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T4a. Administration

Purpose of administration primarily to rescue company

 

"(1) The administrator of a company must perform his functions with the objective of—

(a) rescuing the company as a going concern, or

(b) 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

(c) realising property in order to make a distribution to one or more secured or preferential creditors." (IA 1986, Sch B1, para 3(1))

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Priority of rescuing company

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"(3) The administrator must perform his functions with the objective specified in sub-paragraph (1)(a) unless he thinks either—

(a) that it is not reasonably practicable to achieve that objective, or

(b) that the objective specified in sub-paragraph (1)(b) would achieve a better result for the company’s creditors as a whole." (IA 1986, Sch B1, para 3(3))

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Realising property only if other objectives not reasonably practicable

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"(4)The administrator may perform his functions with the objective specified in sub-paragraph (1)(c) only if—

(a)he thinks that it is not reasonably practicable to achieve either of the objectives specified in sub-paragraph (1)(a) and (b), and

(b)he does not unnecessarily harm the interests of the creditors of the company as a whole." 

(IA 1986, Sch B1, para 3(4))

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Perform function in interests of creditors as a whole

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"(2) Subject to sub-paragraph (4), the administrator of a company must perform his functions in the interests of the company’s creditors as a whole."  (IA 1986, Sch B1, para 3(2))

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Purpose of administration primarily to rescue company

Administration begins when administrator appointed

 

"(2) For the purposes of this Act—

(a) a company is “in administration” while the appointment of an administrator of the company has effect,

(b) a company “enters administration” when the appointment of an administrator takes effect,..." (IA 1986, Sch B1, para 1(2))

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Administration begins when administrator appointed

Appointment of administrator: general

 

"(1) For the purposes of this Act “administrator” of a company means a person appointed under this Schedule to manage the company’s affairs, business and property." (IA 1986, Sch B1, para 1(1))

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"A person may be appointed as administrator of a company—

(a)by administration order of the court under paragraph 10,

(b)by the holder of a floating charge under paragraph 14, or

(c)by the company or its directors under paragraph 22." (IA 1986, Sch B1, para 2)

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Limit on appointment by company in liquidation

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"(1) A person may not be appointed as administrator of a company which is in liquidation by virtue of—

(a) a resolution for voluntary winding up, or

(b) a winding-up order.

(2) Sub-paragraph (1)(a) is subject to paragraph 38.

(3) Sub-paragraph (1)(b) is subject to paragraphs 37 and 38." (IA 1986, Sch B1, para 8)

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Appointment of administrator: general

Appointment by court

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"(10) An administration order is an order appointing a person as the administrator of a company." (IA 1986, Sch B1, para 10)

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Conditions for making order

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"(11) The court may make an administration order in relation to a company only if satisfied—
(a)that the company is or is likely to become unable to pay its debts, and
(b)that the administration order is reasonably likely to achieve the purpose of administration." (IA 1986, Sch B1, para 11)

 

Application for administration order

 

"(12)(1) An application to the court for an administration order in respect of a company (an “administration application”) may be made only by—
(a) the company,
(b) the directors of the company,
(c) one or more creditors of the company,
(d) the designated officer for a magistrates’ court in the exercise of the power conferred by section 87A of the Magistrates’ Courts Act 1980 (c. 43) (fine imposed on company), or
(e) a combination of persons listed in paragraphs (a) to (d).
(2) As soon as is reasonably practicable after the making of an administration application the applicant shall notify—
(a) any person who has appointed an administrative receiver of the company,
(b) any person who is or may be entitled to appoint an administrative receiver of the company,
(c) any person who is or may be entitled to appoint an administrator of the company under paragraph 14, and
(d) such other persons as may be prescribed.
(3) An administration application may not be withdrawn without the permission of the court.
(4) In sub-paragraph (1) “creditor” includes a contingent creditor and a prospective creditor.
(5) Sub-paragraph (1) is without prejudice to section 7(4)(b)." (IA 1986, Sch B1, para 12)

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Powers of court
 

"(13)(1) On hearing an administration application the court may—
(a)make the administration order sought;
(b)dismiss the application;
(c)adjourn the hearing conditionally or unconditionally;
(d)make an interim order;
(e)treat the application as a winding-up petition and make any order which the court could make under section 125;
(f)make any other order which the court thinks appropriate.

