the disposal of an administration order application or the coming into effect of an out-of-court appointment of an administrator.109

The interim moratorium becomes effective, if applying to court for administration, as soon as the application is made. When a floating charge holder applies under paragraph 14, the moratorium takes effect from the date a copy of the notice of intention is filed at the court, as that is when the company or directors are seeking to appoint. The provisions of paragraphs 42 and 43 of Schedule B1 generally apply during the period of the interim moratorium.110

When an administrator has been appointed there is a general moratorium on the enforcement of remedies without the consent of the administrator or the permission of the court.111 As noted previously, the moratorium is procedural in nature, suspending the power to enforce rights but not destroying such rights. The company cannot then be wound up112 and the consent of the administrator or the leave of the court is required for such actions as enforcing a security against the company, repossessing goods in the company’s possession under a hire purchase agreement, exercising a right of forfeiture by re-entry,113 or the commencement or continuation of any other legal proceedings or levying distress against the company or its property.114 Protection also extends to property owned by the company but in the possession of third parties such as lessees.115 An administrative receiver cannot be appointed when the company is in administration and an administrative receiver already in office must vacate.116

Financial collateral arrangements

At this point consideration must be given to the insolvency effects of the Financial Collateral Regulations 2003117 and their implementation of the

109Para. 44.

110Except that winding-up petitions on public interest grounds under IA 1986 s. 124A or

Financia l Se r vices and Marke ts Act 20 00 s . 367 are not prevented: see fur th ‘Public Interest Liquidation: PIL or Placebo?’ [2002] Ins. Law. 157 and ch. 13 below. The appointment of administrators by qualifying floating charge holders (QFCs) (under

para. 14) is similarly not prevented under the interim moratorium, nor is the appointment of administrative receivers.

111Paras. 42, 43 – applicable whether the administration is out of court or via a court order.

112Para. 42(2)(3).

113See Metro Nominees (Wandsworth) (No. 1) v. Rayment [2008] BCC 40.

114Para. 43.

115Re Atlantic Computer Systems plc (No. 1) [1992] Ch 505, [1992] 2 WLR 367, [1990] BCC 859.

116Paras. 43(6A), 41(1).

117Financial Collateral Arrangements (No. 2) Regulations 2003 (SI 2003/3226).

fly in the face of the Enterprise Act’s conception of administration as a rescue mechanism.123

Preferential creditors, the prescribed part and the banks

Other important provisions of the Enterprise Act 2002 concern priorities and the protection of vulnerable creditors. The Crown’s status as preferential creditor was abolished by section 251 of the EA.124 It is estimated that this will result in some £70 million per annum flowing to other creditors.125 The EA also introduced ‘ring-fencing’ of a prescribed proportion of the company’s net floating charge proceeds. These proceeds are to be made available to the company’s unsecured creditors and only surpluses of funds following such use will be available for distribution to the floating charge holders.126 The ‘prescribed part’ of funds for ring-fencing is stipulated by Statutory Instrument.127

123See the comments of practitioners: Sharp, ‘Collateral Directive’; Lawson, ‘New Financial Collateral Regulations’: ‘Secured lenders will have increased leverage over cash assets which may otherwise be used to fund the administration … [They] may be able to avoid the new prescribed part provisions altogether either by taking certain floating charge assets for themselves or relying on the Regulations to disapply the prescribed part provisions once the charge has crystallised.’

124Paras. 1, 2, 3–5C, 6, 7 of the IA 1986 Sch. 6 are deleted. Preferential debts that remain are: unpaid contributions for occupational pensions; four months of unpaid employee wages and holiday entitlements; and unpaid levies in respect of coal and steel production. See further ch. 14 below.

125See IS, Regulatory Impact Assessment for Insolvency Provisions in the Enterprise Act 2002

(IS, London, 2002) (hereafter ‘EA 2002 RIA’) para. 5.29 – this is based on the Crown recovering £90 million per annum preferentially in all insolvencies and the estimate that this would drop to some £20 million per annum when the Crown became unsecured.

126See IA 1986 s. 176A. This is an echo of the Cork Report’s proposal for a 10 per cent fund: Report of the Review Committee, paras. 1538–49. On the ‘prescribed part’ see further ch. 3 above and ch. 13 below. Whether, on the wording of s. 176A, a floating charge with an unsecured balance is entitled to participate in the prescribed part funds has been a matter of debate. The Insolvency Service is of the view that the floating charge holder is not entitled to participate in any distribution, a view upheld by His Honour Judge Purle QC in Permacell Finesse Ltd (in liquidation) [2008] BCC 208: noted D. Offord, ‘Case Digest’ (2008) 21

Insolvency Intelligence 30. See also Re Airbase (UK) Ltd, Thorniley v. Revenue and Customs Commissioner [2008] BCC 213: noted A. Walters, ‘Statutory Redistribution of Floating Charge Assets: Victory (Again) to Revenue and Customs’ (2008) 29 Co. Law. 129; see also ch. 15 below. For a contrary view see G. McPhie, ‘New Legislation’ (2004) Recovery (Autumn) 24.

127See Insolvency Act 1986 (Prescribed Part) Order 2003, SI 2003/2097 – 50 per cent of net property where that net property is less than £10,000; above £10,000, then 50 per cent of the first £10,000 in value and 20 per cent of the excess, up to an overall limit of £600,000. See also ch. 3 above.

