Administration  > Your question's answered

1. Meetings: General
2. Meetings: Proxy
3. Meetings: Claims
4. Meetings: Voting
5. Meetings: Administrator’s Proposals
6. Creditor’s Committee
7. Administrator’s Remuneration
8. Transactions prior to Administration

 

Meetings: General

1. How do I know a company is in administration?

There is a legal requirement for a public notice in a newspaper circulating in the area that the company has its principal place of business. If the company is large enough there may be media comment and general discussion amongst known suppliers. The administrator has an obligation to write to all known creditors to advise them. If your last invoice has been paid you may not receive a letter but as a regular supplier, you will be contacted by letter if the administrator wishes to transact with you such that trading terms can be agreed.

2. Is there a meeting to advise me what is happening?

Yes, the law requires a meeting of all known creditors in order to consider the administrator’s proposals for dealing with the company. This process cannot be limited to correspondence.

3. Who convenes the meeting?

The administrator must convene a meeting of all known creditors within 90 days of his appointment by court.

4. Where is the meeting held?

At a place most convenient for the general body of creditors, normally in a hotel or other public place.

5. When is the meeting held?

Between the hours of 10 am and 4 pm during the working week.

6. Who will be at the meeting of creditors?

The administrator will chair the meeting and answer creditors’ questions. There is no requirement for the director(s) of the company to attend but he/they may attend voluntarily.

7. What will happen at the meeting?

Creditors will already have received and read the administrator’s proposals and statement enclosed with the notice calling the meeting. The meeting will give creditors an opportunity to put questions to the administrator, and the director(s) if in attendance. The meeting will consider and vote upon any modifications that individual creditors might suggest, following which a vote will be taken upon the whole proposals.

Other resolutions will include those dealing with the basis of the administrator’s remuneration and the composition of a creditors’ committee.

8. Must I attend the creditors’ meeting?

No, you are not obliged to attend the meeting. It provides and opportunity to ask questions before deciding whether to suggest any modifications and how to vote on the administrator’s proposals. You will not compromise your claim and entitlement to dividend if you do not attend. The law recognises that creditors are not always able to attend in person and allows you to ask a representative to attend as proxy and speak/vote on your behalf.

 

Meetings: Proxy

1. Should I lodge a proxy form?

If you are the creditor i.e. not a corporate body such as a limited company, you may vote by attending the meeting, provided you have lodged a claim with the administrator.

If you do not want to attend the meeting, you may nominate someone else, or the chairman of the meeting, to vote for you. They can vote either in accordance with your instructions or at their discretion. The chairman of the meeting will be the administrator and you may care to consider specifying clearly how the proxyholder should vote if you nominate the chairman to vote on your behalf. You do this by completing the statutory proxy form or one that is substantially similar. The form requires to be signed by the creditor or someone authorised by him, either generally or with reference to a particular meeting, and the nature of the person’s authority to sign should be stated.

If a company is the creditor i.e. not an individual, a director of the creditor company should sign the proxy form. The proxy requires to be lodged at or before the meeting to which it relates.

If the creditor representative is neither a director nor employee of the company, such person is required to produce at the meeting a resolution of the directors authorising that person to represent that company. This occurs rarely.

 

Meetings: Claims

1. How do I ensure that my vote counts at the meeting?

In order to vote, a creditor must have submitted a written notice of claim and the chairman must have admitted that claim (see below). This claim together with any proxy must be lodged at or before the meeting to which it relates.

2. Who decides whether my claim is acceptable for voting purposes?

You are entitled to vote if your claim has been accepted in whole or in part. If your claim has not been submitted/accepted prior to the meeting, the chairman is empowered to accept it at the meeting and thus, you can bring it with you to the meeting.

3. What happens if I disagree with the chairman’s decision regarding either the quantum or validity of my claim?

You are entitled to appeal to court within 14 days of the chairman’s decision for an order reversing the chairman’s decision on your claim. It is recommended that a creditor seeks advice about the merits of taking such steps in any particular circumstances because there is a cost implication that will invariably fall upon the creditor to pay.

4. What happens if I cannot quantify my claim with certainty?

A creditor cannot vote either in respect of a debt not yet calculated or a debt whose value is not ascertained e.g. one that depends upon the outcome of a future event such as a court action, unless the chairman agrees to estimate a minimum value for voting purposes.