[...]

(4)This paragraph is subject to paragraph 39."  (IA 1986, Sch B1, para 13(1), (4))

 

Interim orders

 

"(3) An interim order under sub-paragraph (1)(d) may, in particular—

(a)restrict the exercise of a power of the directors or the company;

(b)make provision conferring a discretion on the court or on a person qualified to act as an insolvency practitioner in relation to the company." (IA 1986, Sch B1, para 13(3))

Time of taking effect

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"(2) An appointment of an administrator by administration order takes effect—
(a) at a time appointed by the order, or
(b) where no time is appointed by the order, when the order is made." (IA 1986, Sch B1, para 13(2))

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Appointment by court

Appointment by company or directors

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"(22)(1)A company may appoint an administrator.

(2)The directors of a company may appoint an administrator." (IA 1986, Sch B1, para 22)

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No further appointment by company or directors within 12 months of last appointment ending

 

"(23)(1)This paragraph applies where an administrator of a company is appointed—

(a)under paragraph 22, or

(b)on an administration application made by the company or its directors.

(2)An administrator of the company may not be appointed under paragraph 22 during the period of 12 months beginning with the date on which the appointment referred to in sub-paragraph (1) ceases to have effect." (IA 1986, Sch B1, para 23)

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No appointment whilst winding up petition pending, administration application made or administrative receiver in office

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"(25) An administrator of a company may not be appointed under paragraph 22 if—

(a)a petition for the winding up of the company has been presented and is not yet disposed of,

(b)an administration application has been made and is not yet disposed of, or

(c)an administrative receiver of the company is in office." (IA 1986, Sch B1, para 25)

 

Unless winding up petition presented after notice of intention filed

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"(25A)(1)Paragraph 25(a) does not prevent the appointment of an administrator of a company if the petition for the winding up of the company was presented after the person proposing to make the appointment filed the notice of intention to appoint with the court under paragraph 27.

(2)But sub-paragraph (1) does not apply if the petition was presented under a provision mentioned in paragraph 42(4)" (IA 1986, Sch B1, para 25A)

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Notice of intention to appoint at least 5 business days before

 

"(26)(1) A person who proposes to make an appointment under paragraph 22 shall give at least five business days’ written notice to—

(a)any person who is or may be entitled to appoint an administrative receiver of the company, and

(b)any person who is or may be entitled to appoint an administrator of the company under paragraph 14.

(2) A person who gives notice of intention to appoint under sub-paragraph (1) shall also give such notice as may be prescribed to such other persons as may be prescribed.

(3) A notice under this paragraph must—

(a) identify the proposed administrator, and

(b) be in the prescribed form." (IA 1986, Sch B1, para 25A)

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File notice of intention to appoint with the court

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"(27)(1)A person who gives notice of intention to appoint under paragraph 26 shall file with the court as soon as is reasonably practicable a copy of—

(a) the notice, and

(b) any document accompanying it.

(2) The copy filed under sub-paragraph (1) must be accompanied by a statutory declaration made by or on behalf of the person who proposes to make the appointment—

(a) that the company is or is likely to become unable to pay its debts,

(b) that the company is not in liquidation, and

(c) that, so far as the person making the statement is able to ascertain, the appointment is not prevented by paragraphs 23 to 25, and

(d) to such additional effect, and giving such information, as may be prescribed.

(3) A statutory declaration under sub-paragraph (2) must—

(a) be in the prescribed form, and

(b) be made during the prescribed period.

(4)A person commits an offence if in a statutory declaration under sub-paragraph (2) he makes a statement—

(a)which is false, and

(b)which he does not reasonably believe to be true." (IA 1986, Sch B1, para 27)

 

Appointment not valid if notice of intention to appoint not properly given

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"(28)(1)An appointment may not be made under paragraph 22 unless the person who makes the appointment has complied with any requirement of paragraphs 26 and 27 and—

(a)the period of notice specified in paragraph 26(1) has expired, or

(b)each person to whom notice has been given under paragraph 26(1) has consented in writing to the making of the appointment.

