Administration

been ‘of advantage to the employees, the commercial community and the general public’.2

In the absence of a floating charge there was, however, no possibility of such an appointment and the choice lay between an informal moratorium and a formal scheme of arrangement under the Companies Act 1948. Neither procedure was, however, wholly satisfactory. Formal schemes of arrangement were expensive and time-consuming and informal procedures were not binding on non-assenting creditors and were difficult to sustain in practice. When neither course of action was possible, the directors had no option but to cease trading and the results were bleak: ‘We are satisfied that in a significant number of cases, companies have been forced into liquidation and potentially viable businesses capable of being rescued have been closed down, for want of a floating charge under which a receiver and manager could have been appointed.’3

Cork, accordingly, proposed the institution of the administrator who would be appointed in order to consider: reorganisations with a view to restoring profitability or maintaining employment; ascertaining the chances of restoring a company of dubious solvency to profitability; developing proposals for realising assets for creditors and stockholders; and carrying on business when this would be in the public interest but where it was unlikely that the business could be continued under the existing management.4

Three key notions underpinned Cork’s vision of the administrator: that rescue opportunities should be taken sufficiently early in corporate troubles to stand a chance of success; that companies should be given a breathing space from the pressure of claims; and that consideration should be given to the interests, not merely of creditors and shareholders, but of the widest group of parties potentially affected by the insolvency. As Sir Kenneth Cork wrote in his autobiography:5

We saw that if a company was to be saved, action should be initiated a long time before the time when a bank normally appointed a receiver … [Companies] needed a period when the dogs were called off and they were able to recover a degree of equilibrium. They needed, in other words, a moratorium for which existing law made no provision … The appointment of an administrator, we suggested, would not constitute an ‘act of

2 Cork Report, para. 495. 3 Ibid., para. 496. 4 Ibid., para. 498.

5Sir Kenneth Cork, Cork on Cork: Sir Kenneth Cork Takes Stock (Macmillan, London, 1988) p. 195.

insolvency’. None of the things would happen which happened when a company became officially insolvent. For an administrator should be brought in before a company was declared insolvent, where for instance, the directors were obviously incompetent or dishonest and the ordinary processes could not remove them, or where in the national interest the government should take a hand … He would have all the powers and more of a receiver, and he would have to realise the assets for the general good … He would be responsible to all parties who were interested in the particular debtor company.

From the Insolvency Act 1986 to the Enterprise Act 2002

The Insolvency Act 1986 provided a mechanism for appointing an administrator by applying for an order of the court that directed that the affairs, business and property of the company should be managed by the administrator.6 The effect of presenting a petition for an administration order was that a moratorium was triggered and a stop imposed on the enforcement of most types of claim, secured and unsecured, against the company. The company could not be wound up and the leave of the court was required for such actions as enforcing a security against the company, repossessing goods in the company’s possession under a hire purchase agreement, or the commencement or continuation of any other legal proceedings or levying distress against the company or its property.7 Protection also extended to property owned by the company but in the possession of third parties such as lessees.8 Before the Enterprise Act 2002, such a moratorium did not, however, stop a debenture holder from appointing an administrative receiver, nor did the presentation of a petition stop the directors from calling a meeting of members to consider voluntary liquidation or stop a creditor from presenting a winding-up petition.9 Managerial powers were unaffected by the petition10 and the company could create secured interests.11

8Re Atlantic Computer Systems plc (No. 1) [1992] Ch 505, [1992] 2 WLR 367, [1990] BCC 859.

9Entry into liquidation was not permitted, however, until the petition was heard: Insolvency Act 1986 s. 10(1)(a).

10Though the court on hearing the petition could make an interim order appointing an interim manager: see D. McKenzie Skene and Y. Enoch, ‘Petitions for Administration Orders – Where there is a Need for Interim Measures: A Comparative Study of the Approach of the Courts in Scotland and England’ [2000] JBL 103; Insolvency Act 1986 s. 9(4).

