UK v/s India

UK v/s India

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A Deep Dive Into ROLE of Administrator in the UK versus India

CORPORATE INSOLVENCY: COMPARATIVE STUDY OF THE ROLE OF ADMINISTRATOR IN UK AND INDIA
1.

Corporate bankruptcy alludes to the condition of organization being not able to pay its obligations when they fall due or when organization has deficient measure of resources. In a circumstance of corporate indebtedness, there are four options accessible which are Administration, Administrative collector, Voluntary Arrangement and liquidation. The initial three connects with the saving of the organization while the last end the existence of the organization.

In corporate bankruptcy methodology the IP performs significant jobs. These jobs can be ordered as: a Supervisor in the intentional plan, where he ensures that the concurred terms of the course of action are met[1]; an administrator, who tries to rescue the company or sell the assets of the company to repay the creditors as much as possible[2], a Receiver , whose function is to sell the assets of the company in order to repay to the secure creditor; and a Liquidator ,whose functions are to sell the assets of the company to repay the creditors and also he can sell the whole company as a going concern.

In this examination paper, the scientist will focus just on the Administration procedures in both United Kingdom and India. The Administration procedures start with the organization being not able to pay its obligation which might be because of organization being wiped out. So the director and beneficiaries are named under specific circumstance. So the specialist, with this examination will manage the arrangement, job, capacities and obligations of both overseer and collector.

This exploration study will attempt to analyze various jobs played by both the recipient and chairman in both the general set of laws of India and UK. In Chapter 1, the analyst will look at the job of executive in India. Section 2 will manages the job of manager in UK. Section 3 will attempt to recognize the jobs of recipient in both the UK and India.

CHAPTER 1: ROLE OF ADMINISTRATOR: INDIA

The concept of administrator is introduced for the first time in India with the enactment of Companies Act, 2013. The role of administrator is contained in Chapter XIX, where he deals with the revival and rehabilitation of sick companies. So the administrator plays a central role in reviving and rehabilitating a sick company. His main function is to draft a scheme for reviving and rehabilitating a sick company[3]. An administrator , both Interim and Company, are appointed by the Tribunal from the databank, which is maintained by the Central government or any agency or institution which is authorised by the Central government in a prescribed manner, consisting the names of company secretary, chartered accountant, cost accountant and such other professionals as may be notified[4].

On the other hand, the previous Companies Act, 1956 also dealt with revival and rehabilitation of sick companies in Part VIA of the Act but the power to make application for scheme of revival and rehabilitation of sick companies were given to the directors of the sick industrial company and also to Central government or Reserve Bank or State government or public financial institution or State level institution or scheduled bank such described authority would refer to the Tribunal for the same[5]. This means that new Act has given the power to draft scheme to the administrator which was earlier given to the directors or the creditors of the company. In the 1956 Act, the Tribunal on being satisfied that the concerned company is a sick company, appointed an operating agency to enquire into the scheme of revival and rehabilitation and make a report regarding the same[6] but the 2013 Act states about the appointment of administrator, instead of operating agency. 2013 Act has nowhere defined the term administrator but has classified the administrator into two types. Initially, Interim Administrator is appointed by the Tribunal after the receipt of an application from the creditors under section 254 of the 2013 Act[7] as per Form No. H[8] . Then afterwards, when the tribunal is satisfied that the draft scheme of revival and rehabilitation of the sick company has been approved by the three-fourth of the creditors of the concerned company and also the Tribunal has considered the reports of the Interim Administrator which is prepared after the meeting of creditors has been held, in such case the tribunal appoints the Company Administrator by order which is contained in Form No. M[9] , to prepare the scheme of revival and rehabilitation of the concerned sick company after adopting certain required measures[10].

