Free Law Dissertations - Structure: Issues, Legal Rules And Application Introduction: Corporate
Structure: Issues, Legal rules and application
Introduction:
Corporate rescue culture under Enterprise Act 2002
The purposes for creating an administration order
Powers, duties and obligations of Administrator in the sale of assets of the company.
Procedures involved in Administration process and how consent, transparency and accountability is ensured
Analysis
The Enterprise Act 2002 has a significant impact on how financial failure of a business is dealt with in the UK. The rescue culture is strengthened by streamlining the administration procedure which is court based. It also prevents lenders holding security over companies business and assets, including floating charges, from appointing anAdministrative Receiver to realise assets to such an extent that it satisfies their debt. This was seen as UK’s pro-creditor approach. This does not prevent the fixed charge holder from appointing a receiver however if an Administrator is appointed then such a receiver has to relinquish his office.
The previous insolvency regime did not provide enough transparency and accountability to the range of stakeholders especially to the creditors who have an interest in a company’s affairs. The Administration is an important tool which can be used to give a breathing space for a company in financial difficulty so as to put together a rescue plan or provide better returns for creditors. To achieve this formalities have been reduced and administrations as well as Company Voluntary Arrangements have been made more accessible to the companies.
The government’s intention was to deal with a company in financial trouble in a positive way when they introduced Administrations. In order to protect itself from the threat of creditors’ action against it, the insolvent company usually initiates the procedure. The primary aim of an administration is to rescue the company as a going concern. The main thrust of the Enterprise Act 2002 is to restrict the use of Administrative Receiverships considerably. It is also intended to extend and streamline the administration procedure.
In the first instance the administrator of the company must attempt to rescue the company as a going concern unless it is not reasonably practicable or it is not in the interest of the creditors. If this is the case then the administrator must seek to achieve a better result for creditors as a whole than company were to wound up in a conventional way. If we take an example of MG Rovers the Administrators, KPMG, are desperately trying to rescue the company from its current financial situation by selling off its assets and trying to open up negotiations with Chinese company in order to either sell off the company as a going concern or to make better realisations of the assets for the benefits of the creditors as a whole. If none of the above options are found to be viable then they would seek to realise the property and make a distribution to secured or preferential creditors.
