The New UK Corporate Rescue Procedure - The Administrator's Duty to Act Rationally
University College London (UCL) - Faculty of Laws; South Square Chambers
University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)
The corporate insolvency elements of the Enterprise Act 2002 attempt to revitalise the 'rescue culture' in the UK. At the core of the new administration regime introduced by the Act lies a statutory list of objectives available to the administrator, the Insolvency Practitioner presiding over the insolvency proceedings. The insolvency proceedings must be directed towards the pursuit of one of these objectives. The list consists, roughly, of the attempt either to rescue the company, or (some of) its business as a going concern, or the liquidation of that business piecemeal for distribution to creditors. The aim of this paper is to consider the standard by which the administrator will be judged in making his choice about which of these objectives to pursue. In particular, how broad is his discretion to choose, and to what extent (if at all) is this discretion subject to legally binding requirements?
The paper argues that, in settling upon the correct objective for an administration proceeding, the administrator owes the distressed company fiduciary obligations. These obligations are shaped by the administrator's statutory duties not unnecessarily to harm the company's creditors as a whole, to act in their interests as a whole, and to perform his functions as quickly and efficiently as is reasonably practicable. In making the selection, the administrator is under the duty to act rationally, which requires him to inform himself of all the facts and factors reasonably available to him that are relevant to his decision, and to act only after taking into account all relevant but no irrelevant considerations. The paper compares the nature of the administrator's role with that of administrative (i.e. public) decision makers. In particular, it highlights the administrator's duty to explain his reasons for pursuing lower priority objectives, and to consult creditors about his decision. Given that meaningful consultation requires arming the consultees with all the information reasonably available which bears upon their decision, and given that this requirement for the administrator to account for his decision is explicit in the statutory text, we suggested that the decision is likely to be subject to fairly intensive review if challenged.
Number of Pages in PDF File: 9
Keywords: Rule in Hastings-Bass, Stannard v Fisons Pensions Trust Ltd, objective or subjective standard
JEL Classification: G21, G33, G34, K22, L14, K19
Date posted: May 16, 2004