Overview
Aims and objectives
The corporate insolvency provisions of the Enterprise Act 2002 (‘the Act’) were intended to enhance efficiency and increase accountability in corporate rescue proceedings. To this end, the Act abolished administrative receivership and replaced it with a new, ‘streamlined’ administration proceeding. Unlike an administrative receiver, who owes duties only to a secured creditor, an administrator owes legal duties to all creditors. On the one hand, increased accountability may be expected to result in a greater impetus towards efficiency, with the result that better outcomes are achieved for the businesses of distressed companies. However the very mechanisms of accountability – increased legal liability – may themselves generate increased costs through legal bills and actions taken to avoid liability.
The project sought to investigate the following questions:
- Whether the Act has resulted in lower costs for corporate rescue proceedings; and
- Whether administrations under the new regime result in greater overall realisations (because of the increased accountability) than under the old administrative receivership procedure.
Results and dissemination
To investigate these issues, a new dataset of 348 cases of corporate insolvency commencing between 2001 and 2004 (153 receiverships under the old law and 195 administrations under the new law) was constructed using data from reports filed by practitioners at Companies House. Work began in February 2006 and was completed by the end of July 2006. These quantitative results were supplemented by qualitative research, consisting of interviews with practitioners and regulators.
Analysis indicates (i) that gross recoveries in the administration cases, under the new law, are significantly higher than those in receivership cases, under the old law; but (ii) that insolvency costs are also significantly higher in the administration cases than receivership cases. The net effect on recoveries for unsecured creditors appears to be neutral.
Principal investigators
- John Armour
- Adrian Walters (University of Nottingham)
Research fellow
- Audrey Hsu
Project status
Completed
Project dates
2006-2007
Funding
DTI
Output
Working papers
Walters, A.J., Armour, J., A. Hsu (2006) ‘The Costs and Benefits of Secured Creditor Control in Bankruptcy: Evidence from the UK’, mimeo, June, 44pp.
Walters, A.J. and Armour, J. (2006) ‘Evaluating the Impact of the Enterprise Act on Corporate Rescue’, mimeo, January, 20pp.
Journal articles
Armour, J. and A.J. Walters (2006) ‘Funding Liquidation: A Functional View’ 122 Law Quarterly Review 303-334.
Walters, A.J. and Armour, J. (2006) ‘The Proceeds of Office-holder Actions under the Insolvency Act: Charged Assets or Free Estate?’ Lloyds’ Maritime and Commercial Law Quarterly 27-48.
Armour, J. and R.J. Mokal (2005) ‘Reforming the Governance of Corporate Rescue: The Enterprise Act 2002′ Lloyds’ Maritime and Commercial Law Quarterly 28-64.
Armour, J. (2005) ‘La Reforma de los Procedimientos de Recuperación de Empresas en Crisis en el Reino Unido’ 3 Revista de Derecho Concursal y Paraconcursal 403-412.
Book chapters
Armour, J. (2006) ‘Overview of the Treatment of Stakeholders in UK Corporate Insolvency Law’ in H. Peter, N. Jeandin, and J. Kilborn (eds.), The Challenges of Insolvency Law in the 21st Century (Zurich: Schulthess), 99-112.
Armour, J. (2006) ‘The Governance of Corporate Rescue in the UK’ in H. Peter, N. Jeandin, and J. Kilborn (eds.), The Challenges of Insolvency Law in the 21st Century (Zurich: Schulthess), 501-514.
Datasets
Dataset of 368 UK corporate insolvencies (2002-2004) (hand-created from official records)
Conference/Workshop papers
Armour, J., A. Hsu and A.J. Walters, ‘The Costs and Benefits of Secured Creditor Control in Bankruptcy: Evidence from the UK’, to be presented at Empirical Legal Studies Conference, University of Texas, October 2006.