Flashcards in Live Session 2 - Extending and Exiting Administration Deck (40)
How long does an administration order last
Unless period of administration is extended by the Court or by creditor consent, it will automatically terminate at the end of 12 months from when company entered administration.
Can an administration be extended once 12 month period has passed.
No. As it automatically terminates it can't be extended once 12 month period passed.
Therefore administrator must act in good time to ensure extension of time can be obtained before the end of 12 months.
Note: Court has discretion to hear application for extension after term ends but is unlikely to be sympathetic.
Who can grant an administrator an extension
How many extensions may creditors give. What are the circumstances when creditors may not grant extension.
Creditors can only grant consent to extend the administration ONCE, and can not give if Court has previously granted an extension.
In exam: Ask creditors for extension first, if necessary subsequent extensions can be made through court
How long can creditors give for an extension
Who approves request to creditors for extension
It depends on who will receive distributions from the administration.
1. If only secured creditors will receive payment - only they vote for the extension. Need unanimous approval.
2. If secureds and prefs will be paid - All secured creditors + 50% of prefs responding to vote must approve
3. If secured, prefs and unsecured creditors other than prescribed part - all secured + 50% of unsecured
How much notice is required to be given
At least 14 days. Consider timing in exam, must obtain extension prior to end of 12 months.
What happens if creditors do not approve extension
Administrator can apply to court for extension.
How long may the Court grant an extension for
Court can extend administration for longer than 12 months PROVIDED THAT the period of extension is specified. It can't be extended indefinitely.
When must application for Court extension be filed in court
Application must be filed at least ONE MONTH prior to the cessation of the administration.
If not, administrator must explain reason for delay and risk court disallowing some or all costs of application.
What must be filed at Court to request extension
1. Notice of Application
2. Progress Report
Not required, but common practice to file a witness statement setting out reason for application for extension.
Do creditors need be notified of application for extension
No. Creditors do not need to be served copy of application.
But, if creditor is likely to be hostile, may be better to give notice - 14 days - and give opportunity to be heard in Court
What needs to be done after extension granted and when
ASARP after extension granted, administrator must notify Registrar and creditors.
Remember, if creditors grant extension, need to notify all creditors, Court and Registrar ASARP afterwards.
What happens to the progress report filed at court to support application for extension.
Administrator must send progress report issued to Court within one month of the end of the reporting period.
There is a penalty for failing to notify Court/ Creditors/ ROC by a fine and daily default fine.
Should also notify everyone who received notice of the appointment.
An extension triggers the start of a new reporting period.
What are the options available to administrator to exit an administration
1. Filing to place company into CVL - most popular for exam
2. Obtain creditor approval for CVA
3. Obtain approval from creditors and Court for Scheme under the Companies Act
4. Petition to Court for compulsory winding up
5. File for dissolution - next most popular for exam
6. Hand company back to directors
7. Allow administration to lapse at end of 12 months
8. Apply to Court to end administration
What are the preconditions to file for a CVL exit
1. Total amount which each secured and preferential creditors will receive has been paid or set aside - not these classes of creditors do not need to be paid in full. AND
2. There will be a distribution to unsecured creditors in excess of prescribed part
Administrator must state in their proposal how it is proposed that the administration will end.
If CVL is proposed as an exit route in the proposal, what information needs to be provided in the proposal
Where CVL is intended exit route, proposal must state:
1. Details of proposed liquidator - tends to be same IP as administrator
2. Statement that creditors may nominate their own choice of liquidator before the proposals are approved.
3. Statement that if no other liquidator is appointed the administrator will be the liquidator.
What happens to creditors committee in the administration when a CVL Liquidator is appointed
An administration creditors committee will become the liquidation creditors committee
What is the procedure for exiting an administration by CVL
1. Send notice to Registrar that company is moving from administration to CVL (Para 83 notice)
2. Attach R&P and progress report to Para 83 Notice.
3. ASARP after Para 83 notice registered by Registrar, send final report & R&P to:
- All creditors
- Anyone else who received notice of appointment
When does the administration come to an end/ CVL start
Administration ends with effect from date of registration of Para 83 Notice. Court of Appeal held that the date of receipt of the notice will be the effective date, regardless of whether the steps required to register the notice have been completed.
CVL starts the same date.
How can creditors be notified of the impending move from CVL
Consider the new rules re permission to use e-mail, upload documents to a website etc. (details included elsewhere).
What are the advantages of exiting an administration by CVL.
1. Liquidator has no limit to investigative powers.
2. Problems re 12 month expiry and seeking extensions are pre-empted by appointment of liquidator
3. Liquidator has statutory power to disclaim onerous property - administrator can't.
4. Liquidator has full power to compromise claims with creditors and the lack of time limit provides time to negotiate and settle complex claims.
What are the pre-conditions to seek to exit an administration through dissolution of the company
1. Dissolution is only available where the administrator thinks that the company has no property which might permit a distribution to creditors.
Do you need to apply to Court to exit an administration via dissolution
What is the procedure to end an administration by dissolution.
1. File copy of notice, Para 84 Notice and send it, together with final progress report to the registrar
2. ASARP after filing Para 84 Notice and report with Registrar, send it to all parties who received notice of administration.
3. On registration of Para 84 Notice the administration ceases to have effect.
4. Three months thereafter the company is dissolved.
When might dissolution be used as an exit strategy
1. When all distributions have been made and there are no further funds available for distributions.
2. Consider doing for a pre-pack/ sale of business in the exam.
When might an administrator petition Court to exit administration through compulsory liquidation
1. May be appropriate where creditors want a thorough investigation into allegations of fraud against directors.
2. When the Company should not have entered administration
3. Administrator thinks that the purpose of the admin can not be achieved
4. The creditors meeting requires the administrator to apply to end the administration - if this happens the administrator must submit a statement advising whether he agrees with creditor requirement.
What must be included in administrators' petition to Court to for compulsory winding up
1. Name of Administrator
2. Court file number
3. Date company entered administration
4. Contain application requesting that the appointment of administrator ceases to have effect.
5. Statement that he has given applicant/ appointer for administration 5 business days notice - application must also include any responses received.
The application must be supported by a final progress report from date of commencement/ from date of end of last reporting period.
Who must be given notice of administrators application - and how much notice should they be given
Administrator must give 5 business days notice to applicant for administration order of his intention to apply for a winding up petition.
The notice must state whether the administrator intends to seek appointment as compulsory liquidator