Live Session 1 - Purpose and Routes into Administration Flashcards Preview

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Flashcards in Live Session 1 - Purpose and Routes into Administration Deck (37)
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What is the purpose of Administration

Administrator if a company must perform his functions with the objective of:

1. Rescuing the company as a going concern
2. Achieving a better result for the company's creditors as a whole than would be likely if the company were wound up without first being in administration.
3. Realising property in order to make a distribution to one or more secured or preferential creditors


How for who must an administrator act

As quickly and as efficiently as reasonably possible. Administrator must perform his functions in the interests of the company's creditors as a whole


Qualifications to act as an administrator


I - Individual
A - Authorised by an RPB
B - Bankrupt - An administrator cannot be an undischarged bankrupt or subject to bankruptcy restrictions or debt relief restrictions order
D - Disqualified - An administrator cannot be subject to disqualification order or undertaking under Company Director Disqualification Act
S - Security - Administrator must hold relevant security
M - Mental Capacity - Administrator cannot lack capacity to Act as IP within the meaning of the Mental Capacity Act


What kind of security is an Administrator required to hold and what is it for

General penalty bond in sum of £250,000.
Specific penalty bond at least equal in value to the value of the estate estimated by administrator on date of appointment, less assets charged to third parties or held in trust.

Bonding is required to to insure against losses in relation to the insolvent caused by the fraud or dishonesty of IP or fraud and dishonesty committed in connivance of the IP


What are the 3 routes into administration

1. Court Appointment
2. By QFCH out of Court
3. By Company/ director out of Court


Who may apply for Court order for administration

1. The Company
2. The Directors
3. One or more creditors
4. CVA Supervisor
5. Liquidator
7. Justice Chief Executive for Magistrates Court in relation to enforcement of fines against a company
8. Financial Services Authority


When will Court grant an administration order

When the company is or is likely to become unable to pay its debts as they fall due and when granting the administration order is reasonably likely to achieve the purpose of the administration.

The Court will take into account whether the applicant would be able to use out of court procedure if it declined to grant administration order.


What are the preconditions to seek an order from court to appoint an administrator

1. Company is not in administration
2. Company is not in CVL (unless liquidator is applying)
3. Company is not in Compulsory Liquidation
4. Company must be insolvent
5. Applicant must provide a witness statement


What must be included with application to Court for an administration order

1. Application
2. Witness Statement
3. Administrators Statement


What is the content of a witness statement

1. Statement of financial position of the company
2. Details of any known security granted by the company and any rights to enforce given to security holders
3. Details of any known insolvency proceedings that may have been commenced against company
4. Para 100(2) statement where there is to be a joint administrator regarding joint and several execution of powers
5. Whether EC Regulations apply if so whether administration will be main proceedings (COMI is in UK) or whether they are secondary proceedings (COMI not in the UK)
5. Anything else that will assist the court to decide whether to grant administration order


What is the content of the Administrators statement

1. Consent to Act
2. Details of any prior relationship with the appointer
3. Statement that believe that the purposes of the administration are likely to be achieved.


What is filed in Court and how many copies are required to be filed

1. Application
2. Witness Statement
3. Administrators statement

Sufficient copies for service.


What happens when application is filed in Court

1. Court seals application
2. endorses it with time and date application filed.
3. Fixes time and venue for application hearing.

Court keeps a copy on file and returns others for service.


Who is application served on?

1. The Company
2. Proposed Administrator
3. High Court Enforcement Officers
4. Any AR and appointer
5. Any petitioner for winding up and provisional liquidator
6. If secondary proceeding, appointee appointed in main proceedings.
7. CVA supervisor
8. Any person who has distrained against the company


What happens once all necessary notices have been served

Applicant must file a certificate of service in Court ASARP after confirming that notices have been served. This must be filed at least one business day prior to the hearing.


