(First published in Dear IP no. 10, April 1989)

Article Withdrawn December 2006

(First published in Dear IP no. 20, January 1992)

Article Withdrawn December 2006

(First Published in Dear IP no. 50, June 2000)

Article Withdrawn December 2007

5. Administrator's Statements of Proposals 

The Insolvency Service has become aware that a number of proposals being issued by administrators under paragraph 49 of Schedule B1 to the Insolvency Act 1986 are not complying with the letter of the law, let alone its spirit. 

One of the aims behind the changes introduced by the Enterprise Act 2002 was to promote collectivity and transparency in corporate insolvency proceedings.  Creditors should be given sufficient information to allow them to participate in the proceedings in a meaningful way.  

Details of what must be included in an administrator’s statement of proposals are set out in paragraph 49 of Schedule B1 and Rule 2.33 of the Insolvency Rules 1986, inserted by the Insolvency (Amendment) Rules 2003.  

Rule 2.33(2)(m) provides that the proposal should contain details on how it is envisaged that the purpose of administration will be achieved.  Paragraph 111(1) of Schedule B1 provides that “the purpose of administration” means an objective specified in paragraph 3.  From this it is clear that administrators should not simply include all three objectives in the proposals, with no attempt to identify which is the relevant objective. 

This view is supported by the provisions of paragraph 49(2)(b) which states that where applicable the statement of proposals should explain why the administrator has formed the view that the objective mentioned in paragraph 3(1)(a) or (b) cannot be achieved.  If it were acceptable for a proposal simply to set out the three objectives, then there would have been no reason to include the provisions in paragraph 49(2)(b).  

None of the above would prevent an administrator setting out in the statement of proposals a comparison of what would be the outcome for creditors if it were possible to rescue the company as a going concern against what would be achieved from, say, selling the constituent businesses to different buyers.  If the second objective gave a different result in timing or quantum the creditors could choose the objective that they prefer. 

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk;  Telephone 020 7291 6740

6. Conclusion of administrator’s appointment

In the recent case of Ballast Plc and others [2004] EWHC 2356, the High Court held that, following the making of an administration order, it was possible for the company concerned to go straight into creditors’ voluntary liquidation using the provisions of paragraph 83 of Schedule B1 to the Insolvency Act 1986, or into dissolution using the provisions of paragraph 84 of that Schedule.  There was no need for the administrator to apply to the court for orders under paragraphs 79 or 85. 

The Judge considered that paragraph 79 provides a separate exit route from administration to that provided by paragraph 83.  The purpose of paragraph 79, where the circumstances set out in paragraph 79(2) or 79(3) were met, was to enable the court to make an order which would bring the administrators’ appointment to an end on a different date from the one on which it would otherwise come to an end. 

In a case where the administrator uses the provisions of paragraph 83 the registration of the relevant notice by the Registrar of Companies has the effect of bringing the appointment of the administrator to an end and discharging the administration order.  The Judge considered that an application for an order under paragraph 79, in such a case, would be an unnecessary duplication. The Judge also considered that the same interpretation should apply when paragraph 84 is used as an exit route from administration. 

The Judge made a parenthetical comment that he understood that paragraph 84 could only apply in cases where there had been no property at any time during the administration. The Insolvency Service would confirm that the policy intention behind this provision was to include it as an exit route in cases where assets had been realised and the proceeds had been distributed to creditors as a consequence of which the company no longer had any property. 

Generally speaking, it would be inappropriate for a company to enter administration if it had no assets, and if it had the administrator would be under a duty to make an application to the court under paragraph 79(2).  One possible exception to this is where an individual company, which was part of a group, entered administration with the other group companies. 

It is the view of the Insolvency Service that if paragraph 84 were not available as an exit route in such cases it would be difficult to see what an administrator could do in a case where the assets had been realised and distributed. Clearly a paragraph 83 creditors’ voluntary liquidation would not be available as there would not be a prospective distribution to unsecured creditors, and a paragraph 79 application or paragraph 80 filing would end the administration but leave the company in limbo. 

