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What duties does an administrator have to creditors in a formal insolvency procedure?

Under the Insolvency Act, 1986, an administrator has specific duties and responsibilities to creditors, and in the first instance will take control of the company with a view to business rescue.

They have a duty to act in the best interests of creditors as a whole, and will attempt to realise the highest returns for all groups if rescue is not possible. If this also fails, they must attempt to achieve a better result for creditors than if the company had been liquidated.

An administrator adopts diverse roles and responsibilities during a formal insolvency procedure, as an officer of the court and an impartial agent/manager of the company, and has a duty to act with integrity and good faith.

Initial appointment of the administrator

It is likely that the insolvency practitioner will already have had dealings with the company in an advisory capacity, prior to their official appointment as administrator. This is potentially subject to change, however, as creditors can vote to retain them or appoint a new administrator at the initial creditors’ meeting. 

The office-holder can be appointed by the Secretary of State in certain circumstances, and if a winding-up order has been granted, the courts may also become involved in the process.

Administrator duties to creditors

Although unsecured creditors rank low for payment in insolvency, they should not be placed at a disadvantage unnecessarily because of administrator actions.

In general, administrators must:

  • Act in the best interests of creditors as a whole
  • Be impartial during their time in control of the company
  • Act in good faith, and with reasonable care and skill
  • Take reasonable action to achieve the best price on realisation of assets
  • Carry out the insolvency process as quickly and efficiently as is practicable

Specifically, they must:

  • Send written notification of their appointment to all creditors
  • Send a statement of proposals to creditors outlining the reasons why the company has reached this financial situation, the objectives of the administration, how their remuneration will be set, and a summary statement of affairs. (The statement of proposals sent to creditors usually includes an invitation to attend the initial creditors’ meeting.)
  • Present the summary of proposals at the meeting of creditors
  • Send a progress report to creditors for each six-month period of administration from the date of appointment. The report must include details of their remuneration and expenses, and advise creditors of their right to request more information.

What happens if creditors are dissatisfied with the administrator?

Insolvency is a highly regulated industry, and creditors have several forms of recourse if they believe the administrator has acted unfairly. The first point-of-call will be the administrator themselves, but if the issue is not dealt with to the creditor’s satisfaction, provision is made within the Insolvency Act for further action.

Creditors can also make a complaint about the administrator to the associated professional body.

Creditors’ committee
Creditors can form their own committee to further represent creditor interests. Committee members are voted in at the initial meeting, and are able to sanction some administrator actions. 

A creditors’ committee will consist of three or five members (usually those creditors with the highest claims), who meet periodically with the administrator. Committee members are also entitled to ask for meetings with the administrator, and these must take place within 21 days of the request.

Begbies Traynor is the UK’s market leader in business rescue and recovery. Call any one of our 37 offices around the country for a same-day meeting.

 

 

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