11Bristol Airport plc v. Powdrill [1990] Ch 744, 768.

The pre-Enterprise Act position was that when an administration order was made, any winding-up petition had to be dismissed.12 An administrative receiver had to vacate office,13 and during the operation of the administration order there was a stronger freeze on the enforcements of right against the company than operated on presentation of the petition. After the order was made, an administrative receiver could not be appointed and no winding-up petition might be presented without the consent of the administrator or the leave of the court.14 Powers of the company and its officers were not exercisable without the administrator’s consent and this effectively divested the directors of their powers.15 The directors, moreover, were given obligations to co-operate with the administrator.16

Administration did not provide for a permanent restructuring of creditors’ interests or for a distribution to unsecured creditors.17 The process operated as a temporary freeze during which proposals for a permanent solution to the company’s problems could be devised. These solutions then had to be put into effect through the institution of another insolvency regime such as a CVA or liquidation or a compromise arrangement (under the then s. 425 of the Companies Act 1985), to operate either during the currency of the administration order or after it had been brought to an end.18

The powers of administrators resembled those of administrative receivers. Similar managerial functions were carried out with commensurate powers, in both cases exercised as agents of the company.19 The administrator possessed the additional power to remove and appoint directors and to call any meeting of the members or creditors of the company.20

The evidence suggests that, before the enactment of the Enterprise Act 2002, administration had been ‘less efficacious’ as a rescue device than

12 Insolvency Act 1986 s. 11. 13 Ibid. 14 Ibid., s. 11(3)(d). 15 Ibid., s. 14(4).

16Ibid., s. 235. Breach of this duty renders the directors liable to disqualification: see CDDA 1986 s. 9, Sch. 1, Part II, para. 10(g).

17Contrast with the US Chapter 11 procedure: see ch. 6 above.

18See H. Rajak, ‘The Challenges of Commercial Reorganisation in Insolvency: Empirical Evidence from England’ in J. Ziegel (ed.), Current Developments in International and Comparative Corporate Insolvency Law (Clarendon Press, Oxford, 1994).

19Insolvency Act 1986 s. 14(5). Unlike a normal agent the administrator was not subject to control and direction by the company, his principal: section 14(4). Section 14 aimed to ensure that an administrator normally incurred no personal liability on any contract or other obligation he could enter into on the company’s behalf.

20Insolvency Act 1986 s. 14, Sch. 1.

expected.21 The insolvency regime, as envisaged by Cork, was thought to offer company directors a set of incentives to opt for administration in times of trouble. It provided them, in the first instance, with protection from disqualification and wrongful trading actions: punitive prospects that Cork hoped would lead directors to seek outside help at early stages of trouble.22 Administration also offered directors some continuing role in the management of the business and the chance of persuading creditors, within the protection of the moratorium, to accept something less than full-blown insolvency. They would, furthermore, be able to nominate a friendly Insolvency Practitioner (IP) who would sympathise with their positions. Such incentives, thought Cork, would produce effective rescue mechanisms. The Committee’s view was that if insolvency practitioners could become involved with companies at an early stage of their decline they stood a good chance of saving the business and ‘four out of five never needed to have become insolvent’.23 Not only that, but lack of legal rescue provisions at such an early stage had led, according to Cork, to a series of evils. It had encouraged directors to keep trading, delayed the introduction of expert reviews and given rogue creditors incentives to break ranks on informal moratorium debt collection, all of which factors militated against successful corporate rescues.24

The DTI’s 1993 consultative document revealed that from 1990 to 1993 there were 88,000 corporate insolvencies in England. Of these, 21,500 had entered receivership, over 40,000 had gone into creditors’ voluntary liquidation, and over 26,000 into compulsory liquidation. Only 296 CVAs and 447 administration orders were encountered.25 By the time the DTI Insolvency Service published the 1999 figures for corporate proceedings under the Insolvency Act 1986, the ratio of administration appointments to liquidations (voluntary and

21R. Goode, Principles of Corporate Insolvency Law (3rd edn, Sweet & Maxwell, London, 2005) p. 317.

