Company Administration in Guernsey: An Overview
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Administration is a process under which an administrator is appointed to manage the affairs of a company that is insolvent, or likely to become insolvent. Under the Companies (Guernsey) Law, 2008 (the Companies Law), companies may be placed into administration by an order of the Royal Court of Guernsey.
Who can apply?
Pursuant to the Companies Law, an application for an administration order may be made by the company itself, its directors and members, a creditor or, in the case of a supervised company, such as those regulated by the Guernsey Financial Services Commission (GFSC), the Commission may also apply.
The Solvency Test
Before an administration order is granted, the Court must be satisfied that the company fails or is likely to fail the statutory “solvency test”. This requires evidence that the company:
- is unable to pay its debts as they fall due (cash flow test), or
- has liabilities exceeding assets (balance sheet test); and
- if it is a supervised company, fails to meet regulatory solvency requirements
The Statutory Purposes
Administration provides a means for financially distressed companies:
- A rescue or continuation of the company (or part of its business) as a going concern; and/or
- A more advantageous realisation of assets than what would result from a liquidation process
Therefore, in addition to the company failing the solvency test, the Court must be satisfied that one or both of the above statutory purposes of administration may be achieved by the making of the order and the applicable statutory purpose(s) will be stated in the terms of the administration order.
Effect of an Administration Order
Once an application for an administration order has been issued, a moratorium takes effect which prevents unsecured creditors from commencing or continuing any proceedings against the company (except with the consent of the administrator or leave of the Court), and any extant winding up application in respect of the company will be automatically dismissed. This moratorium will continue for the duration of the administration, however, it does not affect the rights of set-off and the rights of secured creditors.
On granting an administration order, an appropriately qualified administrator will be sworn before the Court. The administrator’s remuneration (which will be fixed by the Court or the basis on which it is to be calculated will be determined), together with any costs, charges and expenses properly incurred in the administration, are paid out of the company’s assets in priority to all other claims.
Administrator’s duties and functions
The administrator has broad powers to do all such things as may be necessary or expedient for the management of the affairs, business and property of the company in pursuit of the statutory purposes. In addition, the administrator may make a distribution to a creditor of the company if the administrator thinks it likely to assist the achievement of any purpose for which the administration order was made.
Upon the appointment of the administrator, they are to take into their custody or under their control all the property to which the company is or appears to be entitled.
The administrator is required to give immediate notice of the making of the administration order to the company and Registrar of Companies, and within 28 days, to all known creditors (and in the case of a supervised company, the GFSC). Each notice sent to the creditors must include an invitation to an initial meeting of creditors and an explanation of the aims of and the likely process of the administration. The date set for an initial meeting of creditors must be within a period of 10 weeks from the date of the administration order, or such other period as the Court may direct.
The administrator may require a statement of affairs, verified by affidavit, to be produced within 21 days of the request. The statement must set out the company’s assets, debts and liabilities; the names and addresses of creditors; particulars of any security held by creditors and the dates on which such security was granted; together with any further information the administrator may require. Persons who may be called upon to provide a statement of affairs include current and former officers of the company, parties who have taken part in the formation of the company within one year before the administration order was made, and current and former employees who were employed within the preceding year.
Conclusion of an Administration
The administration order may be discharged by the Court at any time on the application of the administrator, where it appears that the statutory purpose identified in the order either has been achieved or is incapable of being achieved, or where it would otherwise be desirable or expedient to discharge the order. If the statutory purpose has not been achieved, the company will enter liquidation.
If you have any questions about administration or corporate insolvency issues, please do not hesitate to contact Advocate Todd McGuffin (Partner, Head of Disputes & Risk), Advocate David Doutney (Partner) or Shek Moradian (Associate) at Babbé LLP.