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Control and co-ordination in corporate rescue

Published online by Cambridge University Press:  02 January 2018

Vanessa Finch
Vanessa Finch*
Affiliation:
London School of Economics
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Abstract

The Enterprise Act 2002 sought to assist troubled companies by enhancing the rescue-friendliness of the UK insolvency regime. Assessing that regime calls for a focus on: the different roles and control powers of the various parties involved with troubled companies; the essential tasks that a rescue regime has to carry out; and the level of co-ordination that is to be expected between different parties. Key tasks in the furtherance of rescue are: the collectiiig of relevant information; the production of sound judgments and strategies; and the taking of timely actions and decisions. The problems of co-ordination, moreover, vary from task to task. For judges, central challenges in coming years will be not only to protect parties’rights within the new rescue regime but also to use judicial oversight powers to encourage co-ordinated action in pursuit of rescue. An appreciation of the co-ordination issue is central to an understanding of the post-Enterprise Act 2002 regime and the potential of the judges to enhance that regime in its furtherance of rescue.

Type
Research Article
Information
Legal Studies , Volume 25 , Issue 3 , September 2005 , pp. 374 - 403
Copyright
Copyright © Society of Legal Scholars 2005

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References

1. On concepts of rescue and rescue objectives see V Finch Corporate Insolvency Law: Principles and Perspectives (Cambridge: Cambridge University Press, 2002) ch 6.

2. On the primacy of rescue objectives under EA 2002 see S Frisby ‘In Search of a Rescue Regime: The Enterprise Act 2002′ (2004) 67 MLR 247; and the Secretary of State for Trade and Industry's statement at HC Deb, 10 April 2002 (P Hewitt). There is evidence of increasing use of administration. In the last quarter of 2003 there were 233 administrations; in 2004 there were 1,601; and in the first quarter of 2005 there were 489 - see http://www.dtistats.net/sd/insolv/table3.htm; and A Keay ‘The New Era for Administrations’ (2005) 1 Ins Intell 5.

3. On the emergence of the insolvency practitioner profession see B Carruthers and T Halliday Rescuing Businesses: The Making of Corporate Bankruptcy Law in England and the United States (Oxford: Clarendon Press, 1998) chs 8–11; J Flood and E Skordaki Insolvency Practitioners and Big Corporate Insolvencies ACCA Research Report 43 (London: ACCA, 1995).

4. See eg J Westbrook ‘The Control of Wealth in Bankruptcy’ (2004) 82 Texas LR 795.

5. On benchmarks for assessing insolvency processes see Finch, above n 1, ch 2. On DIP systems and their meritddemerits see D Hahn ‘Concentrated Ownership and Control of Corporate Reorganisations’ [2004] 4 JCLS 117; Finch, above n 1, pp 196–204; R Nimmer and R Feinberg ‘Chapter 11 Business Governance: Fiduciary Duties, Business Judgement, Trustees and Exclusivity’ (1989) 6 Bankruptcy Development Journal 1; E Adams ‘Governance in Chapter 11 Reorganisations: Reducing Costs, Improving Results’ (1993) 73 Boston ULR 581; L LoPucki and G Triantis ‘A Systems Approach to Comparing US and Canadian Reorganization of Financially Distressed Companies’ in J Ziegel (ed) Current Developments in International and Comparative Corporate Insolvency Law (Oxford: Clarendon Press, 1994); D Boshkoff and R McKinney ‘The Future of Chapter 11′ (1995) 8 Ins Intell 6; J Franks and W Torous ‘Lessons from A Comparison of US and UK Insolvency Codes’ in J Bhandari and L Weiss (eds) Corporate Bankruptcy: Economic and Legal Perspectives (Cambridge: Cambridge University Press, 1996); R Broude ‘How the Rescue Culture Came to the US and the Myths that Surround Chapter 11′ [2001] IL & P 194. On the difficulties of replacing poor managers in DIP regimes see L Lohcki ‘The Debtor in Full Control -System Failure Under Chapter 1 1 of the Bankruptcy Code (First and Second Installments)’ (1983) 57 Am Bankruptcy LJ99 and 247; M Bradley and M Rosenzweig ‘The Untenable Case for Chapter 11′ (1992) 101 Yale LJ 1043, but cf L LoPucki and W Whitford ‘Corporate Governance in Bankruptcy Reorganisations of Large, Publicly Held Companies’ (1992-93) 141 UPa LR 669. On creditor-oriented and debtor-oriented regimes, their comparative efficiency and the governance structures of firms see S Franken ‘Creditor and Debtor-Oriented Corporate Bankruptcy Regimes Revisited’ (2004) 5 EBOR 645.

