hears and determines the petition, the court may appoint a liquidator on a "provisional" basis. Unlike a conventional liquidator, a provisional liquidator does not assess claims against the company or try to distribute the company's assets to creditors, as the power to realise the assets comes after the court orders a liquidation.

Hong Kong insolvency law

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