Legal Analysis and Opinion; Overview of Company Administration
Theo Matundura
Investment Consultant | Smart Contracts | Advocate of the High Court of Kenya | Policy & Legislation | Human Rights | Fighter for Sustainable Development Goals in Africa (SDGs)
Definition and Purpose: Company Administration is a process managed by an Insolvency Practitioner with the primary aim of restructuring a business to make it profitable or preserve its value through sale. This is governed by the Insolvency Act 2015 in Kenya, which outlines the procedures and objectives of administration.
Objectives:
Legal Opinion:
The objectives and definition of company administration align with the principles set out in the Insolvency Act 2015, emphasizing restructuring over liquidation to preserve value. This approach prioritizes the continuity of business operations and maximizes creditor returns.
Appointment of an Administrator
Legal Analysis:
Eligibility: Only licensed Insolvency Practitioners or the Official Receiver of Kenya can be appointed as Administrators.
Appointing Authorities: An Administrator can be appointed by:
Legal Opinion:
The eligibility criteria ensure that only qualified individuals manage the administration process, maintaining the integrity and efficacy of the process. The flexibility in appointment by various stakeholders ensures that the administration process can be initiated efficiently, depending on the specific circumstances.
Effect of Administration Order
Legal Analysis:
Moratorium on Liquidation: Once an administration order is made, any liquidation proceedings are suspended.
Moratorium Period: The company is protected from creditor actions for the entire administration period.
Notification Requirements: The Administrator must notify the company, all known creditors, and the registrar of their appointment and publish the notice in a local newspaper or the Kenya Gazette.
Legal Opinion:
The moratorium on liquidation proceedings and the notification requirements ensure that all parties are aware of the administration and that the company is protected from immediate creditor actions. This protection allows for a structured restructuring process to take place.
Administrator’s Proposal
Legal Analysis:
Statement of Affairs: The Administrator must obtain the company’s statement of affairs within 12 days and propose a plan to achieve the administration’s objectives.
Proposal Submission: The proposal must be sent to all known creditors, company members, and the registrar.
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Creditors’ Meeting: The proposal is considered in a creditors’ meeting, where it can be approved with or without modifications.
Legal Opinion:
The requirement for a detailed proposal and its submission to stakeholders ensures transparency and provides a structured approach for creditors to consider the viability of the proposed administration plan. This inclusion of creditor input is crucial for achieving a consensus on the restructuring plan.
Powers and Duties of the Administrator
Legal Analysis:
Functions and Powers: The Administrator has various powers, including convening meetings, appointing directors, managing the company’s property, and distributing assets to creditors.
Control of Property: The Administrator assumes control of the company’s property and can dispose of property under a floating charge or credit purchase agreements.
Legal Opinion:
The wide range of powers granted to the Administrator is essential for effective management and restructuring of the company. These powers must be exercised judiciously to balance the interests of creditors and the company, ensuring that the administration achieves its objectives.
Termination of Administration
Legal Analysis:
Automatic Termination: Administration ends automatically after 12 months unless extended by the court.
Circumstances for Termination: Administration can be terminated by resignation, death, disqualification of the Administrator, or by court order if deemed inappropriate.
Legal Opinion:
The clear guidelines for the termination of administration ensure that the process does not continue indefinitely and that there are mechanisms to address any issues with the Administrator’s conduct or suitability. This provides a clear timeline and conditions under which the administration must conclude.
Dissolution of the Company
Legal Analysis:
No Property for Distribution: If the Administrator determines there is no property to distribute to creditors, a notice is lodged, and the company is dissolved after three months.
Discharge of Liability: Upon termination, the Administrator is discharged from liability for actions taken during the administration.
Legal Opinion:
These provisions ensure that the administration process concludes in a structured manner, either by restoring the company to its directors or dissolving it if there is no benefit to creditors. The discharge of liability protects Administrators from undue claims, provided they have acted within their duties, ensuring that the administration process is fair and just.
Conclusion
The Company Administration process as outlined aligns well with the Insolvency Act 2015, providing a structured and transparent framework for restructuring companies in distress. The process prioritizes the preservation of value and fair treatment of creditors while ensuring that the rights and responsibilities of the Administrator are clearly defined. This approach fosters a balanced and effective resolution for financially troubled companies, benefiting all stakeholders involved.