 

Meetings: Voting

1. How do I calculate my claim for voting purposes?

Your vote is based on the value of your debt at the date of the administration less any amounts paid subsequently. Votes rank in proportion to the claim e.g. £1 equals 1 vote.

2. What majority is needed to approve a resolution?

A resolution to approve the administrator’s proposals, or any modification to them, is passed at the creditors’ meeting if supported by a majority vote in excess of 50% in value of the creditors present or by proxy.

3. What happens if my debt is partly secured?

A creditor is only allowed to vote in respect of the balance of the claim, if any, after deducting the value of your security as estimated reasonably by such creditor. An owner of goods under a hire-purchase agreement, or an agreement for hire of goods for more than 3 months, is entitled to vote in respect of the debt due by the company as at the date of administration. No account is taken of any amount attributable to the exercise of any right under the agreement so far as that right has become exercisable solely by virtue of the administration appointment of an administrator.

 

Meetings: Administrator’s Proposals

1. Am I bound by the administrator’s proposals if they are approved at the meeting?

The administrator’s proposals, when approved by the creditors’ meeting, will dictate how the company’s affairs will be conducted in future and how creditors’ claims will be addressed.

Once approved, the proposals are binding on all creditors, including those not present or represented at the meeting. For this reason, it is important that you consider the proposals carefully and decide whether, and how, you wish to vote.

 

Creditor’s Committee

1. What is the creditors’ committee?

The creditors’ committee is established at the creditors’ meeting. It is not obligatory but the creditors decide whether it is appropriate: normally by discussion/agreement at the meeting.

2. What are the functions of the creditors’ committee?

The creditors’ committee assists the administrator in discharging his functions, and acts with him in such manner as may be agreed from time to time. For example, it has a duty to agree the basis of the administrator’s remuneration, and can approve instigation of legal action.

3. How is the creditors’ committee formed?

The committee must consist of at least three and not more than five creditors of the company elected at the meeting.

Any creditor of the company is eligible to be a member of the committee, so long as his claim has not been rejected for the purpose of his entitlement to vote. A body corporate may be a member of the committee, but can only act through a properly appointed representative.

4. How does it act in practice?

No person may act as a member of the committee unless and until he has agreed to do so. This means that a signed agreement must be provided to the administrator. The administrator will provide the agreement for signature at the creditors’ meeting. Unless the relevant proxy or authorisation contains a statement to the contrary, agreement to act may be given by the creditor’s proxyholder or representative.

A person acting as a committee member’s representative i.e. in the event of illness etc., must hold a letter of authority entitling him to act either generally or specially with such letter being signed by, or on behalf of, the committee member.
Administration: Creditors’ Committee

No member may be represented by a body corporate, a partnership or a person who is an undischarged bankrupt.

No person shall act at the same time as a representative of more than one committee member, or act both as a member of the committee and as representative of another member. This ensures there are at least three separate members/representatives at all times.

5. When can it start to act?

The creditors’ committee is not constituted and cannot act, until the administrator has issued a certificate of such constitution. Such certificate is filed at companies house and thus, the composition of the committee is a matter of public record.

6. Do I get paid for acting?

No, other than reasonable travel outlays to attend meetings.

 

Administrator’s Remuneration

1. How are the administrator’s fees fixed?

Information about an administrator’s fees is detailed in Statement of Insolvency Practice 9 (Scotland) issued by the Association of Business Recovery Professionals and the Institute of Chartered Accountants of Scotland. It is available for review on this website and a summary of the position is as follows:

(a) Introduction

When a company goes into administration the costs of the proceedings are paid out of its assets in priority to creditors’ claims. Thus, creditors have a direct interest in the level of costs, and in particular the remuneration of the administrator. Insolvency legislation recognises this by providing mechanisms for creditors to determine the basis of the administrator’s fees.

(b) The nature of administration

Administration is a procedure which places a company under the control of a licensed insolvency practitioner and the protection of the court with the objective of:

• rescuing the company as a going concern, or

• achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up, without first being in administration, or

• realising property in order to make a distribution to one or more secured or preferential creditors.