(2)An appointment may not be made under paragraph 22 after the period of ten business days beginning with the date on which the notice of intention to appoint is filed under paragraph 27(1)." (IA 1986, Sch B1, para 28)

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Notice of appointment to be filed with the court

 

"(29)(1) A person who appoints an administrator of a company under paragraph 22 shall file with the court—

(a)a notice of appointment, and

(b)such other documents as may be prescribed.

(2)The notice of appointment must include a statutory declaration by or on behalf of the person who makes the appointment—

(a)that the person is entitled to make an appointment under paragraph 22,

(b)that the appointment is in accordance with this Schedule, and

(c)that, so far as the person making the statement is able to ascertain, the statements made and information given in the statutory declaration filed with the notice of intention to appoint remain accurate.

(3)The notice of appointment must identify the administrator and must be accompanied by a statement by the administrator—

(a)that he consents to the appointment,

(b)that in his opinion the purpose of administration is reasonably likely to be achieved, and

(c)giving such other information and opinions as may be prescribed.

(4)For the purpose of a statement under sub-paragraph (3) an administrator may rely on information supplied by directors of the company (unless he has reason to doubt its accuracy).

(5)The notice of appointment and any document accompanying it must be in the prescribed form.

(6)A statutory declaration under sub-paragraph (2) must be made during the prescribed period.

(7)A person commits an offence if in a statutory declaration under sub-paragraph (2) he makes a statement—

(a)which is false, and

(b)which he does not reasonably believe to be true." (IA 1986, Sch B1, para 29)

 

Cases where no person was entitled to notice of intention to appoint

 

"(30) In a case in which no person is entitled to notice of intention to appoint under paragraph 26(1) (and paragraph 28 therefore does not apply)—

(a)the statutory declaration accompanying the notice of appointment must include the statements and information required under paragraph 27(2), and

(b)paragraph 29(2)(c) shall not apply." (IA 1986, Sch B1, para 30)

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Time of taking effect

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"(31) The appointment of an administrator under paragraph 22 takes effect when the requirements of paragraph 29 are satisfied." (IA 1986, Sch B1, para 31)

 

Requirement to notify administrator

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"(32A) person who appoints an administrator under paragraph 22—

(a)shall notify the administrator and such other persons as may be prescribed as soon as is reasonably practicable after the requirements of paragraph 29 are satisfied, and

(b)commits an offence if he fails without reasonable excuse to comply with paragraph (a)." (IA 1986, Sch B1, para 32A)

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Company appointment pre-empted by holder of floating charge appointment

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"(33) If before the requirements of paragraph 29 are satisfied the company enters administration by virtue of an administration order or an appointment under paragraph 14—

(a)the appointment under paragraph 22 shall not take effect, and

(b)paragraph 32 shall not apply." (IA 1986, Sch B1, para 33)

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Appointment by company or directors

Invalid appointment by company/directors: indemnity

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"(34)(1)This paragraph applies where—

(a)a person purports to appoint an administrator under paragraph 22, and

(b)the appointment is discovered to be invalid.

(2)The court may order the person who purported to make the appointment to indemnify the person appointed against liability which arises solely by reason of the appointment’s invalidity." (IA 1986, Sch B1, para 34)

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Invalid appointment by company/directors: indemnity

Duties of administrator

 

Officer of the court

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"An administrator is an officer of the court (whether or not he is appointed by the court)." (IA 1986, Sch B1, para 5)

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Perform functions as quickly and efficiently as reasonably practicable

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"The administrator of a company must perform his functions as quickly and efficiently as is reasonably practicable." (IA 1986, Sch B1, para 4)

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Duties of administrator

Effect of administration

 

Dismissal of on-going winding up petitions

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"(1) A petition for the winding up of a company—

(a) shall be dismissed on the making of an administration order in respect of the company, and

(b) shall be suspended while the company is in administration following an appointment under paragraph 14.

(2) Sub-paragraph (1)(b) does not apply to a petition presented under—

(a) section 124A (public interest), or

(aa) section 124B (SEs),

(b) section 367 of the Financial Services and Markets Act 2000 (c. 8) (petition by Financial Conduct Authority or Prudential Regulation Authority).

(3) Where an administrator becomes aware that a petition was presented under a provision referred to in sub-paragraph (2) before his appointment, he shall apply to the court for directions under paragraph 63." (IA 1986, Sch B1, para 40)

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Dismissal of receivers

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"(41)(1)When an administration order takes effect in respect of a company any administrative receiver of the company shall vacate office.