22Carruthers and Halliday, Rescuing Business, p. 289.

23Quoted in ibid., p. 286. In R3’s Ninth Survey of Business Recovery in the UK (2001) rescue professional respondents indicated their belief that in 77 per cent of cases by the time they were appointed there were no possible actions that could realistically have averted company failure. In younger companies (under one year) in 90 per cent of cases there was thought to be no such rescue action possible.

24Carruthers and Halliday, Rescuing Business, p. 286.

25Rajak, ‘Challenges of Commercial Reorganisation’, p. 202 reported that in 1990 there were 211 administrations compared to 15,051 liquidations and 4,318 receiverships.

compulsory) was 440:14,280 (with 1,618 administrative receiverships).26 The business preservation rate in administrations in 1998–9 was given by R3 (formerly the SPI) in 2001 as 79 per cent27 and the job preservation rate was put at 40 per cent by the SPI in its Eighth Survey.28

Why then did administration not operate as the popular rescue option that Cork had hoped to establish? It is possible to identify a number of factors that weakened the effectiveness of administration as a rescue device and tended to discourage its use.29 First, administration was a procedure that could be blocked by a floating charge holder who chose to appoint an administrative receiver as a means of protecting his or her own interest. If, indeed, a petition for administration did not contain what amounted to the consent of any person entitled to appoint an AR, the petition would be dismissed. Administration, accordingly, was a process that could only be used if the firm had no creditor with a floating charge (a rare occurrence given the proliferation of secured lending in standard British financing arrangements and banking practice)30 or if the floating charge holder was happy to see the company’s troubles dealt with by administration rather than administrative receivership. In some circumstances the latter situation might have obtained and some considerations might have led the floating charge holder to accept administration as preferable to the insertion of a receiver.31 Factors favouring this approach included the attractiveness of the moratorium which might have been seen to outweigh the disadvantages of administration: for example, where protection was needed against suppliers of goods who had retained title32 or where a large firm had a complex structure and considerable time and effort had to be put in before a way forward was arrived at.33 Administration might also have been attractive if: criticisms from creditors would have been directed towards the administrator

26IS 2000, p. 14; as the Insolvency Service’s 1999 Review points out, such figures do not give the whole picture of insolvency because they do not take on board all the companies that are struck off the register but do not enter any formal process.

27R3 Ninth Survey: up from 41 per cent in the SPI’s Eighth Survey of Company Insolvency in the United Kingdom (SPI, London, 1999) on a small sample.

28SPI Eighth Survey (1999): the figure had dropped from 65 per cent in the Seventh Survey.

29See DTI/Insolvency Service, Company Voluntary Arrangements and Administration Orders: A Consultative Document (October 1993) (‘DTI 1993’) ch. 5.

30IS 2000, p. 12, para. 36.

31See Rajak, ‘Challenges of Commercial Reorganisation’, p. 206.

32Ibid., p. 206: ROT holders were blocked by the wide definition of hire purchase agreements in the Insolvency Act 1986 s. 10(4).

33DTI 1993, p. 30.

rather than the debenture holder or their receiver; the size of the sum due did not justify the appointment of a receiver; the debenture holder thought that his or her charge was vulnerable; or the debenture holder had been given the right to nominate the administrator. Additional considerations favouring administration rather than administrative receivership may have been that a court-appointed insolvency officer might have been better placed than a receiver to recover assets from foreign jurisdictions34 and an administrator, but not an AR, could apply to have suspect pre-insolvency transactions set aside.35