For the banks, as holders of post-EA (or ‘qualifying’) floating charges, the EA produces a significant alteration in substantive rights. Whereas a receiver owes a duty to look only to the interests of the floating charge holder, the administrator has a duty to act in the interests of the creditors as a whole and in pursuance of the ‘tiered’ objectives set out now in Schedule B1, paragraph 3(1)(a), (b) and (c). Under paragraph 3(3) of Schedule B1 the administrator, as noted, is only to realise property to distribute to one or more secured or preferential creditors if (a) he thinks that it is not reasonably practicable to achieve either of the objectives in 3(1)(a) or (b) (i.e. rescuing the company as a going concern or achieving a better result for creditors as a whole than would be likely in a winding up) and (b) he does not unnecessarily harm the interests of the creditors of the company as a whole. The reforms do not change priorities in an insolvency but may have a substantive effect on the floating charge holder. This is because a floating charge holder who appoints an administrator rather than an administrative receiver is dealing with a regime in which the administrator has to take into account interests other than the floating charge holder’s and in which rescuing the company has a degree of primacy in relation to satisfying the secured creditors’ interests.

Lobbying by powerful lenders in the period leading up to the EA produced a set of impressive procedural rights for the banks.128 The British Bankers’ Association (BBA) argued forcefully during 2001 that administrative receivership had been a very successful ‘engine for reconstruction and enterprise in the UK’.129 Receivership, said the BBA, had allowed secured creditors to ‘appoint somebody who is able to act quickly and manage the restructuring process in a way which has saved businesses and jobs in a cost effective manner’.130 The thrust of this argument was that any new administration procedure that was to be rescuefriendly had to be streamlined and fast. The Enterprise Act 2002 moved towards such streamlining by removing the need for a Rule 2.2 report and limiting the number of circumstances requiring a court

128A remarkable dilution of the Government’s original intentions achieved by the banks’ ‘tremendous power in the lobby’: see J. Willcock, ‘How the Banks Won the Battle for the Enterprise Bill’ (2002) Recovery (June) 24, 26 (quote attributed to D. Mond of Hodgsons).

129BBA, Response by the BBA to the Insolvency Service White Paper, Insolvency – A Second Chance (October 2001) (hereafter ‘BBA, Response to White Paper’).

130Ibid., p. 3; on receivership as a rescue procedure, see ch. 8 above.

procedure.131 Now a lender (bank) files a notice of appointment declaring that: they are the holders of a qualifying floating charge in respect of a company’s property; the charge is enforceable; and the appointment is in accordance with Schedule B1 to the Insolvency Act 1986.132 For the secured lender, appointing an administrator will differ little from the current process for appointing a receiver. Banks are able to use the streamlined appointment procedure in all cases, not merely situations of urgency, and they are able to determine who should be appointed to the post of administrator.133 This gives the banks the power to insert their chosen administrator with speed and without regard to the other creditors or the courts. As has been observed: ‘Even if the company or its directors choose an administrator, effectively the holder of the floating charge can choose an alternative administrator.’134 The overall effect, then, is that floating charge holder concerns have largely been sought to be met in the Enterprise Act – to the extent that one group of practitioners has argued: ‘It may be better to describe the reforms as a “transmutation” or “merger” of administrative receivership and administration

131The Association of Business Recovery Professionals (R3) estimated a standard r. 2.2 report to be between £4,000 and £8,000 (based on £1 million turnover, £500,000 book value of assets expected to realise £200,000): see EA 2002 RIA, para. 5.27.

132If there is a prior qualifying charge (per Sch. B1, para. 14(2)) to that held by the lender (the bank), then the bank may not appoint an administrator unless it has given at least two business days’ written notice to the prior charge holder (enabling the prior qualified floating charge holder to consider appointing an administrator itself): see Sch. B1, para. 15.

133See Sch. B1, paras. 14(1), 18(3). On how the court resolves competing proposals regarding the identity of the administrators where there is no QFC see R. Tett and F. Paterson ‘World Class Administrators’ (2005) Recovery (Summer) 24; Re World Class

[2005] 2 BCLC 1. See also The Oracle (North West) Ltd v. Pinnacle Services (UK) Ltd

[2008] EWHC 1920 – where significant creditors have a clear preference for one administrator over another and the secured creditor and other creditors are neutral, the court should decide in favour of the wishes of those creditors, particularly given that

administration is intended for their benefit.

134 S e e M . S te v e n s o n , ‘ The Enterprise Bill 2 002 – A Move T owards a (2002) 18 IL&P 155, 157. Mond argues: ‘I don’t like the fact the bank can appoint an administrator of its own choice without reference to the court. That is very, very dangerous. It feels like a back door way of receivership’ (quoted in Willcock, ‘How

the Banks Won the Battle’, p. 26). See also p. 428 below on the effect this may have to incentivise administrators to keep the banks happy. If an administration application is made by a party other than the floating charge holder (e.g. by a company or directors) and the floating charge holder applies to have its chosen administrator appointed instead, the court shall allow this unless it thinks it right to refuse ‘because of the particular circumstances of the case’ (Sch. B1, para. 36(2)).