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 being "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 (sometimes referred to as a receiver and manager) (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.
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. A receivership is when an external administrator known as a "receiver" (usually a "receiver and manager" if it requires controlling the company) 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.
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 (i.e. liquidated), or be returned to the control of the directors.[1] After an administrator is appointed, there are two meetings of creditors, held within tight time-frames, with the second being the most important as it will decide whether to enter into a deed of company arrangement (DOCA), end the administration or wind the company up.[2]
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.[5] For insolvent companies (or affiliated groups) owing more than CA$5million, a more flexible regime is available under the Companies' Creditors Arrangement Act ("CCAA").[6][7]
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.[8] 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'.
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
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,[13][14] as amended under the Companies (Voluntary Administration) Regulations Bill in 2007.[15]
Ukraine
In Ukraine, a system of "sanation" measures take place to prevent or lessen the effect of insolvency.[16] The basic components of those measures include providing special loans and subsidies; exemptions for issuing a credit or taxation; restructuring of the business's debts and capital; change of organizational and production structure of the debtor; full or partial nationalization; others.
Following the dissolution of the Soviet Union and reforming the existing socialist law, in 1999 there was established a law "About restoring the debtor's solvency or declaring him bankrupt".
The official who administers "sanation" is known as an "arbitral director" and is appointed by a court.[17]
See also
- Administration (British football)
- Administrative receivership
- Chapter 11, Title 11, United States Code
- Examinership a similar process in the Republic of Ireland
External links
References
- Corporations Law in Australia Federation Press, 2002^
- Voluntary Administration Guide www.litigant.com.au, retrieved 2020-07-04^
- Insolvency: A Glossary of Terms Australian Securities & Investments Commission, December 2008, retrieved 30 November 2016