LEGAL VIEWPONIT Company insolvency

There are many instances and issues regarding company insolvency, one of these being the fact that there are people with job descriptions designed to deal with or solve the problems related to company insolvency.

The first of these is the administrator whose job is designed and intended to promote the survival of companies as going concerns and to secure the preservation of jobs in the company. An administrator is normally appointed by the Court on the petition of the company, or on the petition of the directors, or on the petition of any creditor. The debt, in this connection, need not be of any minimum value and unsecured creditors can also petition. This can be considered the major difference between an administrator and an administrative receiver.
The insolvency provisions in the law, give the administrator full powers to manage the company, hopefully to the point at which he can make it viable again and vacate office in favor of a solvent permanent management.
The second is the receiver, who is defined as a person who has a legal right to receive property belonging to another. If A has lent money to company B, say on the security of its warehouses, here the debenture which contains the terms of the loan will usually give the lender a right to appoint a receiver if repayment of the loan plus interest is not made within a stated period of time. The receiver, herein, sells the warehouses and pays off the lender, returning any balance to the company.
The receiver in this case does not manage the company, unlike the administrator or administrative receiver, both of whom have some certain power to manage the company.
The third is the administrative receiver who is usually appointed by a bank under a debenture to secure an overdraft facility or by trustees for debenture holders in the case of a public issue of debenture stock. The administrative receiver is given power over the whole undertaking of the company (a floating charge), including the power to manage the assets and carry on the business.
Where this is so, his title is changed to administrative receiver to reflect the fact that he is not a mere receiver but can also administer or run the company. The main duty of the administrative receiver is to get sufficient money to pay the person who appointed him, e.g. the bank.
If he can do this better by trading with the company for a while then, unlike a receiver, he may do this. Many administrative receivers do trade successfully, at least with parts of a company, to the point where these parts can be sold off as going concerns and their business is preserved.
This, however, is not the primary function of the administrate receiver, although it is mainly considered the primary function of an administrator. The trading is only part of the duty of the administrative receiver so as to pay the person making the appointment.
Generally speaking, the administrative receiver is used to provide a machinery under which a secured creditor, such as a bank, may recover money lent on the security of the company's assets when the terms of the loan have been breached e.g. where a company is not making payment of interest and/or capital properly, or the bank has called in an overdraft having lost faith in the company's ability to repay it.
The fourth type of insolvency practitioner is the liquidator. Legally speaking, the liquidator is a person placed in charge of a certain process under which a company's assets are sold and the debts of the company paid from the proceeds, in case of any balance to be returned to the shareholders. When this has been done, the company has nothing left and it may be dissolved, its separate existence as a corporate entity being brought to an end.
The liquidator is, therefore, in a sense an undertaker whose object is to bury the company as soon as possible after selling its assets and distributing the proceeds among the creditors and shareholders in accordance with their legal interests and priorities. However, although a liquidator cannot carry on the company's business for any length of time, as an administrator or administrative receiver can, he may carry on its trade for a period of time where that can help a steady and more profitable sale of the assets over a period of time.
Any of the above four insolvency practitioners can be appointed to perform the required activity as directed by the concerned qualified person. This procedure and legal right is available in the law but, surprisingly enough, nobody is taking advantage of this legal mechanism..

Dr. AbdelGadir Warsama Ghalib

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