My first brush with death was at a poolside I went to with my cousin when I was a child. I jumped in quickly, not knowing that I had entered the deepest end of the pool. I only remember drinking a lot of pool water and struggling to stay on the surface. But I was saved. Strong arms pulled me out of the water when I was drowning. This article is about strong arms that save a struggling company through administration.
Administration of a company is basically placing a company that is unable to pay its debts (insolvent) under the control of a person, an administrator, who rescues the company. He or she helps a financially distressed company to be restored to its profitability. Just like the man that rescued me from drowning in the swimming pool, the administrator rescues the company from shutting down and helps to keep it running.
WHO QUALIFIES TO BE AN ADMINISTRATOR?
Any natural person can be an administrator. And by natural person, I mean a human being. The person must however be someone who qualifies as an insolvency practitioner. The administrator must have consented in writing to be the administrator and this consent must be filed with the Registrar of Companies.[i] The appointers can decide to appoint either one or three administrators. [ii]
WHO APPOINTS AN ADMINISTRATOR?
a. The company, where it is, or is likely to be insolvent in the opinion of the directors.
b. The liquidator, where the company is in liquidation.
c. Any person holding a charge over the whole or substantially the whole of the property of the company, or a receiver appointed by that person.
d. The Court[iii]
Once an administrator has been appointed, the company cannot remove him or her. Only the creditors or the Court, on application by a creditor, the company’s liquidator if it is in liquidation or by the Registrar of Companies[iv] can do so.
WHAT HAPPENS DURING ADMINISTRATION?
During the administration of a company, any right or legal action taken against the company by its creditors and other claimants would be put on hold, except with the court’s permission and on terms that the court considers appropriate. Where no such legal actions exist, the administrator would be able to operate the affairs of the company to discharge the obligations owed to the creditors, shareholders and employees.[v]
As part of his or her duties, the administrator is mandated by law to investigate the affairs of the company within 21 days after appointment and form an opinion on whether, in the best interest of the creditors, a restructuring agreement should be drawn, administration should come to an end or a liquidator should be appointed.[vi]
The administrator steps into the shoes of the officers of the company. He or she exercises the powers and performs functions that the company or its officers performed before administration. Although the directors do not exercise their powers and functions during administration, they will not be removed. Also, the directors will need prior written approval of an administrator before they can perform any of their functions as directors.[vii]
Employees of a company in administration will be entitled to their wages and salaries as a result of any contract of employment before administration. However, the administrator upon giving notice can terminate any contract of employment in which the company is a party within 21 days after the appointment, or any period that the court may extend.[viii]
Any transaction entered into on behalf of the company which affects its property will be deemed void unless it was entered into by the administrator(s) on behalf of the company, by a person authorized by the administrator or by a court order. Monies paid by banks out of the accounts of the company in good faith, in the ordinary course of the company’s business and without notice of the administrator will not be void.[ix]
During administration, a shareholder’s rights or liabilities cannot be altered. Transferring shares will also not be allowed, unless the court orders so or the administrator is of the view that such a transfer or alteration of rights or liabilities is in the best interest of the company’s shareholders or creditors.[x]
If a director gave any guarantee against the liability of the company, you cannot enforce such guarantee against the director or the relative of the director or any related company without the leave of court during the company’s administration.[xiii]
To conclude, a company may struggle to stay afloat in the waves of economic turbulence among others. And it is in such moments that they will need administrators to guide them back to the shores of business stability, much like lifeguards.
[i] Section 3 of Corporate Insolvency and Restructuring Act, 2020
[ii] Section 4 of the Corporate Insolvency and Restructuring Act, 2020
[iii] Section 3(5) of the Corporate Insolvency and Restructuring Act, 2020
[iv] Section 7(2) of the Corporate Insolvency and Restructuring Act, 2020
[v] Supra note (i)
[vi] Section 16 of the Corporate Insolvency and Restructuring Act, 2020
[vii] Section 12 of the Corporate Insolvency and Restructuring Act,2020
[viii] Section 13 of the Corporate Insolvency and Restructuring Act,2020
[ix] Section 14 of the Corporate Insolvency and Restructuring Act, 2020
[x] Section 15 of the Corporate Insolvency and Restructuring Act, 2020
[xi] Section 30 of the Corporate Insolvency and Restructuring Act, 2020
[xii] Section 31 of the Corporate Insolvency and Restructuring Act, 2020
[xiii] Section 35 of the Corporate Insolvency and Restructuring Act, 2020