Administration may be followed by a company voluntary arrangement or liquidation. If the administration is successful, in whole or in part, the company may be returned to the control of the directors. If not, the administration will conclude and the company dissolved.

(c) Fixing the administrator’s fees

The basis for fixing the administrator’s fees is set out in The Insolvency (Scotland) Rules 1986, which states that it may be a commission calculated by reference to the value of the company’s property with which he has to deal.

• it is for the creditors’ committee, if there is one, to fix the fees and in arriving at its decision the committee takes into account the work which, having regard to the value of the company’s property, was reasonably undertaken by the administrator, and

• the extent of his responsibilities in administering the company’s assets.

The normal basis for determining the administrator’s fee are the time costs properly incurred by the administrator and his staff.

If there is no creditors’ committee, or the committee does not issue a determination for whatever reason, the administrator’s fees are fixed by the court upon application by the administrator.

(d) Information provided by the administrator when seeking fee approval

The administrator submits to the creditors’ committee, or if there is no creditors’ committee, the court:

• his accounts of intromissions for audit;
• a claim for the outlays reasonably incurred by him and for his fee, analysed into category 1 disbursements, which are those where there is specific expenditure relating to the administration of the company’s affairs and referable to payment to an independent third party, and category 2 disbursements, which include elements of shared or allocated costs, and are supplied internally by the administrator’s firm; and

Where the documents are submitted to the creditors’ committee, he shall send a copy to court for record purposes.

When seeking approval for his fee, the administrator will provide sufficient supporting information to enable the creditors’ committee to form a judgement as to whether the proposed fee is reasonable having regard to all the circumstances of the case. The nature and extent of the supporting information which should be provided will depend upon:

• the nature of the approval being sought;
• the stage during the administration of the case; and
• the size and complexity of the case.

When the administrator seeks agreement to the terms on which he is to be remunerated, he will provide the creditors’ committee with details of the hourly rates of all grades of personnel involved in the case.

Where the administrator seeks agreement to his fee during the course of the administration, he will provide a current receipts and payments account, will analyse time spent on key issues, individual hourly rates for staff allocated to the case, together with whatever additional information may reasonably be required having regard to the size and complexity of the case. Additional information would include sufficient explanation of what the administrator has achieved and how it was achieved in order to enable the value of the exercise to be assessed. In this regard, it is recognised that the administrator must fulfil certain statutory obligations that might not be seen to create value for creditors.

The following personnel categories are likely to be analysed in terms of hours charged:

Partner
Manager
Other senior professionals
Assistants and support staff

The explanation of the work would normally include an outline of the nature of the assignment and the administrator’s initial assessment, including the anticipated return to creditors. To the extent applicable it should also explain:

• any significant aspects of the case, particularly those that affect the amount of time spent

• the reasons for subsequent changes in strategy

• any comments on any figures in the summary of time being spent accompanying the request the administrator wishes to make
  Administration: Administrator’s Remuneration

• the steps taken to establish the views of creditors, particularly in relation to agreeing the strategy for the assignment, budgeting, time recording, or the drawing, or agreement of remuneration

• any existing agreement about fees
• details of how other professionals, including sub-contractors, were chosen, how they were contracted to be paid, and what steps have been taken to review their fees.

The depth of time analysis and form of presentation will be proportionate to the size and complexity of the case. In smaller cases not all categories of activity will be relevant whilst more detailed analysis may be necessary in larger cases.

Where the fee is charged on a percentage basis the administrator should provide details of any work which has been, or is intended to be, subcontracted which would normally be undertaken directly by the administrator or his staff. As noted above, this would normally be seen as an unusual method of fee charging.

(e) After fee approval

Where a resolution fixing the basis of determining the fee is passed at a creditors’ meeting held before the administrator has completed his duties, the administrator should notify creditors of the details of the resolution. In subsequent reports to creditors the administrator will specify the fee level approved by either the committee or the court and the amount drawn in accordance with such resolution.

Where the fee is based on time costs the administrator will provide details of the time spent and charge-out value to date and any material changes in the rates charged for the various grades since the resolution was first passed. Where the fee is charged on a percentage basis the administrator will provide full details of work which has been sub-contracted.

