Post Covid: Options available to companies in distress | Daily News


Post Covid: Options available to companies in distress

Part III:

In Part I of this series, we discussed the solvency issues that may arise in a company in the background of the curfew/lockdown and the disruption of the business process during such tome.

In Part II, we discussed discuss the provisions set out in the Companies Act with regard to several remedies available to a company in financial distress and more specifically the remedies of arrangement and compromise. In the concluding part III we will be discussing the role and powers of the Administrator, obtaining approval from Court and the conclusion.


When all else fails (such as an arrangement or a compromise), it would be the time for the board of directors to step aside and hand over the management and operation of the company to an Administrator. It is analogues to the time when we must take the patient to the hospital and hand over the patient to the professionals.

It must be noted that, the Administrator can be appointed before attempting an arrangement or compromise. The Administrator can, as a part of his proposal propose a compromise or arrangement as stipulated in the Act.

Where the board of a company considers that: (a) the company is or is likely to become unable to pay its debts as they fall due; and (b) the appointment of an administrator will be likely for: (a) the survival of the company and the whole or any part of its undertaking as a viable concern; (b) the preparation and approval of a compromise under Part IX or a compromise or arrangement under Part X; or (c) a more advantageous realisation of the company’s assets than would be likely on a winding up, the board may resolve to appoint an administrator of a company.

From and after the appointment of an administrator, until the end of the initial period (defined in section 400): (a) no resolution may be passed or order made for the liquidation of the company ; (b) subject to 402(2), no steps can be taken to enforce any security over any property of the company or to repossess any goods in the company’s use or possession under any hire-purchase agreement, except with the consent of the administrator or with the leave of the court and subject to such terms as the court may impose; (c) no other proceedings and no execution or other legal process may be commenced or continued and no distress may be levied against the company or its property, except with the consent of the administrator or with the leave of the court and subject to such terms as the court may impose.

However, this does not stop any person from filing a Petition to wind up the company.

Within two months after the end of the initial period or such longer period as the court may allow, the administrator must prepare a statement of his proposals for achieving the purpose or purposes specified in the order appointing him

At a meeting of creditors called under the provisions of section 406 the creditors shall decide whether to approve the administrator’s proposals and where the administrator’s proposals are approved, the administrator shall continue in office if the proposals so provide or shall cease to hold office in the circumstances set out in the proposals. However, where the administrator’s proposals are not approved, the administrator shall cease to hold office five working days after the date of the meeting.

An administrator: (a) shall manage the affairs, business and property of the company;(b) may do all such things as may be necessary or desirable for the management of the affairs, business and property of the company; have all the powers that could be exercised by a receiver of the whole of the property and undertaking of the company under sections 443, 445 and 446.

It is further provided that where the exercise of any power conferred on the company or its board or officers by this Act or by the company’s articles could interfere with the exercise by the administrator of his powers, such power shall not be exercised by the company, its board or officers, as the case may be, except with the consent of the administrator, which may be given generally or in relation to particular cases and any disposal or other dealing with the property of the company without first obtaining the consent of the administrator, which may be given generally or in relation to particular cases, shall unless the court otherwise orders, be void.

In exercising his powers, the administrator is deemed to act as the company’s agent, and a person dealing with the administrator in good faith and for value, shall not be required to inquire whether the administrator is acting within his powers.

It is also important to note that the administrator of a company may dispose of or otherwise exercise his powers in relation to any property of the company which is subject to a security to which this subsection applies, as if the property were not subject to the security.

Section 418 specifies that the administrator on his appointment shall take into his custody or control, all the property to which the company is or appears to be entitled and the administrator shall manage the affairs, business and property of the company: (a) at any time before a proposal has been approved under section 407 in accordance with any directions of the court; and(b) at any time after a proposal has been so approved, in accordance with the proposal as from time to time revised and with any directions of the court.

Obtaining approval of Court

The Companies Act in Part X provides a proponent to obtain the approval of Court with regard to Compromises and Arrangements. The Act specifies that notwithstanding the provisions of the Act or the provisions contained in the articles of a company, the court may on the application of a company; an administrator; or (with the leave of the court), any shareholder or creditor of a company, order that an arrangement or compromise shall be binding on the company and on such other persons or classes of persons as the court may specify. Any such order may be made on such terms and conditions as the court thinks fit.

Before making such an order the court may, make among others: an order that notice of the application to such persons or classes of persons as the court may specify; an order directing the holding of a meeting or meetings of shareholders or any class of shareholders or creditors or any class of creditors of a company, to consider and if determined fit, to approve in such manner as the court may specify, the proposed arrangement or compromise. The court may for that purpose determine the shareholders or creditors that constitute a class of shareholders or creditors of a company; an order requiring that report on the proposed arrangement or amalgamation or compromise be prepared for the court by a person specified by the court, and if the court thinks fit, be supplied to the shareholders or any class of shareholders or creditors or any class of creditors of a company or to any other person who appears to the court to be interested;

The court may also for the purpose of giving effect to any arrangement or compromise approved, provide for and prescribe terms and conditions relating to - the transfer or vesting of movable or immovable property, assets, rights, powers, interests, liabilities, contracts and engagements; the issue of shares, securities or policies of any kind; the continuation of legal proceedings; the liquidation or the removal from the Register without liquidation, name and particulars of any company; make provision for persons who voted against the arrangement or compromise at any meeting or who appeared before the court in opposition to the application, to approve the arrangement or amalgamation or compromise;


Therefore, it is not necessary wind up and dissolve a company merely because the company is in financial distress. Other than any financial remedies available, the Companies Act does provide other remedies to a distressed company to overcome solvency difficulties and may be prosper subsequently. It has been done successfully in many jurisdictions and stakeholders of distressed companies need not unduly despair.

The author is a President’s Counsel specialising in corporate law, banking, shipping and trans-border trade and transportation. The views set out in this article are only for informational and educational purposes and should not be considered as legal advice. For ethical reasons no correspondence will be entertained on matters arising out of this article.

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