Surveys, nevertheless, suggested that in 60 per cent of cases where administration orders were made, the floating charge holder would appoint a receiver.36 In most cases of corporate decline the floating charge holder would have been very aware that administrative receivers acted in the interests of the appointing floating charge holder, whereas administrators acted for all creditors. It is unlikely, accordingly, that the floating charge holder would, in normal cases, have allowed administrations to run unhindered. Floating charge holders, moreover, lost control if they allowed administration to occur rather than put in a receiver. Once the administrator was appointed, even fixed-charge security holders could not enforce without leave and the general creditors enjoyed the income generated by the property subject to such charges. Floating charge holders faced with an administration also stood to see a diminution of the value of the assets covered by the floating charge, since their debt would have been satisfied after the expenses and remuneration of the administrator had been met, as well as after there had been payment of all debts and liabilities (including certain taxes) that had been incurred by the administrator as a result of contracts he or she had entered into. Administration also brought temporal uncertainty to the floating charge holder since the administrator had no power to make distributions and considerable time might elapse before payments were made on debts.

The procedural costs of administration were also very considerable.37 This was largely due to the high level of judicial supervision involved in

34Rajak, ‘Challenges of Commercial Reorganisation’, p. 206.

35Ibid. See Insolvency Act 1986 ss. 238, 239, 244.

36See M. Homan, A Survey of Administration Under the 1986 Insolvency Act (Institute of Chartered Accountants, London, 1989); Rajak, ‘Challenges of Commercial Reorganisation’, p. 205. See further H. Anderson, ‘Receivers Compared with Administrators’ (1996) 12 IL&P 54.

37DTI 1993, p. 29.

administration. The court was involved in appointing the administrator and would usually be involved when the administrator was given power to interfere with private rights.38 Nor was the judicial role confined to checking to see that the administrator had acted in good faith and intra vires: the court would often have to examine the issue in depth and make its own judgement. Such a process would frequently involve the use of expert evidence, and decision-making, as a result, would be slow as well as costly. The expenses of obtaining the administration order itself could be very considerable. Figures as high as £20,000 were cited as minimum starting costs, with the money having to be provided in advance in order to secure the services of the necessary IPs.39 The Rule 2.2 (of the Insolvency Rules) report, which became in practice a prerequisite40 to the making of an order, was almost always written by an accountant and often involved the practitioner’s solicitors. This tended to increase the obligations of the IP, the company and the court and so raised costs considerably and placed applications beyond the reach of smaller firms.41 Banks who instigated formal insolvency procedures may, moreover, have possessed undesirably low incentives to control the costs of these procedures (about half of which comprise fees to IPs). This is because such costs would be borne disproportionately by unsecured creditors in a regime that distributed assets by priority.42 Administration, accordingly, was too expensive a process to be used for the rescue of small or even medium-sized businesses.

A further reason for the low uptake of administration was the administrator’s lack of any obligation to consult creditors before taking

38See Insolvency Act 1986 s. 15, but note s. 15(1), (3) and (4) where the court’s consent is not needed.

39DTI 1993, p. 29. But see C. Morris and M. Kirschner, ‘Cross-border Rescues and Asset Recovery: Problems and Solutions’ (1994) 10 IL&P 42–3, suggesting that in smaller cases the expense could be only £1,500–£2,000. See also n. 131 below.

40The DTI’s 1993 Consultative Document described the report as ‘almost mandatory’, DTI 1993, p. 29. These reports were not, in fact, mandatory but tended to be viewed as carrying considerable weight: see Re Newport County Association Football Club [1987] BCC 635. See also Practice Note (Administration Order Applications: Independent Reports) [1994] 1 WLR 160, which attempted to cut the length and application (and thus the costs) of these reports.

41See Justice, Insolvency Law: An Agenda for Reform (Justice, London, 1994) pp. 37–8; D. Brown, Corporate Rescue: Insolvency Law in Practice (John Wiley & Sons, Chichester, 1996) p. 656.