Although the main function of an administrator is to prepare the scheme for revival and rehabilitation of the sick company but there is some difference in the functions they aim to play. On the one hand, the Interim Administrator has to convene the meeting of the creditors of the company in accordance with section 257 of the 2013 Act and so he has to publish a notice for meeting of creditors as per Form No. K[11] at least 21 days before the date of the meeting and he also has to submit a report to the tribunal in the prescribed Form No. J[12] after considering the particulars and documents and the draft scheme for revival and rehabilitation of the sick company, which has been furnished with the application by the creditors under section 254 of the 2013 Act[13]. If the creditors have made reference to the Tribunal under section 254 and filed a draft of scheme of revival and rehabilitation of sick company, then in such case after the appointment as the interim administrator, he will be appointing a committee of creditors, which shall not be more than 7 members, each representing different classes of creditors[14]. Interim administrator also decides the procedure for holding the meeting of the committee of creditors[15].

On the other hand, Company Administrator shall perform, apart from those functions as directed by the Tribunal[16], also such other function like preparing the books of accounts, maps, plans, etc. of the company concerned[17]. He is also connected with the preparation of the list of shareholders, creditors and workmen, etc[18]. As already stated that, main function of the administrator is to prepare the scheme for revival and rehabilitation of the sick company but the role played by Company Administrator in drafting the scheme is much more than that prepared by Interim Administrator as the former while drafting the scheme has to clarify whether the company can continue or has to be dissolved. Company Administrator prepares the scheme for the revival and rehabilitation of sick company after considering the draft scheme prepared by the creditors under section 254[19]. Such scheme contains measures like financial restructuring, takeover, amalgamation, etc[20]. Further the Company Administrator will place the scheme made by him in a meeting of creditors which is convened for their approval[21]. Also the company administrator shall convene the meetings of both secured and unsecured creditors separately[22] and the notice of such meetings shall be contained in Form No. O[23] . In such convened meetings, if one-fourth of the unsecured creditors and three-fourth of the secured creditors agree to the scheme, then the company administrator will place for sanctioning such scheme before the Tribunal[24] as per Form No. P[25].

The 2013 Act has also provided provisions related to the discharge of the administrators. The interim administrator will be discharged in two situations: firstly when the Tribunal is satisfied that the detailed report of the interim administrator suggests that the revival and rehabilitation of the concerned sick company is not possible then the tribunal may order the initiation of the winding up proceedings against the sick company as per Form No. L[26] and secondly when the tribunal after considering the report of Interim administrator feels that the revival and rehabilitation is possible , then the tribunal shall appoint the company administrator[27]. Interestingly, if the tribunal thinks appropriate, interim administrator can be appointed as the company administrator as well[28]. On the other hand, Company administrator is discharged after filing the report, in Form No. T[29] to the Tribunal. Such report is filed in case where the scheme is not approved by the both secured and unsecured creditors as prescribed[30].


CHAPTER 2: ROLE OF ADMINISTRATOR: UNITED KINGDOM

An administrator plays a pivotal role and has a wide managerial power in the administrative procedure. Administrator is a person or group of persons, appointed under Schedule B1 of the Insolvency Act, 1986(IA, 1986). The primary aim which an administrator has is to restore the profitability of concerned company by reorganizing the whole or substantially the whole of the business of the company. He is also responsible for managing the company’s affairs, business and property. On being appointed as an administrator, he becomes the officer of the company[31].

A person who is qualified to be an Insolvency Practitioner can only become an administrator of the company[32]. So to be an administrator, a person must be a member of a recognised professional body[33] or they must be a non-member of such a body but subject to its rules in respect of the profession of IP[34] or they must be certified by a competent authority[35]. Also to be an administrator, he should not have any disqualifications like he should not be a bankrupt or have any disqualification order or a bankruptcy restriction order, etc[36]. Schedule B1 of IA, 1986 paragraph 6 also states that appointment of joint administrator is valid.

An administrator can be appointed either by court, or by holder of qualifying floating charge or by company or its directors. The Enterprise Act, 2002(EA, 2002) introduced the “out of court” appointment process of the administrator. Prior to it, only the court could appoint the administrator of the company.

According to the paragraph 12(1) and paragraph 38 of the IA 1986[37], the court can appoint the administrator only after the receipt of the application made by one or more of a specified list of person like the company, its directors, its creditors, etc. Also such application can be made by any of these persons either singly or jointly. This is the traditionally way of appointing the administrator.