(2)Where a company is in administration, any receiver of part of the company’s property shall vacate office if the administrator requires him to.

(3)Where an administrative receiver or receiver vacates office under sub-paragraph (1) or (2)—

(a)his remuneration shall be charged on and paid out of any property of the company which was in his custody or under his control immediately before he vacated office, and

(b)he need not take any further steps under section 40 or 59.

(4)In the application of sub-paragraph (3)(a)—

(a)“remuneration” includes expenses properly incurred and any indemnity to which the administrative receiver or receiver is entitled out of the assets of the company,

(b)the charge imposed takes priority over security held by the person by whom or on whose behalf the administrative receiver or receiver was appointed, and

(c)the provision for payment is subject to paragraph 43." (IA 1986, Sch B1, para 41)

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Moratorium of insolvency proceedings

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"(42)(1)This paragraph applies to a company in administration.

(2)No resolution may be passed for the winding up of the company.

(3)No order may be made for the winding up of the company.

(4)Sub-paragraph (3) does not apply to an order made on a petition presented under—

(a)section 124A (public interest), or

(aa)section 124B (SEs),

(b)section 367 of the Financial Services and Markets Act 2000 (c. 8) (petition by Financial Conduct Authority or Prudential Regulation Authority).

(5)If a petition presented under a provision referred to in sub-paragraph (4) comes to the attention of the administrator, he shall apply to the court for directions under paragraph 63." (IA 1986, Sch B1, para 42)

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Moratorium on other legal processes

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"(43)(1)This paragraph applies to a company in administration.

(2)No step may be taken to enforce security over the company’s property except—

(a)with the consent of the administrator, or

(b)with the permission of the court.

(3)No step may be taken to repossess goods in the company’s possession under a hire-purchase agreement except—

(a)with the consent of the administrator, or

(b)with the permission of the court.

(4)A landlord may not exercise a right of forfeiture by peaceable re-entry in relation to premises let to the company except—

(a)with the consent of the administrator, or

(b)with the permission of the court.

(5)In Scotland, a landlord may not exercise a right of irritancy in relation to premises let to the company except—

(a)with the consent of the administrator, or

(b)with the permission of the court.

(6)No legal process (including legal proceedings, execution, distress and diligence) may be instituted or continued against the company or property of the company except—

(a)with the consent of the administrator, or

(b)with the permission of the court.

(6A)An administrative receiver of the company may not be appointed.

(7)Where the court gives permission for a transaction under this paragraph it may impose a condition on or a requirement in connection with the transaction.

(8)In this paragraph “landlord” includes a person to whom rent is payable." (IA 1986, Sch B1, para 43)

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Effect of administration

Administrator's proposal to achieve purposes of administration

 

"49(1)The administrator of a company shall make a statement setting out proposals for achieving the purpose of administration.

(2)A statement under sub-paragraph (1) must, in particular—

(a)deal with such matters as may be prescribed, and

(b)where applicable, explain why the administrator thinks that the objective mentioned in paragraph 3(1)(a) or (b) cannot be achieved.

(3)Proposals under this paragraph may include—

(a)a proposal for a voluntary arrangement under Part I of this Act (although this paragraph is without prejudice to section 4(3));

(b)a proposal for a compromise or arrangement to be sanctioned under Part 26 or 26A of the Companies Act 2006 (arrangements and reconstructions)."(IA 1986, Sch B1, para 49)

 

Creditors and members to receive copy of proposal

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"(4)The administrator shall send a copy of the statement of his proposals—

(a)to the registrar of companies,

(b)to every creditor of the company, other than an opted-out creditor, of whose claim and address he is aware, and

(c)to every member of the company of whose address he is aware." (IA 1986, Sch B1, para 49(4))

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Within 8 weeks

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"(5)The administrator shall comply with sub-paragraph (4)—

(a)as soon as is reasonably practicable after the company enters administration, and

(b)in any event, before the end of the period of eight weeks beginning with the day on which the company enters administration.

(6)The administrator shall be taken to comply with sub-paragraph (4)(c) if he publishes in the prescribed manner a notice undertaking to provide a copy of the statement of proposals free of charge to any member of the company who applies in writing to a specified address.