42See J. Franks and O. Sussman, ‘The Cycle of Corporate Distress, Rescue and Dissolution: A Study of Small and Medium Size UK Companies’, IFA Working Paper 306 (2000).

action.43 This meant that he or she could sell the company’s property before holding a creditors’ meeting. Such a lack of involvement could make creditors reluctant to instigate or (in the case of floating charge holders) accede to administration. When the administration process was employed it achieved rescue in about 40 per cent of cases and liquidation occurred in around 50 per cent of instances.44

Yet another reason for the inefficiency of administration as a rescue device – and a factor tending to reduce the incidence of resort to administration45 – was that administration orders could only be applied for at the latest stages of corporate decline, when chances of rescue had severely diminished. As noted, the court, under section 8(1)(a) of the Insolvency Act 1986, had to be satisfied that the company ‘is or is likely to become unable to pay its debts’ within the meaning of the Insolvency Act 1986 s. 123. This requirement of near-insolvency was starkly at odds with the Cork vision, which demanded that an administrator should be appointed at an earlier stage in corporate decline. This was, as noted, a point of great disappointment to Sir Kenneth Cork, who commented on the Government’s Insolvency Act 1986 approach:

They said [an administrator] could only be appointed when a company was insolvent or was in the process of becoming insolvent which missed the whole point … To them insolvency was insolvency; for them it was essential that a company went broke before anyone took action. Behind it lay the absurd theory that shareholders could always remove incompetent directors.46

Sir Kenneth’s view of section 8(1)(a) was perhaps more pessimistic than it needed to be. It was open to the court to operate administration as a pre-insolvency rather than an insolvency procedure. There was no case law, however, that offered guidance on the restrictiveness with which ‘likely to become unable to pay its debts’ (section 8(1)(a)) would be interpreted. Some commentators suggested that the subsection did not require insolvency to be likely in the immediate future but only ‘fairly soon’.47 If administration had been seen in a pre-insolvency sense by the

43DTI 1993, p. 30.

44H. Rajak, ‘Administration of Insolvent Companies in England 1987–1990: An Empirical Survey’ (quoted in R. Goode, Principles of Corporate Insolvency Law (2nd edn, Sweet & Maxwell, London, 1997) p. 322).

45For a review see DTI 1993, ch. 5. 46 Cork, Cork on Cork, p. 197.

47 Goode, Principles of Corporate Insolvency Law (2nd edn), p. 286. Note that Edington plc went into administration on the grounds of ‘prospective insolvency’: see D. Milman and C. Durrant, Corporate Insolvency: Law and Practice (3rd edn, Sweet & Maxwell, London, 1999) p. 39.

courts then it might have served rescue purposes if used for such objectives as: protecting the company from creditors during a period of cash flow difficulties; overcoming short-term problems more serious than cash flow difficulties but which could be survived by using CVAs or schemes of arrangements to reschedule debts; or reorganising the firm and selling unsustainable parts of the business so as to leave the company with the profitable parts under the protection of the moratorium.48 There might, however, have been difficulties in convincing courts to endorse administration at early stages in decline. This was a procedure that involved curtailment of the rights of at least some of the creditors of the company and it might have proved difficult to persuade the court that such interference was merited unless insolvency was imminent.

A judicial willingness to grant administration orders on a preinsolvency basis would not, however, have ensured that parties would come forward with applications. There may have been numerous reasons why such early applications tended to be few in number. Company directors often lack knowledge of the applicable insolvency procedures. They may, in addition, possess poor internal accounting and information systems and may not know that the business is approaching insolvency. They may, furthermore, be unwilling to put the company into an insolvency procedure which they see as ceding control of the business to an outside accountant.49 The administrator had power to remove and appoint directors, and directors will tend to opt for courses of action that leave them with an assured role in the company’s immediate future. Other suggested reasons for directorial slowness to resort to administration in times of trouble were put to the DTI in its 1999–2000 consultations and included: mistrust of IPs; unrealistic optimism; fear of failure; fear of the bank withdrawing support; and concern over the cost of advice.50 Directorial fears for their own reputations and future job prospects must also have constituted a reason for inaction.