6. On the connected workings of insolvency processes, systems of corporate governance and corporate financing patterns see Franken, above n 5.

7. On multi-actor control systems see J Black ‘Enrolling Actors in Regulatory Processes: The Example of UK Financial Services Regulation’ [2003] PL 62.

8. On rescue objectives see eg Finch, above n 1; M Hunter ‘The Nature and Functions of a Rescue Culture’ [1999] JBL 491: A Belcher Corporate Rescue (London: Sweet & Maxwell, 1997).

9. Economists use the word ‘efficiency’ in various ways: here I refer throughout to technical efficiency - that is achieving desired results (ie statutorily mandated results) with minimal use ofresources and costs and at minimal wastage of effort. See generally S Deakin and A Hughes ‘Economy and Company Law Reform: A Fruitful Analysis’ (1998) Co Law 2 12. On the administrator's duty to act as ‘quickly and efficiently as is reasonably practicable’ see Insolvency Act 1986 (IA 1986). Sch B 1, paras 4,74. (Schedule BI was inserted into IA 1986 by the Enterprise Act 2002, s 248(1) and (2).)

10. ‘Expertly’ here refers to the capacity to make relevant judgments in an informed manner, with the appropriate background knowledge, understanding and training.

11. Here accountability includes ‘openly’ and ‘transparently’ and refers to a party's exposure to scrutiny andlor their need to explain, justify or offer redress for their actions (either ex post or ex ante) to another party, institution or group. On concepts of accountability see A Davies Accountability (Oxford: Oxford University Press, 2001).

12. Where fairness involves giving adequate notice and hearing to interested parties and dealing with issues in an unbiased manner - see generally D Galligan Due Process and Fair Procedures (Oxford: Oxford University Press, 1996). On the administrator's duty to act fairly see IA 1986, Sch B1, para 74.

13. This article. it is stressed, is concerned with the ‘new’ administration procedure rather than with other processes that may impinge on rescue - such as company voluntary arrangements (CVAs) or administrative receivership (as left in restricted form by EA 2002).

14. On information-gathering, policy-making and implementation as the three fundamental stages of delivery or control see C Hood, H Rothstein and R Baldwin The Government of Risk (Oxford: Oxford University Press, 2001) pp 23–27.

15. On paying attention to controls and priorities see Westbrook, above n 4, at 795–862. On the centrality of the control issue see D Baird and R Rasmussen ‘The End of Bankruptcy’ (2003) 55 Stan LR 751; D Baird and R Rasmussen ‘Control Rights, Priority Rights and the Conceptual Foundations of Corporate Reorganizations’ (2001) 87 Vand LR 921; D Skeel ‘Creditors’ Ball: the “New” Corporate Governance in Chapter 11′ (2003) 152 U Pa LR 917; J Armour and S Frisby ‘Rethinking Receivership’ (2001) 21 OJLS 73; Hahn, above n 5: Franken, above n 5; O Brupbacher ‘Functional Analysis of Corporate Rescue Procedures: A Proposal from an Anglo-Swiss Perspective’ [2005] 5 JCLS 105.

16. The role of the courts will be dealt with in discussing the effects of judicial supervision of other actors or where the courts have an independent role.

17. See V Finch ‘Re-Invigorating Corporate Rescue’ [2003] JBL 527; S Foster ‘Enterprise Act 2002: Changes to Corporate Insolvency’ [2003] Ins Law 174; Frisby, above n 2; S Rajani ‘The Enterprise Acct 2002: outline of changes to insolvency law’ [2003] IL & P 160.

18. IA 1986, s 72A. The general prohibition applicable to holders of ‘qualifying floating charges’ (see EA 2002, Sch 16, para 14) is subject to six exceptions relating to capital markets; public/private pannerships, utilities, project finance; certain financial markets; and registered social landlords/housing authorities - see EA 2002, Sch 18 introducing a new Sch 2A to IA 1986 - see ss 72B-72G of IA 1986. Transactions that predate the implementation of EA 2002 will still allow holders of qualifying floating charges both to appoint administrative receivers and to block the appointment of an administrator.