(7)An administrator commits an offence if he fails without reasonable excuse to comply with sub-paragraph (5).

(8)A period specified in this paragraph may be varied in accordance with paragraph 107." ((IA 1986, Sch B1, para 49(5) - (8))

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Administrator's proposal to achieve purposes of administration

Creditors to vote on proposal

 

"(1) The administrator must seek a decision from the company's creditors as to whether they approve the proposals set out in the statement made under paragraph 49(1).

(2) The initial decision date for that decision must be within the period of 10 weeks beginning with the day on which the company enters administration.

(3) The “initial decision date” for that decision—

(a) if the decision is initially sought using the deemed consent procedure, is the date on which a decision will be made if the creditors by that procedure approve the proposals, and

(b) if the decision is initially sought using a qualifying decision procedure, is the date on or before which a decision will be made if it is made by that qualifying decision procedure (assuming that date does not change after the procedure is instigated).]

(4) A period specified in this paragraph may be varied in accordance with paragraph 107.

(5) An administrator commits an offence if he fails without reasonable excuse to comply with a requirement of this paragraph." (IA 1986, Sch B1, para 50)

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Creditors to vote on proposal

Creditors' voting rights: equal to amount of claim unless secured

 

Entitlement to vote

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"15.28.—(1) In an administration, an administrative receivership, a creditors’ voluntary winding up, a winding up by the court and a bankruptcy, a creditor is entitled to vote in a decision procedure or to object to a decision proposed using the deemed consent procedure only if—

(a)the creditor has, subject to rule 15.29, delivered to the convener a proof of the debt claimed in accordance with paragraph (3), including any calculation for the purposes of rule 15.31 or 15.32, and

(b)the proof was received by the convener—

(i)not later than the decision date, or in the case of a meeting, 4pm on the business day before the meeting, or

(ii)in the case of a meeting, later than the time given in sub-paragraph (i) where the chair is content to accept the proof; and

(c)the proof has been admitted for the purposes of entitlement to vote.

(2) In the case of a meeting, a proxy-holder is not entitled to vote on behalf of a creditor unless the convener or chair has received the proxy intended to be used on behalf of that creditor.

(3) A debt is claimed in accordance with this paragraph if it is—

(a)claimed as due from the company or bankrupt to the person seeking to be entitled to vote; or

(b)in relation to a member State liquidator, claimed to be due to creditors in proceedings in relation to which that liquidator holds office.

(4) The convener or chair may call for any document or other evidence to be produced if the convener or chair thinks it necessary for the purpose of substantiating the whole or any part of a claim.

(5) In a decision relating to a proposed CVA or IVA every creditor, secured or unsecured, who has notice of the decision procedure is entitled to vote in respect of that creditor’s debt.

(6) Where a decision is sought in an administration under rule 3.52(3)(b) (pre-administration costs), rule 18.18(4) (remuneration: procedure for initial determination in an administration) or rule 18.26(2) (first exception: administrator has made statement under paragraph 52(1)(b) of Schedule B1), creditors are entitled to participate to the extent stated in those paragraphs." (Insolvency Rules 2016, §15.28)

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Weight of vote equal to amount of claim

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"15.31.—(1) Votes are calculated according to the amount of each creditor’s claim—

(a)in an administration, as at the date on which the company entered administration, less—

(i)any payments that have been made to the creditor after that date in respect of the claim, and

(ii)any adjustment by way of set-off which has been made in accordance with rule 14.24 or would have been made if that rule were applied on the date on which the votes are counted;..." (Insolvency Rules 2016, §15.31(1))

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Secured debts

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"(4) Where a debt is wholly secured its value for voting purposes is nil.

(5) Where a debt is partly secured its value for voting purposes is the value of the unsecured part.