Taking all of this into account, the view of the Insolvency Service is that the only sensible interpretation of the legislation is that paragraph 84 provides an exit route out of administration for companies whose assets have been realised and distributed during the administration. 

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk;  Telephone 020 7291 6740

7. Pre-appointment time on administrations

The Insolvency Service has been made aware that some insolvency practitioners have questioned why they are not allowed to claim pre-appointment time as expenses of the administration. 

Costs incurred prior to the administration are essentially a matter between the relevant insolvency practitioner and the party instructing them. For example if a company has concerns regarding its financial situation and approaches an insolvency practitioner for advice, then payment of fees incurred would be a matter between the company and the insolvency practitioner. In such a case any fees outstanding, at the date the company entered administration, would, in our view, rank as an unsecured claim. 

However, time spent by a proposed administrator, prior to any appointment, in determining that it is reasonably likely that the purpose of the administration would be achieved and to enable them to complete Form 2.2B, are arguably costs and expenses of the appointer/applicant for the purposes of Rule 2.67 (1)(c) of the Insolvency Rules 1986 which provides that the following expenses are payable within the order of priority specified: 

‘where an administration order was made, the costs of the applicant and any person appearing on the hearing of the application and where the administrator was appointed otherwise than by order of court, any costs and expenses of the appointer in connection with the making of the appointment and the costs and expenses incurred by any other person in giving notice of intention to appoint an administrator.’

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk;  Telephone 020 7291 6740

8. Relevant Court

In a recent decision in the Birmingham District of the High Court (Brownridge Plastics Limited) Mr Justice Hart held that for the purposes of the Insolvency Act 1986 (“the 1986 Act”), a company incorporated in Scotland can only enter administration by filing the requisite Notice of Appointment and the other prescribed documents with the relevant court in Scotland.

Consequently, a company incorporated in England and Wales can only enter administration by filing the requisite Notice of Appointment and the other prescribed documents with the relevant court in England and Wales.

Relevant Court – Legislative Definition

The expression “the court” is not defined in section 251 of the 1986 Act and has, therefore, to be construed in accordance with section 744 of the Companies Act 1985, which provides: “In this Act, unless the contrary intention appears, the following definitions apply” and then “the court”, in relation to a company means the court having jurisdiction to wind up the company”.

Sections 117 and 120 of the 1986 Act, respectively, define the courts that have jurisdiction to wind up a company registered in England and Wales and Scotland.

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk;  Telephone 020 7291 6740

9. Climate Change Agreements – hidden assets? 

The Department for Environment, Food & Rural Affairs (Defra) has asked the Insolvency Service to draw insolvency practitioner’s attention to the need for them, whilst acting as administrator, to provide data in relation to energy efficient targets applicable to certain businesses and the possible reduction in the value of the company where they fail to do so. 

If you are appointed as an administrator of a company, particularly those operating in high energy usage industries, do you look out for environmental schemes that may affect the company’s balance sheet, profitability and re-sale value? One such scheme is the Climate Change Agreement.  

This scheme gives companies an 80% reduction in the Climate Change Levy (the tax paid on energy use) in return for meeting challenging energy efficiency targets. Companies must report their data every two years. The next 12 month reporting period starts in October 2007 and most companies will report within the last three months of 2008. But if, because of administration and possibly a change of ownership, records have not been kept for the whole year showing that targets have been met, the company can lose its eligibility to pay the reduced rate of CCL for two years. This could have serious implications for the viability of some companies, and hence for their re-sale value.  

There have been occasions in the last reporting period in 2006, for which results are just now being collated by Defra, where a company in administration cannot provide the required data to prove that they have met the energy efficiency targets. This has resulted in such companies losing the entitlement to pay the reduced rate of CCL for two years. It is therefore important for the future of companies in administration that the administrator checks whether the company had a Climate Change Agreement. The insolvency practitioner must also ensure that data is preserved and if necessary passed onto a new owner, especially if ownership is transferred within, or just at the end of, the reporting period.  A change of ownership will not be taken into account when the targets are assessed, because the agreements cover the site, not the owner. The slate is not wiped clean on change of ownership! 

