Discretion or Obligation to Seek Directions: The Administrator and Rejected Proposals

Abstract

What is the procedure following the rejection of an administrator’s proposals by unsecured creditors? The administration regime was reformed in 2002 to give creditors greater participation in the rescue process. The administrator, unlike the administrative receiver, is required to set her proposals before the unsecured creditors for approval. The Act permits the creditors to reject the proposals where the requisite majority is dissatisfied with the contents. It also permits the court to make orders to facilitate the resolution of the situation following the rejection of the proposals. However, Paragraph 55 of Schedule B1 which regulates the post-rejection procedure does not expressly instruct the administrator to seek a court order after the event. Consequently, the paragraph appears open to interpretation. There are two conflicting streams of opinion which must be examined. One asserts that the administrator has an obligation to seek directions, while the other states that she merely has the discretion to seek directions. An examination of the background to the 2002 changes, as well as an analysis of other pertinent provisions in the revised Act suggest that the administrator has an obligation, not discretion, to seek the court’s opinion where the proposals have been rejected.

Keywords: Administrator's Proposals, Para 55, Schedule B1 IA 1986, Administration