(6) However, the value of the debt for voting purposes is its full value without deduction of the value of the security in the following cases—

(a)where the administrator has made a statement under paragraph 52(1)(b) of Schedule B1 and the administrator has been requested to seek a decision under paragraph 52(2); and

(b)where, in a proposed CVA, there is a decision on whether to extend or further extend a moratorium or to bring a moratorium to an end before the end of the period of any extension." (Insolvency Rules 2016, §15.31(4) - (6))

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Creditors' voting rights: equal to amount of claim unless secured

Unliquidated or unascertained amounts: estimate minimum

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"(2) A creditor may vote in respect of a debt of an unliquidated or unascertained amount if the convener or chair decides to put upon it an estimated minimum value for the purpose of entitlement to vote and admits the claim for that purpose." (Insolvency Rules 2016, §15.31(2))

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Assess whether unliquidated/unascertained at the date of administration

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"[51] The next issue is whether the characterisation of a debt, namely whether or not it is "unliquidated" or "unascertained" for the purposes of Rule 2.38(5) is to be assessed at the date of administration or the date of the meeting. In my view, reading Rules 2.38(4) and (5) together, the debt should be characterised at the date of administration. That is not merely based on logical consistency, but also on the language of the two paragraphs. The "estimated minimum value" of a debt in an unliquidated or unascertained amount under the latter paragraph becomes the "amount" of the debt under the former paragraph, and, that debt is to be assessed as at the date of the administration." (HMRC v. Maxwell [2010] EWCA Civ 1379)

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Administrators have duty to do their best to assess minimum value

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"[63] In that connection, although the Rule could be said to be worded in such a way as to bestow some sort of general discretion on the chairman, and hence on a judge on an appeal under Rule 2.39(2), it seems to me clear that it imposes a duty on them to do their best to assess the minimum value. Where the decision is that of the chairman of a meeting, this may often, even normally, be something of a rough and ready, or quick and dirty, exercise." (HMRC v. Maxwell [2010] EWCA Civ 1379)

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Greater investigation on appeal (meeting not the place for lengthy debates)

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"However, where the matter is referred to the court, the exercise must inevitably involve greater examination of the factual and legal basis for the claim.
As Harman J said in Re a Debtor (No 222 of 1990) ex p the Bank of Ireland [26] in relation to a rule equivalent to Rule 2.39(1) and (3):
"[T]he meeting is not the place to go into lengthy debates as to the exact status of a debt, nor is it the time to consider such matters as this court, sitting as the Companies Court, frequently has to consider as such whether a debt is bona fide disputed upon substantial grounds, an issue which leads to a great deal of litigation and frequently takes a day or so to decide. None of that could possibly be a suitable process to be embarked upon at a creditors' meeting." (HMRC v. Maxwell [2010] EWCA Civ 1379)

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Take account of subsequent events to ​estimate value at date of administration

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"[54] Accordingly, the chairman's powers of quantification under Rules 2.39(1) and (3) and under Rule 2.38(5) should be exercised taking into account events which have occurred since the date of the administration. Thus, if the debt is a claim for damages which had yet to be determined at the date of the administration, and, before the meeting, damages had been assessed by the court or agreed, the debt would still be treated at the meeting as unliquidated and unascertainable, but, at any rate absent very unusual circumstances, it should be accorded a value equal to the assessed or agreed figure, arguably subject to a discount to allow for the fact that the valuation is to be as at the date of administration." (HMRC v. Maxwell [2010] EWCA Civ 1379)

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HMRC's primary case of tax liability sufficient where no evidence to support challenge

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"[65] Whatever may have been the position at the Meeting, I consider that the evidence and argument before the Judge justified only one conclusion, namely that HMRC had made out a clear prima facie case to support their contention that the corporation tax they claimed was owing was indeed due, subject to the Company's right to set off its terminal loss claim of £239,713.78. HMRC's arguments on the law and the detailed facts and calculations justifying their ultimate figures were clearly and fully set out in documents they put before the court, and to which I have referred. On the other hand, the Administrators simply denied liability for all but a small proportion of the claimed tax in the most general terms and failed to put forward any specific evidence or legal arguments as to why the whole or part of the sums claimed were not due, and they had failed to put forward any grounds in the notices of appeal and applications for stay in respect of payment of the tax, in circumstances where the statute required such grounds.

...