The two “out of court” processes for appointing the administrators as contained in the EA, 2002 was the appointment by the floating charge holders and the other is the appointment by the company or its directors. The appointment of administrator by the floating charge holder is now the principal way for such holders to enforce their debts. So after the EA, 2002, holders of floating charge appoint the administrator, instead of administrative receiver, for enforcing their debts.

The second “out of court” appointment is by the company or by its directors[38]. Where the company appoints the administrator, then such appointment is by a resolution of shareholders in a general meeting or a unanimous informal agreement[39]. If the appointment is by the director, then in such case the decision to appoint may be by a majority of their number[40].

According to the IA, 1986, the administrator is agent of the company and so he has the power to manage company’s affair, business and property. The administrator has the same power as that of the company or the directors like he can dispose of any property of the company without creditors’ approval.

The one stated above is general power of the administrator, the power below are the specific in nature:

· He can remove any director or appoint any director, whether there is any vacancy to fill or not[41],

· He can call meetings of creditors or members[42],

· He can apply to court for directions in connection with his/her functions[43],

· He has the power to take control of the company’s property on the order of the court[44],

· He can enquire into the company’s dealings from the officers of the company[45],

· He can request supply of gas, electricity, water and telecommunication services during the period of the administration without being required to pay the outstanding charges as at the date of administration but may be required to provide a personal guarantee in respect of payment of future charges[46], and

· He can to make distribution to the creditors, i.e., both the secured and preferential creditors, without the permission of the court[47]. But in case of all other creditors, the administrator has to take the permission of the court[48].

The other general duties of the administrator are:

· He owes a duty of care to the company. His act should be carried out to the standards of a professional insolvency practitioner with “ordinary care”

· He owes duty to announce his appointment to the company and all known creditors as soon as practicable[49] and also the duty to advertise his appointment in the manner specified[50]

· He owes the duty to file the statement of affairs prepared to the registrar of the companies[51].

· He has the duty to make proposal for meeting the purpose of the administration as reasonably practicable as possible.

· Administrator has the duty to call for the initial meeting of the creditors[52].

· Administrator has to duty to prepare a progress report which will contain expenses incurred since the date of his appointment; such report shall be filed with the registrar of companies and the creditors[53].

The administrator is discharged from his office automatically after the expiry of one year from the date of his appointment. The term of administrator can be extended only with either the permission of the court or the creditors[54]. Even the creditor can make an application to the court for the discharge of the administrator[55]. The administrator himself can file an application before the court to discharge him if he thinks that the purpose of the administration has been achieved, or if in a meeting of creditors, it was instructed or if the administrator thinks that the company should not enter into the administration[56].Lastly the discharge of the administrator can be by the holders of the floating charge or by the company or its directors also[57].


CHAPTER 3: ADMINISTRATIVE RECEIVER IN INDIA AND UK

Receivership is a formal legal state of an insolvent debtor where a receiver is appointed over the assets of the debtor. Receivership arises at the hands of a creditor, usually who holds security over those assets[58]. Receivership can be granted voluntarily by the debtor or the creditor can seek a court appointment of a receiver[59]. So the basic role of the receiver is to realise the assets of the debtors so that the realisation amount can be paid to the secured creditors, who have appointed the receiver[60]. The receiver comes into picture when the company is unable to pay to its secured creditors and so the receiver aims at realising the maximum for the benefit of the creditors. Both UK and Indian legal system have the concept of receivership but UK laws are much more elaborated than the Indian laws. The role of receiver in both the legal system has been discussed separately below.

In UK, an administrative receiver is an insolvency practitioner, who is appointed by the holder of debentures carrying the floating charge in a company[61]. In other words, an administrative receiver means a receiver or manager of the whole or substantially the whole of the property of the company, who is appointed by the secured creditors, carrying floating charge[62]. A receiver is appointed when specified circumstances defined in section 52(1) of the IA 1986 like when the debt owed to the creditor is not paid, etc. He acts as a agent of the company until the company goes into liquidation[63].

But with the enactment of EA, 2002, an administrative receiver could be appointed only when the charge existed prior to 15th September, 2003[64]. If the floating charge is created after 15th September, 2003, then only administrator could be appointed and not the receiver. An administrative receiver of a company should not be a body corporate or an undischarged bankrupt[65].