(f) Outlays, expenses and disbursements

Approval is generally required for settling administration outlays, expenses and disbursements. Professional guidance issued to insolvency practitioners requires that, where the administrator proposes to recover costs which, whilst being an expense of the process, may include an element of shared or allocated costs e.g. room hire, document storage or facilities provided by the administrator’s firm, they must be disclosed and be authorised by those responsible for approving the fee. Such

expenses must be incurred for the sole benefit of the case and subject to a reasonable method of calculation and allocation.

2. What if a creditor is dissatisfied with the fee level?

If the administrator’s fee has been fixed by the creditors’ committee, or by creditors following an appeal by the administrator, any creditor or creditors can apply to court for an order that the fee is excessive. If the court considers the application to be fair it will issue an order fixing the fee at a reduced amount or rate. Unless the court orders otherwise, the costs of the appeal must be paid by the creditor who lodges the appeal i.e. they are not an expense of the administration.

A creditor may also appeal against a determination made by the creditors’ committee or the court. The right of appeal is either to court if the determination has been made by the creditors’ committee, or to a higher court if the determination has been made by court. Notwithstanding the fact that the statutory time limit for appealing under this provision expires 8 weeks from the end of the accounting period, it is accepted as good practice to advise creditors that they may appeal within 14 days of being notified of the fee.

3. What if the administrator is dissatisfied with the fee determination?

If the administrator considers that the fee fixed by the creditors’ committee is insufficient, he may request that it be increased by resolution of the creditors, or he may apply to court for an order to increase it. If the administrator decides to apply to court he must give at least 14 days’ notice to the creditors’ committee and the committee may nominate one or more of its members to appear, or be represented, in court when the application is heard. If there is no committee, the administrator’s notice of his application must be sent to the creditors as the court may direct, and the creditors may nominate one or more of their number to appear or be represented. The court may order the costs to be paid as an expense of the administration.

The administrator has the same right of appeal as creditors against a determination by the committee or the court.

 

Transactions prior to Administration

1. Are there actions taken prior to administration that an administrator can challenge?

Yes, these are provided for in the Insolvency Act 1986 and are:

(a) Section 214 – wrongful trading

If a director, or directors, knew or ought to have known that the company could not avoid formal insolvency, yet continued to allow the company to trade by accepting credit e.g. from suppliers, any unpaid liability as at date of administration which could have been avoided had the director(s) ceased the company’s trading activities earlier can become a personal liability on the director(s).

(b) Section 243 – unfair preferences

If a director, or directors, caused a company to pay suppliers or other creditors before the onset of formal insolvency proceedings to the detriment of others, the monies paid can be recovered by the administrator for the benefit of the general body of creditors. It can be difficult to prove intent or collusion to the satisfaction of a court and thus, the circumstances and size of the transaction(s) require close scrutiny. The transaction must have taken place within 6 months of the date of administration to be challengeable and there are defences to such challenge. Specialist advice is recommended.

(c) Section 242 – gratuitous alienations

If a director, or directors, transfers company asset(s) for nil consideration or undervalue to a third party prior to the onset of formal insolvency proceedings either within 5 years of date of administration if the transfer is to an associate, or within 2 years of date of administration if to any other entity, the asset(s) so transferred can be restored to the company, without compensation to the transferee. There are defences to such an action and specialist advice is recommended.

(d) Section 244 – extortionate credit transactions

The court, upon application by the administrator, review a transaction entered into within 3 years of administration. If the court is satisfied that it is grossly exorbitant i.e. in terms of interest charged, or grossly contravenes ordinary principles of fair dealing, it can set aside the transaction in whole or in part. As with the other sections noted above, there are defences to a challenge and specialist advice should be sought.

(e) Section 245 – floating charges

If the company has granted a floating charge, the date of creation and registration is important in terms of its validity in whole or in part, and whether it enjoys full floating charge rights in terms of dividends. Current insolvency legislation provides that a floating charge created after 15 September 2003 will have to cede a proportion of dividend monies, known as the prescribed part, to unsecured creditors.

Directors’ conduct

The administrator is required to submit a report to the director disqualification unit of the Department of Trade and Industry concerning the conduct of every director of a company that is in administration. Whilst the content of such report is confidential, creditors are invited to provide the administrator with any information they believe to be relevant. All information provided is treated as wholly confidential.

 

 

 

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