[67] However, because the Administrators adduced no factual evidence, no calculations (other than the terminal loss claim), and no legal arguments before the Judge, it seems to me that options (ii), (iii), and (iv) were simply shut off as possible courses for him to adopt. Assuming in the Administrators' favour, which may well be correct, that they had had to establish no more than an arguable case (in the same way as a party resisting summary judgment under CPR 24), a mere general denial of liability, coupled with speculation as to the information and advice the chairman saw, was insufficient to justify the Judge being satisfied that he should reduce the amount claimed by HMRC (save by deducting the terminal loss claim) for the purposes of Rule 2.38(5)." (HMRC v. Maxwell [2010] EWCA Civ 1379)

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Unliquidated or unascertained amounts: estimate minimum

Distinguishing liquidated/ascertained and unliquidated/unascertained

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Relevance of difference: doubtful claims

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"[55] It nonetheless matters whether a claim is unliquidated or unascertained, as, if it is, the chairman has to accord it "an estimated minimum value" for voting purposes, whereas if it is liquidated and ascertained, and he is in some doubt about even the whole of it, he has to allow the creditor to vote in respect of the whole of it, albeit subject to marking it as objected. This arguable (and, to me at any rate, slightly puzzling) imbalance between liquidated and ascertained debts puts a premium on debtors having their debts characterised as such." (HMRC v. Maxwell [2010] EWCA Civ 1379)

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Based on character of claims at the date of administration

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"[56] The difficult question here is whether the Revenue's claims for corporation tax amounted to liquidated and ascertained debts. Given that they had to be characterised as at the date the Company went into administration, HMRC cannot take advantage of any event which took place after 9 September 2009 (the date the Company went into administration) to assist them in their contention that the claims for corporation tax were not unliquidated or unascertained." (HMRC v. Maxwell [2010] EWCA Civ 1379)

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Assessment is ascertained and liquidated debt

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"[27]...The amount of an assessment is a debt and is both liquidated and ascertained. This is recognised by the Court of Appeal in the context of corporation tax in HMRC v Maxwell [2010] EWCA Civ 1379 paragraphs 56 and 59." (HMRC v. Earley [2011] EWHC 1783 (Ch))

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Absence of formal HMRC decision means amount is unliquidated or unascertained

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"[56]...In my view, in the absence of any notices of assessment, notices of amendment or notices of determination, any sums in excess of those which the Company had recorded as owing in its self-assessments were unliquidated or unascertained.

...

[58] ... In order to calculate what was owing, one would have had to trawl through figures in the Company's accounts, investigate the law relating to EBTs and payments to directors, and carry out calculations which were not straightforward. In many damages claims, one could work out the amount likely to be assessed by the court, but that does mean that an unresolved damages claim is a liquidated or ascertained debt." (HMRC v. Maxwell [2010] EWCA Civ 1379)

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Existence of challenge to formal HMRC decision does not prevent claim being liquidated and ascertained

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"[59] Thus, in my opinion, in respect of all six periods, any corporation tax claimed to be due, over and above the self-assessments, was not a liquidated ascertained sum, until HMRC had issued notices of amendment. However, once such notices were issued, I consider that the sums therein were liquidated and ascertained sums, in the amounts specified in the amendments (albeit subject to the possibility of challenge by appeal for tax purposes and assessment for voting purposes at meetings)[25]. The fact that the sums so specified were subject to appeal and stay applications would not, in my view, undermine that conclusion: to hold otherwise would involve confusing ascertainment with unchallengeability." (HMRC v. Maxwell [2010] EWCA Civ 1379)

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Distinguishing liquidated/ascertained and unliquidated/unascertained

Doubtful claims

 

"15.33.—(1) The convener or chair in respect of a decision procedure must ascertain entitlement to vote and admit or reject claims accordingly.

(2) The convener or chair may admit or reject a claim in whole or in part.

(3) If the convener or chair is in any doubt whether a claim should be admitted or rejected, the convener or chair must mark it as objected to and allow votes to be cast in respect of it, subject to such votes being subsequently declared invalid if the objection to the claim is sustained." (Insolvency Rules 2016, §15.33)

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Distinction between liquidated and unliquidated claims

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"[55] It nonetheless matters whether a claim is unliquidated or unascertained, as, if it is, the chairman has to accord it "an estimated minimum value" for voting purposes, whereas if it is liquidated and ascertained, and he is in some doubt about even the whole of it, he has to allow the creditor to vote in respect of the whole of it, albeit subject to marking it as objected. This arguable (and, to me at any rate, slightly puzzling) imbalance between liquidated and ascertained debts puts a premium on debtors having their debts characterised as such." (HMRC v. Maxwell [2010] EWCA Civ 1379)

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Doubtful claims

Appeal against voting rights decisions​

 

"15.35.—(1) A decision of the convener or chair under this Chapter is subject to appeal to the court by a creditor, by a contributory, or by the bankrupt or debtor (as applicable).

