324 Chapter 11Companies (2): Management, control and winding up
or for any fraudulent purpose, the person who acted fraudulently should make such con-
tributions to the company’s assets as the court thinks proper. In addition, a disqualification
order could be made under s. 10 of the Company Directors Disqualification Act 1986.
In order to be liable under s. 213 a person must have deliberately been dishonest by the
standards of ordinary business people.Transactions at undervalue and preferences
Section 238 of the Insolvency Act 1986 provides that where the company has gone into
liquidation, the liquidator may apply to the court to set aside the transaction and claim back
the assets if the company has, within two years of the onset of insolvency, entered into a
transaction with any person at an undervalue. The section is intended to prevent the
defrauding of creditors and members by giving away the company’s assets, or selling them
too cheaply, prior to liquidation.
Section 239 of the Insolvency Act allows the court, upon an application by a liquidator,
to make an order where the company has given a preference to a creditor. A company gives
a preference to a creditor if it does anything which has the effect of putting the creditor into
a position which, in the event of the company going into insolvent liquidation, will be
better than the position he would have been in if the thing had not been done: for example,
paying one creditor in full shortly before going into liquidation with massive debts. Another
example would be paying personal debts to themselves or their relatives whilst not paying
other creditors.Administration
Administration is a measure short of liquidation under which the administrator, who must
be a qualified insolvency practitioner, attempts to rescue an ailing company. So admin-
istration may well not lead to the winding-up of the company. In recent years several
professional football clubs have gone into administration but have escaped liquidation.
The administrator must perform his functions in the interests of the company’s creditors
as a whole and has three hierarchical objects. First, to rescue the company as a going con-
cern (the primary purpose). Second, to achieve a better result for the company’s creditors
than would be achieved if the company was wound up. Third, to sell property to make a
distribution to one or more secured or preferential creditors.
A court will appoint an administrator only if it is satisfied that the company cannot pay
its debts. A floating charge holder can appoint an administrator, but only if his charge or
charges relate to substantially the whole of the company’s property. The company or the
directors can appoint an administrator.
Administration lasts for one year unless a court order extends it or unless the creditors
agree to extend it. Once a company is in administration any petition to wind the company
up will either be dismissed or suspended until the period of administration is over. No steps
can be taken to enforce a charge without the consent of the administrator or the permission
of the court. All business documents (invoices, orders for goods or services and business
letters) issued by or on behalf of the company must state the name of the administrator
and that he is managing the company’s affairs. All creditors must be informed that the
administrator has been appointed.
The administrator may do anything necessary or expedient for the management of the
affairs, business and property of the company, including removing or appointing directors.
He takes control of all the property to which he thinks the company is entitled and may pay