Lawyers to the finance industry Enterprise Act Lender’s perspective Summer 2003 pqlm=mobpp=KKK=pqlm=mobpp=KKK==pqlm=mobpp=KKK============fjmibjbkq^qflk=a^qb=NR=pbmqbj_bo=OMMP= KKKpqlm=mobpp=KKKpqlm=mobpp=KKK=pqlm=mobpp contents Objectives 1 Administration and administrative receivership 2/3 The exceptions for the appointment 4/5 Abolition of crown preference “fund pool” 6 Other changes / Practical Steps for Lenders 7 Conclusion / Who to contact 8 Introduction Objectives The Enterprise Act 2002 (the "Act") received Royal Assent in November The Act has been introduced by the a duty of care is owed to all 2002 and will be implemented into Government and is intended to creditors. law later this year. The Act covers encourage responsible risk taking, to consumer affairs,fair trading and reduce the stigma attached to honest The main changes proposed to competition but it is the amendments failures and to give companies in corporate insolvency law are as to the existing corporate insolvency financial difficulties a second chance. follows: regime which will be of particular Indeed, the Government has stated significance to lenders. that its main objectives in � the abolition of administrative Of these amendments,those of implementing the corporate insolvency receiverships subject to certain particular interest to lenders will changes are: limited exceptions undoubtedly be the abolition of administrative receiverships and the � to encourage a culture of corporate � the reform and expansion of the creation of a 'fund-pool' for the rescue, the idea being that helping administration procedure benefit of unsecured creditors. companies to survive will preserve competition; and � the abolition of Crown preference This flyer examines the amendments in all insolvencies to be introduced by the Act and the � to create a fairer system with a implications that such changes will greater emphasis on collective � the creation of a new 'fund' for have on the finance industry in insolvency proceedings in which all unsecured creditors practice. creditors can participate and where www.ngj.co.uk
Enterprise Act Administration and A qualifying floating charge Administrative Receivership - A floating charge "qualifies" if it is qÜÉ=ÑìåÇ~ãÉåí~ä=ÇáÑÑÉêÉåÅÉ created by an instrument which expressly states that the relevant In reality, an administrator and an the Court and owes a duty to the section of the Act applies to it or it administrative receiver possess similar creditors of the company as a purports to empower the holder of powers and the amendments made whole to perform his functions in the floating charge to appoint an to the administration procedure order to achieve the purposes for administrative receiver or pursuant to the Act are intended to which the administration order administrator of the company. The simplify and facilitate a much quicker was granted. floating charge must also be over the initiation of the administration whole or substantially the whole of process. Therefore, in this respect, Administrative the company's property. It is the new system may prove to have receivership therefore paramount that floating the attributes of the old charges created after the date when administrative receivership � an out of Court procedure the Act comes into force comply with appointment in terms of speed and whereby an administrative receiver these requirements. limitation of costs. The fundamental may be appointed by a floating difference between an administration charge holder as permitted by the and an administrative receivership is Act when its charge becomes in relation to the duties of the enforceable "The amendments made to receiver and the administrator. � the receiver owes his primary duty Administration the administration procedure to the appointing charge holder, � administrator appointed by the rather than the company or the pursuant to the Act are Court creditors of the company as a whole. intended to simplify and � the holder of a floating charge who is entitled to appoint an facilitate a much quicker administrative receiver must be given notice of any application for initiation of the an administration order and if the floating charge holder appoints an administration process. The administrative receiver, the Court must dismiss the application for new system may therefore the administration order unless the appointor consents to the making prove to have the attributes of the administration order of the old administrative � the company enjoys a moratorium from legal proceedings or receivership appointment in enforcement action by individual creditors during the administration terms of speed and limitation process of costs." � an administrator is an officer of 2
Enterprise Summer 2003 Act Administration and administrative receivership The new regime and notwithstanding any provision to company and the directors of the The Government had expressed the contrary, after the date at which company may now also appoint an concern at the way in which the Act becomes law, no administrator out of Court. administrative receiverships operated administrative receiver may be under the existing regime, in appointed by a floating charge holder. There are certain requirements which particular: must be satisfied prior to appointing As recompense for the removal of an administrator pursuant to an out of � the ability of the floating charge administrative receivership, the Court procedure and the appointment holder to block the making of an Government has extended and of the administrator will take effect administration order; attempted to streamline the when such requirements have been administration procedure in an satisfied. A notable prerequisite to an � the fact that the receiver's primary attempt to reduce the expense and application to the Court or for an out duty is to the appointing charge delay which have previously been of Court appointment of an holder; and associated with obtaining an administrator by the company or the administration order. directors of a company is that the � the fact that the receiver's primary company must be insolvent, that is, function is to seek repayment of A key change which will be that the company is or is likely to the debt owed to the appointor. introduced by the Act is that an become unable to pay its debts. This administrator may be appointed both requirement does not, however, apply The Government has therefore sought in and out of Court. Those that may in the case of an application by a to address the above concerns by the apply to the Court for an holder of a qualifying floating charge. removal of the floating charge administrator to be appointed now ^ë=ïáíÜ=íÜÉ=ÉñáëíáåÖ=êÉÖáãÉI=íÜÉ holder's right to appoint an include the holder of a qualifying Åçãé~åó=ïáää=Éåàçó=~=ãçê~íçêáìã administrative receiver. floating charge as well as the ïÜáäëí=áí=áë=áå=~Çãáåáëíê~íáçåK company, the directors of the The Act provides that, subject to company or one or more of the certain defined exceptions (details of creditors of the company. The holder which are set out on pages 4 and 5)) of a qualifying floating charge, the Administration - new purposes ^=ëáÖåáÑáÅ~åí=~ãÉåÇãÉåí=áå=íÜÉ=^Åí=áë reasonably practicable or that (although the administrator may íç=Åä~êáÑó=~åÇ=~ãÉåÇ=íÜÉ=éìêéçëÉ=çÑ objective would not provide the only act if he does not un- ~Çãáåáëíê~íáçå=Äó=ÉëëÉåíá~ääó=êÉéä~ÅáåÖ best result for the company's necessarily harm the interests of íÜÉ=Ñçìê=ÅìêêÉåí=ëí~íìíçêó=éìêéçëÉë creditors as a whole, achieving a any unsecured creditors) ïáíÜ=çåÉ=çîÉêêÉ~ÅÜáåÖ=éìêéçëÉ=çÑ better realisation of assets for the êÉëÅìáåÖ=íÜÉ=Åçãé~åóK==^å company's creditors as a whole Whichever of the above objectives is ~Çãáåáëíê~íçê=áë=åçï=êÉèìáêÉÇ=íç than would be likely if the reasonably practicable in each éÉêÑçêã=Üáë=ÑìåÅíáçåë=áå=éìêëì~åÅÉ=çÑ company were wound up individual case will clearly be based çåÉ=çÑ=íÜÉ=ÑçääçïáåÖ=çÄàÉÅíáîÉëW= upon objective reasoning and will � if neither of the above objectives is require administrators to exercise � êÉëÅìáåÖ=íÜÉ=Åçãé~åó=~ë=~=ÖçáåÖ reasonably practicable, realising commercial and professional ÅçåÅÉêå property in order to make a judgement. distribution to one or more � if the above objective is not secured or preferential creditors 3
Recommend
More recommend