Nor have the courts always decided cases in a manner that enhances the effectiveness of administration as a rescue device. In the case of Powdrill v. Watson,51 for instance, the Court of Appeal held that administrators who kept employees in post after the administration came into effect (and after the fourteen-day period of grace provided for in section

48See M. Phillips, The Administration Procedure and Creditors’ Voluntary Arrangements

(Centre for Commercial Law Studies, QMW, London, 1996) p. 21.

49I.e. as an IP: DTI 1993, p. 30. 50 IS 2000, pp. 54–5. 51 [1994] 2 BCLC 118.

19(5) of the Insolvency Act 1986)52 had adopted the relevant employment contracts. The administrators were, accordingly, liable to pay not only the wages, pension contributions and holiday pay referable to the post-administration order period, but were also obliged to pay liabilities under the adopted employment contracts out of the company assets in priority to most creditors. The effect, critics noted,53 was to force administrators (and administrative receivers) to dismiss employees within the fourteen-day period. This contrasted with the established practice of retaining employees but making it clear to them that their contracts were not being adopted.54

The Court of Appeal’s decision in Powdrill prompted a strong adverse reaction from the insolvency profession and others. Following energetic lobbying of the President of the Board of Trade, legislation designed to redress the effects of Powdrill was rushed through Parliament and became the Insolvency Act 1994. This Act had the effect on administrations of introducing a new subsection, 19(6), to the Insolvency Act 1986, to provide that sums payable in respect of liabilities incurred while the administrator was in office under contracts of employment that had been adopted by him or by any predecessor were to be paid out of the assets covered by a floating charge created as such and were to have the same priority as sums covered by section 19(5) – namely sums owed under contracts entered into by the administrator or a predecessor – but only to the extent that they constituted ‘qualifying liabilities’ as defined in the new subsections 19(7)–(9) of the Insolvency Act.55 The effects of the 1994 Act were, however, limited. It applied only to contracts of employment entered into on, or after, 15 March 1994, and this left

52On the ‘inadequacy’ of the fourteen-day period for administrators see R. Agnello, ‘Administration Expenses’ (2000) Recovery (March) 24–5; Re Douai School Ltd, reported as Re a Company (No. 005174 of 1999) [2000] BCC 698.

53See I. F. Fletcher, ‘Adoption of Contracts of Employment by Receivers and Administrators: The Paramount Case’ [1995] JBL 596–604.

54Brown, Corporate Rescue, p. 660; Re Specialised Mouldings Ltd (unreported) 13 February 1987 (Harman J).

55A qualifying liability per s. 19(7)–(9) was one to pay a sum by way of wages or salary or contributions to an occupational pension, which was in respect of services rendered wholly or partially after the adoption of the contract but disregarding payment for services rendered before the adoption of the contract. This included wages or salary payable in respect of holiday, absence through sickness or other good cause. Sums payable in lieu of holiday were deemed wages or salary in respect of services rendered in the period by reference to which the holiday entitlement arose (Insolvency Act 1986 s. 19(9) and (10); Insolvency Act 1994 s. 1(6)). See In re FJL Realisations Ltd [2001] ICR 424 (also reported as Inland Revenue Commissioners v. Lawrence [2001] BCC 663) in

considerable potential for post-Powdrill claims; it did not affect the concept of ‘adoption’ or the issue of contracting out (though it did take away the most undesirable consequences of the 1986 provisions as interpreted in Powdrill). It left a number of questions open – such as when liabilities are incurred and whether it is possible to dismiss and re-employ workers in a manner not amounting to a sham56 – and it was unclear on the consequences of voluntary payments by administrators.

