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Administration is no better for creditors than receivership

In a post on an academic US blog about credit and bankruptcy, Credit Slips: Corporate Bankruptcy Costs and Recoveries in the UK, John Armour points out the results of his research into whether creditor control is better concentrated in the hands of a single creditor (receivership) or creditors generally (administration).

He concludes that there is no net difference as a result of two opposing factors:
there are higher gross realisations in administrations - due, Armour suggests, to higher accountability to junior creditors incentivising administrators to maximise realisations;

but dispersed creditor governance allows administrators to charge retail fee rates rather than the lower wholesale rates negotiated by secured creditors.
Intuitively, the explanation of higher administration realisations works at the margins. An administrator has a statutory priority of objectives and "getting the bank out" is last (as opposed to being the sole objective in receiverships).

But the retail/wholesale fees rationale is less persuasive. Bank panel firms are not always able simply to abandon wholesale rates once the bank is repaid. The fact is that administrations, with their heavier burden of broad obligations to creditors, including significant additional statutory reporting and compliance requirements, and a primary duty to have the company and its business continue as a going concern if possible, are simply more complex and costly procedures than receiverships.



Date: 8th October, 2007
Author: Chris Laughton


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