LEGAL VIEWPOINT: Company insolvency practitioners – By Dr. AbdelGadir Warsama Ghalib, LEGAL COUNSEL, Bahrain

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Dr AbdelGadir Warsama Ghalib, Legal Counsel

All commercial companies may face some financial or other difficulties at certain times, these difficulties may lead to the insolvency of the concerned company. There are many legal issues regarding companies insolvency, one of these issues is the fact that there are different types of insolvency practitioners. The appointed administrator is to be considered as the first one of these types and the job of the appointed administrator is mainly designed and intended to achieve certain specific points. That is, to promote the survival of the company as going concern and, at the same time, to secure preservation of the jobs.

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The administrator is normally, appointed by the competent Court based on the petition of the management of the concerned company or on the petition of the directors of the company, or on the petition of any creditors. The debt of the creditors, in this connection, needs not be of any minimum value and unsecured creditors can also submit a petition. This factor is to be considered as the major contrast  with the appointment of an administrative receiver.

Legally speaking, the insolvency legal provisions give the administrator full powers to manage the company, hopefully to the point at which he can make it viable again and, after that, vacate office in favor of a permanent management.

The second type of insolvency practitioners is the receiver. The receiver is legally defined as a person who has a legal right to receive property belonging to another.

If A has lent  money to company B, say on the security of its warehouses, here the debenture which contains the terms of the loan will usually give the lender a right to appoint a receiver if repayment of the loan plus other entitlements are not made within a stated period of time.

The receiver in this case does not manage the company but sells the warehouses and pays off the lender, returning any balance to the company. It is this point which provides contrast with the appointment of an administrator and an administrative receiver, both of whom have power to manage the company.

There is a third type of insolvency practitioner that is known as the administrative receiver. This type of receiver is appointed most usually by a bank under a debenture to secure an overdraft facility or by trustees for debenture holders in the case of a public issue of debenture stock.

In those cases the debenture or trust deed creating the charge will usually give the administrative receiver power over the whole undertaking of the company (a floating charge) including the power to manage the assets and carry on the business. Where this is so, his title is changed to administrative receiver to reflect the fact that he is not a mere receiver but can also administer or run the company.

The main duty of the administrative receiver is to get sufficient money to pay the person who appointed him e.g. the bank. If he can do this better by trading with the company for a while, then, unlike a receiver he may do this. Many administrative receivers do trade successfully at least with parts of a company, to the point where these parts can be sold off as going concerns and their business is preserved.

The trading is not the primary function of the administrative receiver, whereas at the same time it is mainly considered as the primary function of an administrator. The trading is only part of the duty of the administrative receiver so as to pay the person making the appointment.

Generally speaking, the administrative receiver is used to provide a machinery under which a secured creditor, such as a bank, may recover money lent on the security of the company’s assets when the terms of the loan have been breached e.g. where a company is not making payment of interest and or capital properly, or the bank has called in an overdraft having lost faith in the company’s ability to repay it.

The fourth type of insolvency practitioners is the liquidator. Legally speaking, the liquidator is a person placed in charge of  a certain process under which a company’s assets are sold and the debts of the company o be paid from the proceeds. In case of any balance, to be returned to the shareholders of the company. When this has been done the company has nothing left and it may be dissolved, because its separate existence as a corporate entity has been brought to an end.

The liquidator is therefore in some sense an undertaker whose object is to bury the company as soon as possible after selling its assets and distributing the proceeds among the creditors and shareholders in accordance with their legal interests and priorities. However, although a liquidator cannot carry on the company’s business for any length of time, as an administrator  or administrative receiver can , he may carry on its trade for a period of time where that could help a steady and more  profitable sale of the assets over a period of time.

Any of the above four insolvency  practitioners could be appointed to perform the required activity as directed by the concerned and qualified person . This procedure and legal right is available in the law and any concerned body could benefit from them according to the merits of each case…