When the House of Lords decided consolidated appeals on the meaning of ‘adopt’ within sections 19 and 44 of the Insolvency Act 1986, the liabilities under employment contracts of both administrators and administrative receivers were at issue.57 Focusing here on administration, their Lordships were concerned with the rights of parties affected by the 1,200 or so administrations commencing between 29 December 1986 (the commencement date of the Insolvency Act 1986) and 15 March 1994 (the commencement date of the Insolvency Act 1994). The House of Lords decided unanimously that the contracts of employment in question had been adopted by the administrators. This ruling was greeted with ‘shock and disappointment’58 by the insolvency and banking community. It meant that cases involving adoption of employment contracts by administrators after 15 March 1994 would be dealt with under the Insolvency Act 1994 but that cases on adoption between 1986 and 1994 would be dealt with on the basis set out by the House of Lords in Powdrill. Further complications were to follow when the Enterprise Act 2002 replaced section 19 of the Insolvency Act with paragraph 99 of the new Schedule B1 and, in doing so, introduced new levels of confusion in defining administrators’ liabilities regarding ‘wages and salary’. These complications, and the general rescue implications of transferring employee contracts and protecting employees’ acquired rights in the

which the Court of Appeal held that, as the administrator’s liability under contracts of employment was to pay the employee the full salary including the statutory amounts in respect of PAYE and national insurance contributions, it was not possible for the administrator to split the contractual liability in two. Accordingly, the sums deducted to the Inland Revenue were a liability of ‘any sums payable in respect of debts or liabilities incurred’ for the purposes of s. 19(5) and (6) and as such enjoyed special priority over any charges arising under s. 19(4) of the Insolvency Act 1986. See now Sch. B1, para. 99 (introduced by the Enterprise Act 2002) and ch. 17 below.

56See Brown, Corporate Rescue, p. 481.

57Powdrill v. Watson (also known as Re Paramount Airways Ltd No. 3) [1995] 2 WLR 312, [1995] 2 All ER 65 (House of Lords).

58Brown, Corporate Rescue, p. 489.

other corporate creditors.64 They avoided taking into account the wider public, employee or trade-dependent interests that might be affected by the potential rescue of the business. Nicolls LJ stated in Re Atlantic Computer Systems plc:65

In carrying out the balancing exercise, great importance or weight is normally to be given to … proprietary interests … [T]he administration procedure is not to be used to prejudice those who were secured creditors when the administration order was made in lieu of a winding up order … The underlying principle here is that an administration for the benefit of unsecured creditors should not be conducted at the expense of those who have proprietary rights which they are seeking to exercise, save to the extent that this may be unavoidable and even then this will usually be acceptable only to a strictly limited extent.

In Re Olympia & York Canary Wharf Ltd,66 moreover, Millett J was of the opinion that, to the extent that the moratorium represents an interference with private rights, it should go no further than is required to support the ability of the administrator to carry out his functions.67 Such an approach might have been of value to the court in imposing limits on the interests that have to be taken into account when deciding enforcement issues, but it was hardly consistent with Cork’s vision of administration as a process that takes on board the broad array of interests affected by the potential insolvency.

As for the statutory extent of the moratorium, section 11(3) of the Insolvency Act 1986 provided that on the making of an administration order: ‘No other steps may be taken to enforce any security over the company’s property, or to repossess goods in the company’s possession under any hire purchase agreement, except with the consent of the administrator or the leave of the court and subject (where the court gives leave) to such terms as the court may impose’; and ‘no other proceedings and no execution or other legal process may be commenced or continued, and no distress may be levied, against the company or its property except with the consent of the administrator or the leave of the court and subject (where the court gives leave) to such terms as aforesaid’.

64Ibid., at 879 (Nicolls LJ). On Re Atlantic Computer Systems see further M. G. Bridge, ‘Company Administrators and Secured Creditors’ (1991) 107 LQR 394; Bridge, ‘Form, Substance and Innovation in Personal Property Security Law’ [1992] JBL 1 at 18–21.

65[1990] BCC 859 at 880. 66 [1993] BCLC 453.

