Where a company’s assets are encumbered by a fixed and floating charge, most insolvency practitioners will check with the charge holder (usually a bank) before consenting to act as voluntary administrator.
Although this is not a Corporations Act requirement, the approach does make sense as it gives the bank the opportunity to consider what it should do in regard to its security, and to consider if it is happy with the proposed administrator and to start the administration on some common ground.
Under the Corporations Act a creditor with a fixed and floating charge over all, or substantially all, of the assets of the company has thirteen business days following the appointment of voluntary administrator to appoint a receiver. If they do not appoint a receiver during that time, the secured creditor will not be able to do so until the end of the voluntary administration period – usually about six weeks after the commencement.
The voluntary administration will still proceed if a receiver is appointed in this period, but the administrator will be unable to deal with assets that are secured – and this will be all or substantially all of them (subject to floating assets and employee entitlements).
The approach in the UK is different. The directors of an insolvent company are required to give the fixed and floating charge holder two business days notice of their intention to appoint an administrator, and name the proposed administrator. The charge holder then has the option of appointing its own administrator under provisions similar to ours.
The administrators, no matter who made the appointment, are required to act in way which is advantageous to the secured creditor and also to act in the interest of the general creditors. The legislation in the UK does not attempt to limit a creditor with a fixed charge acting on that security.
It has been suggested that the UK model is superior to the Australian approach and that the Australian model should be changed. We do not agree as, in our view, the Australian model works perfectly well.
It is true that, from time to time, in Australia a company may have both a administrator and a receiver appointed, but generally this does not lead to duplication of effort and thus greater costs as the receiver and the administrator are each carrying out different functions. Further, limiting a secured creditor’s ability to deal with floating assets while empowering it to deal with fixed assets is not likely to achieve a better outcome for unsecured creditors as most proposals for deeds of company arrangements involving trading organisations are dependent on the company retaining control of fixed and floating assets.
Also, in Australia, employee entitlements must be paid out of floating assets and this often means that the secured creditor leaves the floating assets under the control of the administrator.
In our view, if it ain’t broke don’t fix it!