administration, for instance, is rapidly growing in popularity and involves agreements that are drawn up in advance of entry into administration. The insolvency practitioners who carried out most of the insolvency work in the wake of Cork have now been joined by new ranks of specialist advisers, ‘turnaround professionals’ and others who are concerned to assist in reconstruction and rescue operations. The banks themselves are equipped as never before with departments that are dedicated to the provision of ‘intensive care’ for troubled companies. Procedures have also become more collective in nature – notably since the Enterprise Act 2002 reforms.

The world of credit has, however, also changed dramatically in the last decade or so and this has created challenges for companies and their insolvency advisers that could hardly have been envisaged by the Cork Committee or the drafters of the Insolvency Act 1986. In the global world of the ‘new capitalism’, credit has become a commodity that is traded across the world in ever more complex packages of debt. This emergence of the credit derivative markets impacts on insolvency processes and corporate rescues in a number of ways – notably by rendering relationships between lenders and borrowers more distant and less transparent than formerly and by making it much easier for creditors to handle insolvency risks by resort to credit or loan default swaps rather than by exerting influence over the relevant corporate managers. Thus, on the one hand, the banks have become better equipped than ever before to monitor managerial performance and to assist companies with rescue efforts, but, on the other, they have embraced new market opportunities and incentives to shed their debt problems by trading in debt products. In the world of Cork and the 1986 Act, the major banks were assumed to play roles in relation to the provision of credit and managerial discipline that cannot be taken for granted in a world where they have often become facilitators of credit rather than main creditors and where corporations that seek finance will as readily look to bond markets and hedge funds as to banks.

Such developments have left the corporate insolvency stage occupied by a number of actors operating a variety of procedures in carrying out certain key tasks. To provide a basis for further discussion it may be helpful to outline these procedures and players.

Corporate insolvency procedures

There are five main statutory procedures that may come into play when a company is in trouble. Four of these are provided for in the Insolvency Act 1986, the fifth by the Companies Act 1985.

Administrative receivership

Before the coming into operation of the Enterprise Act 2002, a creditor who had lent money to a company and secured this by means of a floating charge over the whole or substantially the whole of the company’s assets41 could appoint an administrative receiver (AR). This individual had to be an insolvency practitioner (IP)42 and could take control of all assets subject to the security, so that he would effectively control the company. His primary duty was to his appointor and to realise the security43 and, after deducting his remuneration and expenses and paying prior-ranking creditors, he would pay the proceeds to his appointor up to the amount of the secured debt and pay any balance to subsequent ranking creditors, the company or its liquidator, if one had been appointed.

The Enterprise Act 2002 largely replaced receivership with administration and prohibited (subject to certain exceptions)44 the use of administrative receivership by the holders of floating charges. The general enforcement of floating charges thus falls to be carried out through the administration process – in which the administrator differs from the traditional receiver in having a duty to act, not in the interests of the appointor, but in the interests of the creditors as a whole. Receivership is not, however, wholly dead. Creditors with qualifying floating charges created before the Enterprise Act 2002, or those with charges that fall within the exceptions now set out in the Insolvency Act 1986, may still appoint administrative receivers and ‘ordinary’ receivers can still be appointed by debenture holders and by the courts.45

Although ‘ordinary’ receivers may be appointed by the court, these appointments are comparatively rare. Where the option is available to them, lenders (normally banks) prefer to appoint receivers in pursuance of express powers contained in their security. Indeed, receivership historically is a creation of equity and is merely a method by which a secured

41See Insolvency Act 1986 s. 29(2); see also ch. 8 below.

42See Insolvency Act 1986 s. 230(2); see also ch. 5 below.

43On security and methods of borrowing generally, see ch. 3 below.

44See Enterprise Act 2002 s. 250 inserting s. 72A–72G into the Insolvency Act 1986 and Sch. 2A. See further ch. 8 below.

45The AR must be distinguished from other types of receiver appointed over a specific part of the company’s assets, for example Law of Property Act 1925 receivers. Such a receiver can be removed or replaced with little formality (the AR can only be removed by the court), he has no management powers and his task is to collect an income and apply it to keep down outgoings and mortgage interest.

creditor enforces his security. ‘Ordinary’ receivership is a private contractual remedy requiring no recourse to the court. Administrative receivership, however, has more of the appearance of a collective insolvency proceeding.46

Administration

This was a court-based procedure, first introduced by the Insolvency Act 1985 following the Cork Committee’s recommendations and emphasis on the benefits that could flow from having a corporate insolvency procedure that was designed specifically for corporate rescue rather than asset realisation; one, moreover, that focused on the interests of unsecured creditors and of the company itself rather than those of a specific secured creditor.47

Revisions to the administration procedure (as now detailed in the Insolvency Act 1986, Schedule B1) were introduced by the Enterprise Act 2002 so as to provide a more streamlined process. Since the 2002 Act, a company can be put into administration by the court (on application by the company, its directors or one or more creditors); out of court on the application of a holder of a qualifying floating charge; or out of court on application by the company or its directors. The court must be satisfied that the company is, or is likely to be, unable to pay its debts before making an order appointing an administrator – except if the application is from the holder of a qualifying floating charge. After the changes of the 2002 Act, the administrator (in brief terms)48 is obliged to act with the objective of (a) rescuing the company as a going concern or (b) achieving a better than winding-up outcome for creditors as a whole or (c) realising property to distribute to one or more secured or preferential creditors. Objective (a) must be pursued unless this is not reasonably practicable or if (b) would offer a better result for creditors as a whole. Aim (c) is only to be pursued if (a) and (b) are impracticable. This appointee has the power on behalf of the company to do all things necessary for the management of the affairs, business and property of the company.

46The Insolvency Act 1986 tends to treat it as such: see Insolvency Act 1986 ss. 388(1)(a), 230–7 (office holder), 42–3 and Sch. 1, paras. 44–5; but see F. Oditah, ‘Assets and the Treatment of Claims in Insolvency’ (1992) 108 LQR 459 at 460–1.

47See Cork Report, ch. 6, paras. 29–33, and ch. 9. Cork’s view was that the potential benefit of rescue via a receiver/manager should also be available to cases where there was no floating charge.

48See ch. 9 below for details.