The New UK Corporate Rescue Procedure - the Administrator's Duty to Act Rationally

9 Pages Posted: 16 May 2004

See all articles by Riz Mokal

Riz Mokal

South Square; University College London - Faculty of Laws; University of Aberdeen - School of Law

John Armour

University of Oxford - Faculty of Law; European Corporate Governance Institute (ECGI)

Date Written: May 2004

Abstract

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.

Keywords: Rule in Hastings-Bass, Stannard v Fisons Pensions Trust Ltd, objective or subjective standard

JEL Classification: G21, G33, G34, K22, L14, K19

Suggested Citation

Mokal, Riz and Armour, John, The New UK Corporate Rescue Procedure - the Administrator's Duty to Act Rationally (May 2004). Available at SSRN: https://ssrn.com/abstract=546624 or http://dx.doi.org/10.2139/ssrn.546624

Riz Mokal (Contact Author)

South Square ( email )

3-4 South Square
Gray's Inn
London, WC1R 5HP
United Kingdom

HOME PAGE: http://southsquare.com/barristers/riz-mokal/

University College London - Faculty of Laws

Bentham House
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London, WC1E OEG
United Kingdom

HOME PAGE: http://www.ucl.ac.uk/laws/

University of Aberdeen - School of Law ( email )

Taylor Building
King's College
Aberdeen, Scotland AB24 3UB
United Kingdom

John Armour

University of Oxford - Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom
+44 1865 281616 (Phone)

HOME PAGE: http://www.law.ox.ac.uk/people/john-armour

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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