19. EA 2002, s 248(1) and (2) inserts a new Sch B1 into IA 1986: hereafter references to the new Sch B1 will be referred to as ‘para…’ After EA 2002 there are, accordingly, three methods by which an administrator can be appointed: by the court on the application of the company, its directors, one or more of the company's creditors or by a combinations of these parties (paras 11–13): out of court on the application of the holder of a qualifying floating charge (paras 14–21): and out of court on the application of a company or a company's directors (paras 22–34). The court may only make an order (under para 11) if it is satisfied that the company is or is likely to become unable to pay its debts (para 11(a)) but this requirement does not apply in the case of applications to court by holders of qualifying floating charges (para 35(1)(a); (2)(a)).

20. Under the ‘old’ administration procedures an application to the court for administration was invariably accompanied by an independent report from the proposed administrator - Insolvency Rule 2.2. These reports were not mandatory but tended to be viewed as carrying considerable weight - see Re Newport County Association Football Club [1987] BCC 635. See also Practice Note (administration order applications: independent reports) [1994] 1 WLR 160 which attempted to cut the length and application (and thus the costs) of these reports.

21. See EA 2002, s 248. Note, however, that the ‘old’ administration procedure survives in relation to a number of categories of public-utility company and to building societies - EA 2002, s 249. It also survives where an administration order petition was presented to the court before 15 September 2003 (SI 2003/2039, art 3(2)).

22. The Explanatory Notes to EA 2002 (ch 40) refer to the ‘company and as much of its business as possible’ (para 647). Rescuing the company as a going concern may also involve the creditors agreeing to a CVA or Scheme of Arrangement-see S Elboz ‘Exiting Administration - Railtrack and the Future’ [2002] IL & P 187 at 189; R Pedley ‘The EnterpriseBill’ [2002] IL & P 123; M Phillips and J Goldring ‘Rescue and Reconstruction’ (2002) 75 Insol Intell 76.

23. Compare with ‘the hierarchy of objectives’ found in para 3 of Sch B1 to the Enterprise Bill under which it ‘was clear that administration was first and foremost about rescuing the corporate entity’ - see Phillips and Goldring, above n 22, at 76.

24. As noted above, the Explanatory Notes to EA 2002 state that ‘rescuing the company as a going concern’ is intended to mean ‘the company and as much of its business as possible’ (para 647). Rescuing the company alonekimply allowing the survival of the corporate shell will thus not satisfy this objective - see further Phillips and Goldring, above n 22; Frisby. above n 2, at 262–263.

25. Subject to agreed extensions - see para 76.

26. Paragraph 42.

27. See further para 43.

28. Paragraph 44.

29. Paragraphs 1, 2, 3–5C, 6,7 of IA 1986, Sch 6 are deleted. Preferential debts that remain are: unpaid contributions for occupational pensions; four months of unpaid employee wages and holiday entitlements; and unpaid levies in respect of coal and steel production.

30. See EA 2002, RIA, para 5.29 - this is based on the Crown currently recovering £90 million per annum preferentially in all insolvencies and the estimate that this will drop to some £20 million per annum when the Crown becomes unsecured.

31. See EA 2002, s 252, inserting a new s 176A into IA 1986. This is an echo of the Cork Report's proposal for a 10%fund - see Insolvency Law and Practice - Report of the Review Committee (Cmnd 8558,1982) paras 1538–1541; D Milman ‘Ten Per Cent Fund’ [1999] Ins Law 47. The prescribed proportion of funds for ring-fencing is stipulated by statutory instrument - Insolvency Act 1986 (Prescribed Part) Order 2003, SI 2003/ 2097. Whether, on the wording of s 176A, a floating charge holder with an unsecured balance is entitled to participate in the prescribed part funds is a matter of debate. The Insolvency Service is of the view that the floating charge holder is not entitled to participate in any distribution: for a contrary view see G McPhie ‘New Legislation’ (2004) Recovery, Autumn, p 24.

32. On the central importance of information see Westbrook, above n 4, at 848.

33. Paragraph 49(5)(b).

34. Paragraph 51(2). (Unless the administrator thinks (a) creditors will be paid in full; (b) there is insufficient property to make a distribution to unsecured creditors;or (c) the company cannot be rescued as a going concern or a better result for the company's creditors as a whole than would be likely on a winding up cannot be achieved - para 52(1).)

