Lloyd's Maritime and Commercial Law Quarterly
ADMINISTRATION: THE INSOLVENCY ACT 1986, PART II
Dan Prentice*
Fidelis Oditah*
Nick Segal**
Most insolvency regimes are now paying greater attention to procedures for rehabilitating companies, or rescuing the business of companies, that are in financial distress. This article examines Part II of the Insolvency Act 1986, which was introduced into English insolvency law to enable the undertakings of companies in financial distress to be rescued in whole or in part. It does not supersede other procedures by which a rescue could be effected, namely arrangements under the Companies Act 1985, s. 425 or the appointment of an administrative receiver to enforce a floating charge. It is also important at the outset to appreciate that Part II of the 1986 Act is not solely concerned with rescue but that it is a multi-faceted procedure which can, for example, be used as an adjunct to the winding up of a company.
Part II of the Insolvency Act 19861 introduced the administration procedure into English insolvency law. The broad purpose of administration is to enable a company in a parlous state to trade out of its financial difficulties, or to realize its assets more advantageously than it would do in winding up. It is in part an alternative to an arrangement under the Companies Act 1985, s. 425,2 the appointment of an administrative receiver,3 or liquidation for dealing with a company that is in financial difficulties.
It is important to understand that administration is multi-faceted and can serve a range of functions. These will be dealt with in detail. But administration is not used exclusively for the purpose of trying to rehabilitate a floundering company; e.g., an administration order can also be made for a “more advantageous realisation of the company’s assets than would be affected on a winding up”.4 As the table below indicates, administration is the least common of the insolvency procedures but it has been invoked with sufficient frequency to show that it is an established feature
* Oxford University.
** Partner, Allen & Overy, London. This paper was originally delivered at the Annual Workshop on Commercial and Consumer Law, University of Toronto, in 1993, the full proceedings of which are published as J. Ziegel (ed.), Current Developments in International and Comparative Corporate Insolvency Law (O.U.P. 1994).
1. Hereafter where there is a reference to a section number only, it is a reference to the Insolvency Act 1986.
2. This enables a company to enter into an arrangement with its creditors: see infra, § A(3).
3. I.e., a receiver appointed under a charge which as created was a floating charge: see Insolvency Act 1986, s. 29(2). On the differences between administrative receivership and liquidation, see Gower, Principles of Modern Company Law, 5th edn (1992), 436–437.
4. S. 8(3)(d).
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