67Ibid., at 456. See G. Lightman and G. Moss, The Law of Administrators and Receivers of Companies (4th edn, Thomson/Sweet & Maxwell, London, 2007) p. 581.

What constituted ‘a security’ for such purposes was defined in section 248(b)(i) as ‘any mortgage, charge, lien or other security’. This reference to ‘other security’ both gave the court considerable discretion to determine whether certain enforcement actions were ruled out by section 11(3) and created some uncertainty. In Bristol Airport v. Powdrill the court took a wide view of the moratorium and the airport was prevented by section 11 from asserting a statutory lien for unpaid airport charges with respect to an aircraft leased by a third party to the company. In Re Atlantic Computer Systems plc items of computer equipment were leased or let under hire purchase agreements to a company which sublet them to third parties. The company went into administration and the Court of Appeal ruled that the owners of the equipment were not entitled during the administration period to receive from the administrators, as expenses of the administration,68 the payments due under the head leases and hire purchase agreement. The equipment was held to be within the possession of the company for section 11(3) purposes and so leave was required to take steps to terminate the head agreements, repossess the equipment and enforce any security in relation to it – though leave would be granted in the circumstances.69

A particular concern was whether the landlord of the company in administration could exercise a right of peaceable re-entry to the corporate premises or whether this was ruled out as ‘enforcement of security’ under section 11(3).70 The importance of this point to a troubled company is difficult to exaggerate: the protection offered by the moratorium would have assisted rescue efforts very little if the company had been liable to lose access to its work premises. Peaceable re-entry, moreover, was a procedure allowing a landlord to forfeit a lease without having to obtain a court order and could be instigated on non-payment of rent or breaches of covenant by the tenant. All the landlord normally had to do

68The Court of Appeal refused to invoke an ‘expenses of the administration’ principle (similar to liquidation: see ch. 13 below) because administration was a novel regime and solutions to problems it posed were not to be found in settled areas of insolvency law. See further Bridge, ‘Company Administrators’, p. 395.

69See Bridge, ‘Company Administrators’.

70See P. McCartney, ‘Insolvency Procedures and a Landlord’s Right of Peaceable Re-entry’ (2000) 13 Insolvency Intelligence 73; P. Shaw, ‘Administrators: Peaceable Re-entry by a Landlord Revisited’ [1999] Ins. Law. 254; J. Byrne and L. Doyle, ‘Can a Landlord Forfeit a Lease by Peaceable Re-entry?’ [1999] Ins. Law. 167. On the power of a landlord to distrain for unpaid rent by taking goods and, in a receivership, bypassing other unsecured creditors, see P. Walton, ‘The Landlord, his Distress, the Insolvent Tenant and the Stranger’ (2000) 16 IL&P 47.

that the courts w ere u nl ikely to exte nd the prote ction of the

Insolvency Act 2000 and th e same position then obtained i n r ela

judgements such as consulting a wide range of parti es affe cted insolvency . Rule 2.2 reports, on this view, tended to become excess

71[1991] BCC 341.

72[1997] 1 WLR 1336 (dealing with security interests per s. 383(2) of the Insolvency Act 1986); Razzaq dealt with bankruptcy but it was likely that the courts would take the same view in relation to corporate insolvency: see Ezekiel v. Orakpo [1976] 3 All ER 659;

Clarence Cof fey v. Corcheste r Fi nance (u nrep or ted) 3 N ovemb e r 1 998 ; Re Ltd [1999] EGCS 61; Christopher Moran Holdings Ltd v. Bairstow [1999] All ER 673.

73IS 2000, p. 37.

74See M. McIntosh, ‘Insolvency Act 2000: Landlords’ Right of Peaceable Re-entry’ (2001) 17 IL&P 48. See Insolvency Act 2000 s. 9 – peaceable re-entry covered by the administration moratorium; Sch. A1, para. 12 – peaceable re-entry covered by the ‘small company’ CVA moratorium: see ch. 11 below.

75See Phillips, Administration Procedure, p. 5.