35. See Phillips and Goldring, above n 22, at 75, 78.

36. See D Baird and E Morrison ‘Bankruptcy Decision Making’ (2001) Journal of Law, Economics and Organization 356 at 369. It may be, of course, that if directors are considering appointing an administrator, they might also consider, and discuss with an IP, whether the IP would consent to their continued management of aspects of the business under Sch B1, para 64. (The administrator may leave some functions in the directors’ hands but, in doing so, cannot absolve himself from his own responsibilities.) The appointment of an administrator has the effect of making the directors’ powers exercisable only with the administrator's consent in so far as they might ‘interfere with the exercise of the administrator's powers’ (para 64(2)(a)) and the administrator has the power to appoint or remove directors under para 61.

37. See M Jervis ‘A Tough Act To Follow’ (2003) Recovery, Summer, p 13.

38. In Gilson's study of US firms only 46% of incumbent directors were in place when the firms emerged from bankruptcy or settled privately with creditors two years later and in 8% of cases the whole board was replaced -see S Gilson ‘Bankruptcy, Boards, Banks and Blockholders’ (1990) Journal of Financial Economics 355. It may well be, of course. that in DIP regimes a higher turnover of directors is to be expected than in PIP regimes since the banks will be more concerned about directorial quality in regimes that leave directors in power rather than give control to a professional. On reasons for directorial departure in US firms see S Gilson ‘Management Turnover and Financial Distress’ (1989) Journal of Financial Economics 241 at 271–281 (suggesting that bank-lenders frequently institute managerial changes). For a discussion of poor performance as a driver of board change see J Warner et al ‘Stock Prices and Top Management Changes’ (1988) Journal of Financial Economics 461.

39. Holders of qualifying floating charges can appoint administrators out of court. If other eligible parties intend to make such appointments they must give notice to qualifying floating charge holders (QFCHs) (para 26(2)) which allows QFCHs to appoint their own choice of administrator - see further S Davies Insolvency and fhe Enterprise Act 2002 (London: Jordans, 2003) pp 164–165.

40. See C Swain ‘A Move Towards a Stakeholder Society’ [2003] IL & P 5 at 7–8.

41. On the ‘fundamentally different views’ that banks and bondholders have regarding rescue - and the frictions that this can create within negotiations - see J Roome ‘The Unwelcome Guest’ (2004) Recovery 30. See generally N Luhmann Social Systems (Stanford: Stanford University Press, 1984); N Luhmann ‘Law as a Social System’ (1989) 83 Nw ULR 136; G Teubner Law as an Autopoietic System (Oxford: Blackwell, 1993); G Teubner and A Febbrajo (eds) State, Law and Economy as Autopoietic Systems (Milan: Giuffre, 1992).

42. For a discussion of the problems of dual decision-making (where authority in insolvency is shared) see Hahn, above n 5, at 152–154.

43. Paragraph 3(2)).

44. See Finch, above n 17, at 534–535.

45. A statement of the proposals has to be sent to creditors within eight weeks of appointment of the administrator (IA 1986, Sch B1, para 49(5) and (6)) and an initial creditors meeting to consider them convened with ten weeks (para 5 1(2)(b)).

46. See para 74.

47. See Insolvency Service Productivity and Enterprise: Insolvency - A Second Chance (Cm 5234,2001).

48. See Frisby, above n 2 and the text at nn 21–24 above.

49. On the governance role of banks at times of corporate distress see Gilson (1990), above n 38, at 355–387; Franken, above n 5.

50. See Phillips and Goldring, above n 22, at 75,76; Frisby, above n 2, at 261.

51. See eg D Citron ‘The Incidence of Accounting-Based Covenants in UK Public Debt Contracts: An Empirical Analysis’ (1995) 25 Accounting and Business Research 139; J Day and P Taylor ‘The Role of Debt Contracts in Corporate Governance’ (1998) 7 Journal of Management and Governance 171; H DeAngelo, L DeAngelo and K Wruck ‘Asset liquidity, debt covenants and managerial discretion in financial distress: the collapse of L.A. Gear’ (2002) Journal of Financial Economics 3; R Mokal and J Armour ‘The New UK Rescue Procedure - The Administrator's Duty to Act Rationally’ (2004) 1 Int Corp Rescue 136; Harris, M and Raviv, A ‘Capital Structure and the Informational Role of Debt’ (1990) 54 Journal of Finance 321.Google Scholar

52. See eg J Willcock ‘How the Banks Won the Battle for the Enterprise Bill’ (2002) Recovery 24; but cf Lord McIntosh of Haringey, HL Deb, 21 October 2002. The banks may even use the process as a route to winding up -see generally A Keay ‘What Future for Liquidation in the Light of the Enterprise Act Reforms?’ [2005] JBL 143; L Linklater ‘New Style Administration: a Substitute for Liquidation?’ (2005) Co Law 129; IA 1986, Sch B1, para 83. Where banks are engaged in such use of the procedure they will seldom be inclined to supply rescue-relevant information.

