Administrators frequently use paragraph 84, Schedule B1, Insolvency Act 1986 to bring to an end an administration when they have no assets left, but can this be a risky course of action?
Section 1032, Companies Act 2006, appears to strive to ensure that restoration of a dissolved company causes the dissolution to have had no effect:
- s1032(1) The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.
- s1032(3) The court may give such directions and make such provision as seems just for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register.
What s1032 does not do however is permit the ending of the administration to be undone. Neither does para 84 nor any other legislative provision.
Consequently it is common for a winding-up order to be made when the court accedes to an application to restore a company that had been in administration. There may, however, be a problem if the purpose of the restoration was to enable a liquidator to pursue antecedent transactions.
The winding-up will be deemed to have commenced on the date of presentation of the petition. That will be the date, probably after dissolution, on which it was actually presented, although there is precedent for the court exercising its discretion under s1032(3) to back date presentation of the petition to the date of dissolution. However, the administration having come to an end on the administrator filing notice of dissolution, some days prior to the dissolution being registered and taking effect, there is no seamless transition from administration to liquidation. The “onset of insolvency” in the liquidation for antecedent transaction purposes, as defined in s240(3)(d), Insolvency Act 1986, cannot therefore be date of administration (or of the administration application or notice of appointment), but will be the date of commencement of the liquidation.
Under para 84(1) an administrator is able to move a company directly to the dissolution only if he “thinks that the company has no property which might permit a distribution to its creditors”. Important words in that phrase are “might” and “its creditors”. “Might” suggests that a high degree of certainty is required that there is no such property if the company is to be dissolved. Administrators ought to consider contingent and prospective assets in determining that certainty. The reference to creditors is not to “all” or “unsecured” creditors and must mean any creditor.
An administrator who disadvantages creditors by moving too quickly to dissolution and preventing a seamless transition to liquidation may find himself in the sights of the liquidator if one is appointed on restoration of the company.
considered these issues. In that case Norris J made reference to recovery not being dependent upon being able to back-date the petition. Although he specifically mentioned the directors’ breaches of duty, there could be an inference that the former administrator may be at risk of claims.