The aim of receiver is to recover the money, which is owed to the secured creditors, who have appointed him, by the company[66]. So in order to fulfil his aim, a receiver is given significant power. He has a complete control over the company, which includes that he does not require any prior approval from the court or creditors for his actions[67]. He also has the power to dispose of the assets of the company[68] and also to sell the whole business as a going concern, if he thinks it in the best interest of the creditors, he represents[69].

IA 1986 has also laid down the functions performed by a receiver. He has to send the reports on the events leading to his appointment carrying on of the business, disposal of assets, etc. to the creditors and registrar and also to the unsecured creditors. Even In case of liquidation, he has to send copy of reports to the liquidator.

Important point to note regarding the administrative receiver, with respect to distributing the debt to the creditors is that he does not have the authority to distribute the surplus left to the unsecured creditor. This is because he was appointed by the secured creditors and so he will represent only the secured creditor. In case there is surplus left after distributing it to the secured creditors, then he will place the company to the Company Voluntary Liquidation to enable the liquidator to agree and pay the claims of unsecured creditors.

Another thing to keep in mind is the discharge of the administrative receiver. He is discharged in two occasions: First is when the floating charge holders are paid in full[70] and secondly when the receiver has sold all the assets and has distributed the proceeds[71].

Whereas in India the concept of receiver is not a new concept. It was in the1956 Act and it has been in the new Act as well. In the 1956 Act, the receiver was appointed by the holders of the of a debenture of the company, secured by floating charge[72]. His appointment shall be registered by the Registrar of Companies within 30 days of his appointment. The 1956 Act also has stated some of the duties of the Receiver like he has to submit with the Registrar, an abstract containing the receipt and expenditure[73], or he has to surrender the company’s assets to the liquidator after winding up order has been made by the court[74].

The 1956 Act was not very clear with the position of the receiver. But it was tried to be improved in the 2013 Act. Likewise the 2013 Act has stated that a receiver could be appointed in two circumstances: firstly, he can be appointed by a person, who has obtained an order for such appointment or by a person who has the power to make such appointment under any instrument[75].Secondly, a receiver is appointed by the application given to the tribunal, which is determing whether the company is sick or not. Such application is given by the secured creditor[76]. The only duty defined in the act of 2013 is that at the time of winding up, the receiver has to surrender the company’s assets to the liquidator.


CONCLUSION

An IP plays an important role in the insolvency proceedings of a company. The role of administrator is an important in the administration proceedings. In India, the administrator’s role comes into play when the company is sick and its revival of company is considered. But in UK, his role comes to play when the company is insolvent but it is potentially a viable company. The role of administrator is established in UK but in India, in 2013 only, this was introduced, so it’s a comparatively a new concept and will develop only over a period of time.

But with regard to receiver, it is not a new concept and was there in the 1956 Act. The only problem is there is that the role of receiver is not still developed as it is in UK. There no proper role defined even in the 2013 Act. But this is not the case with the UK law. It is very much defined in the IA 1986 and also in the EA, 2002.

A much more efforts have to be made with reference in India regarding the administration proceedings.

[1] V. Finch, Corporate insolvency law-perspectives and principles (2nd, Cambridge , 2009) 178.

[2] Ibid.

[3] Companies Act 2013 s 261.

[4] Companies Act 2013 s 259(1).

[5] Companies Act 1956 s 424A.

[6] Companies Act 2013 s 424B(2)

[7] Companies Act 2013 s 256(1)(b).

[8][8] Companies Draft Rules,2013 r 19.3(1)(iii)

[9] Companies Draft Rules,2013 r 19.6(1).

[10] Companies Act 2013 s 258.

[11] Companies Draft Rules 2013 r 19.4(1).

[12] Companies Draft Rules 2013 r 19.3(1)(iv).

[13]Companies Act 2013 s 256(1)(b).

[14] Companies Act 2013 s 257(1).

[15] Companies Act 2013 s 257(2).

[16] Companies Act 2013 s 260(1).

[17] Companies Act 2013 s 260(2)(a).