(2) In a proposed CVA, an appeal against a decision under this Chapter may also be made by a member of the company.

(3) If the decision is reversed or varied, or votes are declared invalid, the court may order another decision procedure to be initiated or make such order as it thinks just but, in a CVA or IVA, the court may only make an order if it considers that the circumstances which led to the appeal give rise to unfair prejudice or material irregularity.

(4) An appeal under this rule may not be made later than 21 days after the decision date.

(5) However, the previous paragraph does not apply in a proposed CVA or IVA, where an appeal may not be made after the end of the period of 28 days beginning with the day—

(a)in a proposed CVA, on which the first of the reports required by section 4(6) or paragraph 30(3) of Schedule A1 was filed with the court(1); or

(b)in a proposed IVA—

(i)where an interim order has not been obtained, on which the notice of the result of the consideration of the proposal required by section 259(1)(a) has been given, or

(ii)otherwise, on which the report required by section 259(1)(b)(2) is made to the court.

(6) The person who made the decision is not personally liable for costs incurred by any person in relation to an appeal under this rule unless the court makes an order to that effect.

(7) The court may not make an order under paragraph (6) if the person who made the decision in a winding up by the court or a bankruptcy is the official receiver or a person nominated by the official receiver." (Insolvency Rules 2016, §15.35)

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Full appeal, not a review

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"[42] The first question it is convenient to address is the function of the Judge in this case, as a judge hearing an appeal under Rule 2.39(2). As to that there is no dispute between Mr George Bompas QC (who appears with Ms Ruth Jordan for HMRC) and Mr Richard Sheldon QC (who appears with Ms Blair Leahy for the Administrators). They agree that the judge should not merely review the decision of the chairman which is sought to be impugned: the judge should form his or her own view, based on the evidence and arguments advanced in court.
[43] In my opinion, that agreement correctly reflects the law. Rule 2.39(2) refers to an "appeal" as opposed to a "review", which suggests that a fresh decision is envisaged. Further, as the facts of this case show, it would be unsatisfactory and unfair in some circumstances if the judge was confined to reviewing the chairman's decision. The chairman will often be someone who can properly be privy to information and advice provided to the administrators or the company which is information and advice which could, equally properly, be denied to the court. If the court was confined to a reviewing function, it is hard to see how it could be fairly or satisfactorily performed in such circumstances." (HMRC v. Maxwell [2010] EWCA Civ 1379)

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Appeal against voting rights decisions​

Appeal: material irregularity

 

Unfounded injunction preventing HMRC for voting having material impact on meeting

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"[6] On 4th March 2011 Mr Earley, through counsel, applied to Arnold J and obtained ex parte an injunction over 11th March 2011 to restrain Revenue & Customs from voting at the meeting to be held on 7th March or any adjournment thereof in respect of any sum in excess of £100,000. Though there had been some attempt to give notice to the Office of Revenue & Customs dealing with the affairs of Mr Earley the evening before, no attempt was made to notify Revenue & Customs in accordance with the requirements of CPR 6.10 or 6.23(7) or of practice direction 66. The application was supported by the witness statement of Mr Earley and a skeleton argument of counsel instructed on his behalf. The latter, wrongly, omitted any reference to section 21 of the Crown Proceedings Act 1947, which precludes a court from making any injunction against the Crown, and wrongly stated that Mr Earley had successfully appealed the assessments. Both defects are now admitted by counsel for Mr Earley...

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[30] In my view, the injunction was sought without any proper notice and without any legal or factual foundation. Its consequences were intended to and did have a material effect on the conduct and outcome of the meeting at which the IVA was approved in that the voting rights of Revenue & Customs were wrongly restricted and the appealable discretion of the chairman under Insolvency Rule 5.22 was excluded. In the event, the IVA was approved against the wishes of the creditor with over 50% of the votes. This was an irregularity. It was material, and it was in relation to the meeting. Accordingly, I conclude that Revenue & Customs has established the second precondition also." (HMRC v. Earley [2011] EWHC 1783 (Ch))

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Appeal: material irregularity
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