There may be cases where a company is in administration at the time when the data on CCA performance should be reported to Defra via the trade association.  If the administrator reports the data, consisting of energy use and throughput figures, and if the company has passed its CCA target (with the purchase of allowances in the UKETS if necessary to make up any shortfall in meeting the target), the company will be eligible for the discount from the CCL for the following two years, which will add value to the facility.    

What should insolvency practitioners look out for?  

Climate Change Agreements are typically held by manufacturing industries which are subject to Part A of the Integrated Pollution Prevention and Control Regulations 2000, or qualify as energy intensive under new rules introduced in 2006. A list of eligible sectors, with the agreements that contain descriptions of the eligible processes can be found on the Defra website at http://www.defra.gov.uk/environment/ccl/agreements.htm 

Further background on the Agreements are also on the website at http://www.defra.gov.uk/environment/ccl/index.htm 

When acting as administrator of a company (usually a manufacturing company, but also pig and poultry farms and some services such as cold storage), insolvency practitioners should check with the company’s staff whether there is a CCA for any sites within the company, or if the staff have changed, check with the relevant trade association who manage the collection of the data for their sector. Lists of currently eligible companies are at present published by HMRC; from the autumn this year the list will be published on Defra’s own website. They are currently located in the “Excise & Other” area of the HMRC website and are called Climate Change Levy: Reduced Rate Certificates. 

Trade associations will be happy to advise on how to proceed.  Their contact details can be found at http://www.defra.gov.uk/environment/ccl/pdf/contacts.pdf 

If you have any queries regarding this article in the first instance you should visit the Defra website: http://www.defra.gov.uk/environment/ccl/index.htm; further contact details are provided on that site.

10. Substantial property transactions involving directors 

Sections 190-196 of the Companies Act 2006 (‘the Act’) deal with substantial property transactions involving directors.  They came into force on 1 October 2007 and replace sections 320-322A of the Companies Act 1985.  As before, the provisions require that any arrangement under which a director, or a person associated with a director, acquires a substantial asset must have shareholder approval, failing which the transaction is voidable at the instance of the company. 

However, there is an exemption to the above for transactions entered into by companies that are subject to certain insolvency procedures.  Previously, this exemption applied only to insolvent liquidations, but by virtue of section 193 of the Act this exemption has, with effect from 1 October 2007, been extended to companies in administration. 

Insolvency practitioners should note that the new exemptions do not extend to administrative receivership, so the position regarding disposals to directors, or companies controlled by directors of the vendor company where the vendor company is in receivership, remains the same. 

Any enquiries regarding the above should be directed toward Toby Watkinson, IP Policy Section, Area 5.7, 21 Bloomsbury Street, London, WC1B 3QW; telephone: 020 7637 6566; email: toby.watkinson@insolvency.gsi.gov.uk  

General enquiries may be directed to IPPolicy.Section@insolvency.gsi.gov.uk

Telephone: 0207 291 6772

11. Progress reports in an administration, following an extension 

Rule 2.47 of the Insolvency Rules 1986 states that the administrator’s progress reports must cover the six months commencing on the date that the company entered administration and for every subsequent period of six months.  Rule 2.112 states that a further progress report, from the date of the most recent progress report (if any) or the date the company entered administration, must be prepared in support of an application to extend the administration. Insolvency practitioners are reminded that, if any application for an extension has been made, the next progress report should be prepared within the original six-monthly reporting cycle from the date that the company entered administration, not six months from the date of the further progress report in support of the extension. 

Any enquiries regarding the above should be directed towards Steven Chown, Policy Unit Area 5.7, 21 Bloomsbury Street, London, WC1B 3QW; telephone: 020 7637 6501 email: steven.chown@insolvency.gsi.gov.uk 

General enquiries may be directed to Policy.Unit@insolvency.gsi.gov.uk

Telephone: 0207 291 6740