[18] Companies Act 2013 s 260(2).

[19] Companies Act 2013 s 261(1).

[20]Companies Act 2013 s 261(2).

[21] Companies Act 2013 s 262(1).

[22] Companies Act 2013 s 262(2).

[23] Companies Draft Rule 2013 r 19.8(1).

[24] Companies Act 2013 s 262(2).

[25] Companies Act 2013 r 19.8(11).

[26] Companies Draft Rules 2013 r 19.6(1)

[27]. Companies Act 2013 s 258.

[28] Companies Act 2013 s 258.

[29] Companies Draft Rules 2013 r 19.10

[30]Companies Act 2013 s 265.

[31] Insolvency Act 1986 SC. B1 para 5.

[32]Insolvency Act 1986 SC. B1 para 6..

[33] Insolvency Act 1986 s 390(2)(a) , s. 391.

[34] Insolvency Act 1986 s.391(3).

[35] Insolvency Act 1986 s.390(3)(b).

[36] Insolvency Act 1986 s.390.

[37] Inserted by EA 2002.

[38] Insolvency Act 1986 para 22.

[39]R. Parry, Corporate Rescue (1st, Sweet and Maxwell).

[40]Ibid.

[41] Insolvency Act 1986 SC B1 para 61.

[42] Insolvency Act 1986 SC B1 para 62.

[43] Insolvency Act 1986 SC B1 para 63.

[44] Insolvency Act 1986 s 234.

[45] Insolvency Act 1986 s 235.

[46] Insolvency Act 1986 s 233.

[47] Insolvency Act 1986 s 175.

[48] Insolvency Act 1986 SC B1 para 65.

[49] Insolvency Act 1986 SC B1 para46 .

[50] Insolvency Act 1986 SC B1 para 46.

[51] Insolvency Rules 1986 r 2.29.

[52] Insolvency Act 1986 SC B1 para 51.

[53] Insolvency Rules 1986 rule 2.47.

[54] Insolvency Act 1986 SC B1 para 76.

[55] Insolvency Act 1986 SC B1 para 81.

[56] Insolvency Act 1986 SC B1 para 76.

[57] https://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch49-60/Chapter%2056-1/Part%208/Part%208.htm accessed on 30/01/2022.

[58] G. H. Dabbs , 'GENERAL OVERVIEW OF BANKRUPTCY AND INSOLVENCY LAW

[59] Ibid.

[60] J.R. Franks, K.G. Nyborg and W. N. Torous, 'A Comparison of US, UK, and German Insolvency Codes' [] , 86-101

[61] Ibid.

[62] Insolvency Act 1986 s 29(2).

[63] Insolvency Act 1986 s 44.

[64] R. Parry, Corporate Rescue (1st, Sweet and Maxwell).

[65] Ibd.

[66] Ibid.

[67] Ibid.

[68] Insolvency Act 1986 s 43(1).

[69] R. Parry, Corporate Rescue (1st, Sweet and Maxwell).

[70] Ibid.

[71] Ibid.

[72] Companies Act 1956 s 123.

[73] Companies Act 1956 s 421.

[74] Companies Act 1956 s 468.

[75] Companies Act 2013 s 84.

[76] Companies Act 2013 s 253

2.

BIBLIOGRAPHY

STATUES

· INSOLVENCY ACT 1886

· ENTERPRISE ACT 2002

· COMPANIES ACT,2013

· COMPANIES ACT,1956

· COMPANIES DRAFT RULES, 2013

BOOKS

· CORPORATE RESCUE BY REBECCA PARRY

· CORPORATE INSOLVENCY LAW-PERSPECTIVES AND PRINCIPLES BY VENEESA FINCH

ARTICLES

· GENERAL OVERVIEW OF BANKRUPTCY AND INSOLVENCY LAW BY GEOFFREY H. DABBS

· A COMPARISON OF US, UK, AND GERMAN INSOLVENCY CODES BY J.R. FRANKS, K.G. NYBORG AND W. N. TOROUS,

WEBSITE

· https://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch49-60/Chapter%2056-1/Part%208/Part%208.htm

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