People commonly confuse the roles of administrators and liquidators in assisting companies which have encountered financial difficulty. Below, we provide an overview of the functions administrators perform.
What is the Purpose of an Administrator?
Companies in financial distress appoint administrators to develop and implement a restructuring plan with creditors called a deed of company arrangement, or to sell assets by appointing a liquidator.
During administration, creditors cannot make claims against the company unless allowed by the courts.
When appointed, administrators have control over a company and exercise the powers that directors ordinarily have over a company. The administrator has legal title over the company’s property and effectively acts as its agent.
An administrator’s primary concern is the company’s creditors, not the shareholders. He or she controls and carries on the business and manages the company’s property and affairs to help creditors determine its fate.
What is the Administrator’s Role as Opposed to a Liquidator?
The Corporations Act 2001 (Cth) sets out an administrator’s functions and duties. The administrator:
- Controls the company’s business, property and affairs; and
- May carry on the business; and
- May terminate or dispose of all or part of the business/property; and
- May perform any function/exercise any power the company or its officers could perform if the company were not under administration; and
- May investigate the company’s business, property, affairs and financial circumstances.
An administrator must also form an opinion about each of the following:
- Whether it would be in the creditors’ interests for the company to execute a deed of company arrangement;
- Whether it would be in the creditors’ interests for the administration to end;
- Whether it would be in the creditors’ interests to wind up the company.
A liquidator’s role differs from an administrator. A liquidator:
- Winds up the company’s affairs;
- Distributes the company’s assets among its creditors equitably; and
- Examines the circumstances prior to the liquidation and the causes of the company’s failure and consider whether further inquiry is necessary.
Who can be an Administrator?
An administrator must be a person who is a registered liquidator. Anyone substantially involved in the company cannot be a liquidator including:
- Creditors of the company (over $5,000), or
- Company directors or employees, or
- An auditor of the company.
These individuals are not appointed as administrators to ensure the administrator’s independence and to mitigate any conflicts of interests arising when acting in the best interests of all creditors.
An administrator providing advice to a company’s directors about their personal liability regarding their role as directors before the administration may preclude them from acting as an administrator. This is because the administrator’s independence may have been compromised.
If you are considering appointing an administrator to your company or considering winding-up your company, LegalVision’s experienced insolvency team can provide you with legal advice.
Questions? Please get in touch with our Client Care team on 1300 544 755.