53. On whetherevents post-EA 2002 will be driven by ideas, interests or legally allocated rights see Finch, above n 17.

54. See para 3(2).

55. See D Prentice ‘Bargaining in the Shadow of the Enterprise Act 2002′ (2004) 5 EBOR 153; Finch, above n 17, at 540.

56. See Armour and Frisby, above n 15, at 87–88; and on ‘active’ reasons for taking security see R Scott ‘A Relational Theory of Secured Financing’ (1986) 86 Col LR 901.

57. See the administrator's duty to consider the interests of creditors as a whole - para 3(2). On the reception of creditors’ input in receivership see Finch, above n 1, pp 248–249; E Ferran ‘The Duties of An Administrative Receiver to Unsecured Creditors’ (1988) Co Law 58.

58. Average returns to unsecured creditors may be so low post administration that this may not conduce to high commitment: an R3 Survey of July 2004 revealed that unsecured creditors, on average, gained returns from ‘old’ administrationsof 6.3 pence in the pound (5.4 pence from administrative receiverships).

59. Armour and Frisby, above n 15, at 100.

60. Armour and Frisby, above n 15, at 100.

61. See eg Brupbacher, above n 15; Davies, above n 39; Frisby, above n 2.

62. The administrator, as noted, has a duty to perform his functions as quickly and efficiently as is reasonably practicable (para 4) which creditors or members can enforce by means of an application to court under para 74(2).

63. Paragraph 49(5).

64. See Armour and Frisby, above n 15; G Triantis and R Daniels ‘The Role of Debt in Interactive Corporate Governance’ (1995) 83 Calif LR 1073.

65. As noted, qualifying floating charge holders(QFCHs) can appoint administrators out of court; other parties who intend to make such appointments have to give notice (para 26(1)) to QFCHs which then allows QFCHs to appoint their own choice of administrator - see further Davies, above n 39, pp 164–165.

66. R Goode Principles of Corporate Insolvency Law (London: Sweet & Maxwell, 2nd edn, 1997) pp 274–275. Sir Kenneth Cork has written that insolvency provides an occasion for a change ‘from incompetent hands to people who not only have the wherewithal but also hopefully the competence, the imagination and the energy to save the business’: K Cork Cork on Cork (London: Macmillan, 1988) pp 202–203. On the UK's insolvency system's development as a ‘manager-displacing’ regime see J Armour, B Cheffins and D Skeel ‘Corporate Ownership Structure and the Evolution of Bankruptcy Law; Lessons from the United Kingdom’ (2002) 55 Vand LR 1699 at 1734–1750.

67. See Finch, above n 1, pp 126–144; R3 Corporate Insolvency in the UK (2004).

68. Finch, above n 1, p134.

69. See eg G Moss ‘Chapter 11: An English Lawyer's Critique’ (1998) Ins Intell 17 at 18; J Westbrook ‘A Comparison of Bankruptcy Reorganisation in the US with Administration Procedure in the UK’ [1990] IL. & P 86; Carruthers and Halliday, above n 3, p 246.

70. As perpara 3(1)(a) or (b). EA 2002 does, however, allow creditors’ meetings to be bypassed in certain circumstances-see Sch B1, para 52 and above n 34. On the ‘capture’ of creditors’ meetings generally see S Wheeler ‘Empty Rhetoric and Empty Promises: The Creditors’ Meeting’ (1994) 21 Journal of Law and Society 350.

71. See Ferran, above n 57.

72. The administrator is an officer of the court and thus subject to the ethical requirements of the rule in Exp James [1874] LR 9 Ch App 609 - see D Milman ‘The Administration Order Procedure’ (2002) 17 Company Law Newsletter 1 at 3.

