The primary purpose of the provisions of The Corporations Law is to enable the directors of a company to appoint an Administrator to take over the affairs of the company and hopefully prepare a scheme for its reconstruction and continued trading or alternatively to improve the return to creditors which would otherwise have not been possible from an immediate winding up. This form of administration should provide a cost effective means for a company in financial difficulties to obtain the agreement of its creditors to a plan for reconstruction. It represents a more commercial approach to reconstruction than liquidations, receiverships . During the period of the administration a moratorium is imposed on the rights of unsecured creditors and in certain circumstances, secured creditors.
The Administrator takes control of the company’s business, assets, and undertakings, with the power to carry on the business and manage the company’s property as agent of the company. The Administrator may perform any function and exercise any power that the company or any of its officers could perform or exercise prior to the Administrator’s appointment. The Administrator’s powers are broad.
Whilst the Administrator is in control, creditors are prevented from commencing or continuing proceedings against the company, and the company may only be wound up by an order of the court. In relation to any of its property, creditors are prevented from commencing or continuing proceedings against the company, except with the Administrator’s consent, or with leave of the court and the court will generally refuse to grant such an order if it is satisfied that it is in the best interests of the creditors for the administration to continue and the assets of the company be maintained for the duration of the administration. .
An Administrator is personally liable for debts incurred whilst acting as administrator of a company. However, the Administrator will be entitled to be indemnified out of the assets of the company. This right of indemnity has priority over all of the company’s unsecured liabilities and liabilities secured by a floating charge, unless the charge holder has enforced the charge prior to the commencement of the administration.
Where under an agreement made before the commencement of the administration, the company is in possession of property owned or leased to it by a third party, the Administrator is liable for so much of the amount payable by the company under that agreement for the period beginning 8 days after the commencement of the administration. However, this does not mean that the Administrator has adopted that agreement. The Administrator may avoid that liability by serving a notice upon the owner or lessor identifying the property and stating that the company does not intend to exercise any rights in respect to it. The Liability of the Administrator also ceases upon the appointment of a receiver, or where a chargee takes possession of the property, or the court excuses the Administrator from personal liability.
The Administrator must investigate the company’s business, property affairs and financial circumstances and form an opinion as to whether an arrangement with the company’s creditors would be in its best interests or whether the administration should end. This investigation and review will form the basis of the Administrator’s report to creditors.
If the creditors vote in favour of a proposed arrangement ie. to pay x cents in the $ either in one lump sum or over a specified period, then a deed is prepared and signed by the company and also by the administrator on behalf of the creditors ,which binds all parties to the deal.