What options does the Court have at the hearing

1. Grant administration order
2. Grant interim order
3. Dismiss application
4. Adjourn hearing conditionally or unconditionally
5. Grant a winding up order if it does not think the purpose of the administration can be achieved.
6. Any other order the Court thinks fit.


What are the pre-conditions for the out of court appointment by a QFCH?

1. Floating charge is valid and enforceable against company - suggests default in terms of security agreement
2. Have sought consent from higher ranking charge holders
3. Company not in administration
4. Administrative Receiver has not been appointed
5. A liquidator has not been appointed
6. A provisional liquidator has not been appointed

Note: Company does not have to be insolvent to proceed with application by QFCH


What notice does a QFCH need to give prior QFCH and why?

2 Business Days. Reason is so that prior ranking charge holder has opportunity to appoint their own choice of administrator


If pre-conditions are met, what steps does the QFCH need to take

QFCH required to file a Notice of Intention to Appoint an Administrator. This is given to prior ranking QFCH and gives opportunity to appoint own choice of liquidator.

Appointer files Notice of Intention to Appoint in Court and is valid until an administrator is appointed or 5 business days.


What options does prior QFCH have on receipt of Notice of Intention to Appoint

1. Consent to appointment - return form
2. Do nothing - appointing QFCH will be able to appoint administrator after 2 business days notice expires
3. Reject and take steps to appoint own choice of administrator


What steps does appointer take after 2 days notice expired or prior QFCH consents to appointment

Appointing QFCH files a Notice of Appointment in Court. Notice of Appointment is supported by:

- Statutory Declaration
- Administrator Statement


What is content of Statutory Declaration

1. Confirms that appointer is a QFCH
2. Confirms that QFCH each QFCH relied on for appointment is valid and enforceable on date of appointment
3. That the appointment is compliant with Schedule B1.


What is content of Administrators statement

1. Consent to Act.
2. Details any prior relationship with appointer
3. Statement that believe purpose of administration can be achieved.


How is appointment by QFCH confirmed

Appointing QFCH files Notice of Appointment, Witness Statement and Administrators Statement in Court. Also file evidence that prior QFCH's have consented to appointment and Para 100(2) statement regarding powers and functions of joint administrators.

3 copies are filed in Court & Court seals and endorses with time and date of filing. This becomes administration order.


What happens to 3 copies of court sealed notice of appointment

1. Court keeps one for Court file
2. 2 are returned to appointer, who keeps one and gives on to administrator.


Can appointment be made outside of Court hours?

Yes. Courts have dedicated out of hours e-mail and fax line. Need to keep copy of transmittal sheet to verify when sent.

Appointer should attend Court the next available day with hard copies and transmittal report and explanation as to why out of court appointment required.

Appointment takes effect from date and time on which fax/ e-mail was sent.


What are the pre-conditions for out of court appointment by company/ directors

1. Not currently in administration
2. Not currently in liquidation
3. No Admin Receiver
4. No CVA small company moratorium within 12 months where CVA did not go ahead or ended prematurely
5. No administrator appointed within 12 months
6. No outstanding winding up petitions filed prior to company/ directors NOI
7. Need to be able to prove insolvency


What is the first step for company/ directors to appoint??

The directors must hold a board meeting to discuss and approve decision to appoint an administrator


What are the practical considerations for a board meeting

1. Check the availability of the directors to attend
2. Check the mem & arts to ensure board meeting is correctly convened
3. Ensure that the meeting is quorate
4. Nominate chairman/ authorised signatory to sign notices
5. Pass board resolution to approve decision to appoint administrator


What happens after board passes resolution

Notice of Intention to Appoint, Statutory Declaration of Directors/ company and board resolution are filed in Court and served on all QFCH giving 5 days notice of intention. QFCH have 3 options; consent, do nothing or reject and take steps to appoint own choice of administrator.

Notice should also be given to any distraining creditors, high court enforcement officers, the company itself, CVA Supervisor and Commercial Rent Arrears Recovery Creditors who have commenced action.