73. See Hahn, above n 5.

74. See IA 1986, Sch B1, paras 51–57.

75. See J Amour and R Mokal ‘Reforming the Governance of Corporate Rescue: The Enterprise Act 2002′ [2005] LMCLQ 28; and the discussion of para 3 above. On accountability in the new administration process see Brupbacher, above n 15, at 126138.

76. Under which, as noted, an administrator is not obliged to call a creditors’ meeting if he thinks that creditors can be paid in full; there is insufficient property for a distribution to unsecured creditors; or that it will not be possible to rescue the company as a going concern or achieve a better result for the company's creditors as a whole than would be likely if the company were wound up.

77. Schedule B1, para 74 governs challenges to the administrator's conduct of the company by creditors or members. Paragraph 75 allows misfeasance actions against administrators by, inter aha, a creditor and the company does not have to be in liquidation for such an action to be commenced.

78. IA 1986, Sch B1, paras 14,22. See Finch, above n 17; and nn 19–20 above.

79. IA 1986, Sch B1, paras 14, 22; Scott, above n 56, at 909.

80. Hahn, above n 5, at 134. It should be emphasised, of course, that Hahn's argument relates to listed corporations. Private companies would not offer the same dispersion of shareholding and, accordingly, risks of shareholder manipulation would be higher, and the attractions of DIP lower.

81. Directors’ tendency to align their decision-making to bank's interests is likely to be the greater if the directors have also given the bank personal guarantees.

82. See eg J Day and P Taylor ‘Financial Distress in Small Firms: the Role Played by Debt Covenants and Other Monitoring Devices’ [2001] Ins Law 97.

83. See eg Gilson (1990), above n 38, at 367.

84. Gilson (1990), above n 38, at 367. See also Baird and Rasmussen, above n 15, at 784–785. On the role of turnaround specialists in insolvency see V Finch ‘Doctoring in the Shadows of Insolvency’ [2005] JBL (forthcoming).

85. See eg D Bogart ‘Unexpected Gifts of Chapter 11: The Breach of a Director's Duty of Loyalty Following Plan Confirmation and the Postconfirmation Jurisdiction of Bankruptcy Courts’ (1998) 72 Am Bank LJ 303.

86. P Aghion, 0 Hart and J Moore ‘The Economics of Bankruptcy Reform’ (1992) 8 Journal of Law, Economics and Organisation 523; Hahn, above n 5.

87. See Bradley and Rosenzweig, above n 5. On DIP financiers filling the ‘governance vacuum’ in Chapter 11 see D Skeel ‘The Past, Present and Future of Debtor-in-Possession Financing’ (2004) 25 Cardozo LR 101.

88. Hahn, above n 5.

89. See eg Cork, above n 66, ch 10; and generally D Milman ‘Strategies for Regulating Managerial Performance in the “Twilight Zone”’ [2004]JBL 493.

90. (Pre-15 September 2003) IA 1986, s 9(1).

91. See paras 22 and 14. On valid appointment of administrators out of court see Fliptex Ltd v Hogg [2004]BCC 870.

92. Paragraph 26.

93. Paragraph 14.

94. Hahn, above n 5; Day and Taylor, above n 51.

95. IA 1986, s 214. See eg A Walters ‘Enforcing Wrongful Trading: Substantive Problems and Practical Disincentives’ in B Rider (ed) The Corporate Dimension: An Exploration of Dereloping Areas of Company and Commercial Law (Bristol: Jordans, 1998); C Cook ‘Wrongful Trading: Is It a Real Threat to Directors or a Paper Tiger?’ [1999] Ins Law 99; S Shulte ‘Enforcing Wrongful Trading as a Standard of Conduct for Directors and a Remedy for Creditors’ (1999) Co Law 80; Finch, above n 1, pp 512–515.

96. Company Directors Disqualification Act 1986. See eg S Wheeler ‘Directors’ Disqualification: insolvency practitioners and the decision-making process’ (1995) 15 LS 283; A Hicks ‘Director Disqualification: Can It Deliver?’ [2001] JBL433; A Walters ‘Directors’ Disqualification after the Insolvency Act 2000: The New Regime’ [2001] Ins Law 86; Finch, above n 1, pp 521–537.

97. See M White ‘The Cost of Corporate Bankruptcy: A US-European Comparison’ in Bhandari and Weiss (eds), above n 5; Milman, above n 89, at 498–499.

