A critical analysis of the effectiveness of the corporate rescue provisions under Sch B1 of Insolvency Act 1986

Abstract

In 1982, the Insolvency Law and Practice: Report of the Review Committee (“the Cork Committee”) recommended the preservation of viable commercial enterprises, as an alternative to company winding up, in appropriate circumstances. Although the primary purpose of administration, which was subsequently enacted to foster a “rescue culture”, is to rescue a company as a going concern, under the third statutory purpose, an administrator may realise the company’s assets to make a distribution to one or more secured or preferential creditors. Thereafter, the administration may be converted to a liquidation or move directly to dissolution where all the assets have been liquidated during administration. The three purposes of administration are listed in order of primacy which means the third purpose can only be adopted if the administrator thinks that it is not reasonably practicable to either achieve company rescue or a better result for the company’s creditors as a whole than would be likely in an immediate winding up. The administrator’s function of making distributions and the ability to move the administration into winding up or dissolution cannot be reconciled with the theory of corporate rescue which was envisaged by the Cork Committee. In light of the fundamental principles and purposes of insolvency law and empirical evidence, this thesis argues that the administration regime, under Schedule B1 of Insolvency Act 1986, is not fit for purpose and is frequently used by insolvent companies as ‘quasi-liquidation’ and dissolution of the company. In short, the rescue approach adopted under the administration framework is inconsistent and obscures the distinction between the concepts of creditor enforcement, corporate rescue and winding up.