98. See Hahn, above n 5, at 141.

99. See para 3(1).

100. See Prentice, above n 55, at 6.

101. Prentice, above n 55, at 6.

102. Prentice. above n 55, at 7. A fixed charge can be taken over the parent company's shares in the SPV. On fragmentation of security see IA 1986, Sch B, paras 70 and 71, but, as Prentice notes, these provisions need the appointment of an administrator and, in the case of a fixed charge, a court order.

103. On the comparative efficiency of debtor-oriented (as opposed to creditor-oriented) insolvency regimes where debt is not concentrated, see Franken, above n 5.

104. IA 1986, s 176A; see above n 31 and below n 112. On incentives to resort to Law of Property Act 1925 receivership see Finch, above n 17, at 537.

105. See Davies, above n 39, p 50.

106. See Armour and Frisby, above n 15; Franken, above n 5. On the limitations of the concentrated creditor theory see Finch, above n 1, pp 255–260.

107. See British Bankers Association Response by the BBA to the Insolvency Service White Paper, Insolvency - A Second Chance (October 2001), hereafter ‘BBA’.

108. This was proposed in the House of Lords but the government rejected the proposal -See HL Deb, 21 October 2002. For a comment on the ‘regrettable’ failure to provide for super-priority funding see A McKnight ‘The Reform of Corporate Insolvency Law in Great Britain - the Enterprise Bill 2002′ (2002) 17 JIBL 324 at 333; Frisby, above n 2.

109. See IA 1986, s 9(3).

110. See BBA and BBA Response to the Report by the Review Group on Company Rescue and Business Reconstruction Mechanisms (March 2001), hereafter ‘BBA - Rescue’. On the various advantages of creditor concentration see Armour and Frisby, above n 15, at 84.

111. See Armour and Frisby, above n 15, at 84.

112. See Armour and Frisby, above n 15, at 84.

113. See IA 1986, s 176A.

114. See H Rajak ‘The Enterprise Act and Insolvency Law Reform’ (2003) Co Law 3. Under the EA 2002's ‘ring-fencing’ provisions (see also above n 31) the quantum of the ‘prescribed part’ of funds reserved for unsecured creditors out of property otherwise available for distribution to the holders of a floating charge is established by statutory instrument -see Insolvency Act 1986 (Prescribed Part) Order 2003, SI 2003/2097, effective 15 September 2003. Currently 50% of the first £10,000 net property is prescribed plus 20% of property beyond £10,000 up to a maximum prescribed part of £600,000. Without such a ‘ring-fencing’ measure the consequence of the abolition of the major part of the Crown's preferential status as a creditor would be a windfall for the charge holder: see L Sealy and D Milman Annotated Guide to the Insolvency kgislation (London: Sweet & Maxwell, 2nd revised 7th edn, 2004).

115. IA 1986, Sch B 1, para 4.

116. Under Sch B 1, para 3(1)(a).

117. Under Sch B 1, para 3(3).

118. Under Sch B 1, para 3(4).

119. See Frisby, above n 2, at 262.

120. On the role of the judiciary in relation to the ‘new’ administration see also Armour and Mokal, above n 75; Finch, above n 17.

121. The company or its directors will also need to declare that the company is or is likely to become unable to pay its debts as a precondition to the appointment of an administrator. This contrasts with the holder of the qualifying floating charge who is not required to demonstrate this inability or likely inability (see also above n 19).On inability to pay debts and definitions of insolvency see Finch, above n 1, pp 121–126.

122. The company has to be or be likely to become unable to pay its debts and the court must be satisfied that the administration order is reasonably likely to achieve the purpose of administration - Sch B1, para 11(b).

123. The court may also make an interim order to restrict the exercise of directorial powers or to make these subject to supervision by an IP or the court (para 13(3)(a) and (b)). See Keay, above n 52; Linklater, above n 52.

124. On the use of ‘thinks’ see M Simmons ‘Some Reflections on Administrations, Crown Preference and Ring Fenced Sums in the Enterprise Act’ [2004] JBL 423 at 42–28.

125. For arguments that this means that administrators should act to maximise ‘total expected net recoveries’ see Armour and Mokal, above n 75, at 46–47.

126. As has been noted, misfeasance actions (by, inter aha, a creditor) can be brought against administrators (or purported administrators) under para 75 and the company does not have to be in liquidation for such an action to be commenced. (EA 2002, s 278 and Sch 26 remove all references to an administrator from the IA 1986, s 212 ‘misfeasance’ section.) On administrators owing no general common law duty of care in relation to their conduct of the administration to unsecured creditors see Oldham v Kyrris [2004] BCC 111, CA.

127. See Simmons, above n 124, at 427–428; Mokal and Armour, above n 51, at 138; HL Deb, 21 October 2002 (on the government's expectation that the courts will review the rationality of the administrator's decision). On the review and use of the administrator's discretion see further Finch, above n 17, at 549–550.

128. See Swain, above n 40; Editorial [2002] IL & P 121–122. See also Insolvency Service Guide, para.4.1.6 and DTI Explanatory Notes, para 648 which suggest that the court will only interfere if bad faith can be established or the decision was one that no reasonable administrator would have taken. On the facilitative attitude of the courts see Re Transbus International Ltd [2004] BCC 401; and Re Ballast plc [2004] EWHC 2356; A Walters ‘Corporate restructuring under Sch. B1 of the Insolvency Act 1986′ (2005) Co Law 97. See also principles laid down by Neuberger J in T & D Industries plc (in administration) [2000] 1WLR 646, ‘which appear to have been converted into statutory form by para. 68′ -D Milman ‘Corporate reorganisation procedures: recent judicial insights’ (2004) 15 Company Law Newsletter 1 at 4.

129. See further Mokal and Armour, above n 51, at 137.

130. See Simmons, above n 124; M Simmons ‘Enterprise Act and Plain English’ (2004) Ins Intell 76 (considering the use of the words ‘thinks’ and ‘harm’ in the statutory provisions).

131. Schedule B1, para 5; Exp James [874] LR 9 Ch App 609; D Milman ‘A Question of Honour’ [2000] Ins Law 247.

132. See Lord Diplock in Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374 at 414–411. On the status of a decision or policy-maker as ‘public’ for the purposes of judicial review see eg R v Panel on Takeovers and Mergers, ex p Dutafin Plc [1987] QB 815; M Beloff ‘Judicial Review -2001: A Prophetic Odyssey’ (1995) 58 MLR 143.

133. See Mokal and Armour, above n 51, at 137–138. Here the tests applied to trustees, according to the rule in Re Hasting-Bass [1975] Ch 25, are similar to those applied to public bodies according to Associated Provincial Picture Houses Ltd v Wednesbury Corpn [1948] 1 KB 223. On the rule in Hasting Bass see Stannard v Fisons Pensions Trust Ltd [1992] IRLR 27 (trustees were bound to give properly informed consideration to the value of a trust fund in calculating the just and equitable level of funds required to be transferred).

134. Associated Provincial Picture Houses Ltd v Wednesbury Corpn [1948] 1 KB 223.

135. Lightrnan J in Re Barr's Settlement Trusts [2003] Ch 409; G Lightman -see Editorial [2002] IL & P 121 at 122.

136. Paragraph 49(2)(b).

137. Ie at creditors’ meetings, if under a duty to call them (see para 52(1) and (2)).

138. See Swain, above n 40; Editorial [2002] IL & P 121.

139. See R v Independent Television Commission, ex p TSW Broadcasting Ltd [1996] EMLR 291 (House of Lords stated that courts would be most reluctant to second-guess regulatory bodies on substantive issues), but cf Mercury Communications Ltd director General of Telecommunications [1996] 1 All ER 575, HL criticised in A McHarg ‘Regulation as a Private Law Function’ [1995] PL 539. On judicial reluctance to second-guess decisions on budgetary allocation see R v Cambridge Health Authority, ex p B [1995] 2 All ER 129 at 137.

140. See IA 1986, s 214(4)(a)and (b); Finch, above n 1, pp 512–515.

141. See Finch, above n 1, pp 512–515.

142. See eg Associated Provincial Picture Houses v Wednesbury Corpn [1948] 1 KB 223: Council of Civil Service Unions v Minister for the Civil Service [1985] AC 314.

143. See the references to reasonableness in the para 4 duty to perform functions as quickly and efficiently as is reasonably practicable.

144. That is on ‘he who pays the piper plays the tune’ principles -see Swain, above n 40.

145. See IA 1986, s 214; Company Directors Disqualification Act 1986; and above nn 95–96 and associated text.

146. Core uncertainties here may relate to the courts’ reading of the administrator's para 3 objectives and to the judges general stance on protecting the administrator's domain by eliminating excess interferences and by deferring to the judgments of administrators rather than second-guessing them.