Administration and Administration Orders:
Administration is a procedure which allows an independent insolvency practitioner known as the administrator, to run, reorganize and possibly sell, as a going concern, a company that is facing or is about to face, severe financial problems.
Administration Orders are applied for (hereinafter referred to as “the Application”) under Chapter 11, section 248 of the Act by way of a petition (hereinafter referred to as “the Petition”) to the High Court (hereinafter referred to as “the Court”) presented by the company’s shareholders, directors or creditors. The Petition is supported by an affidavit of a person making the Application (hereinafter referred to as “the Affidavit”).
When the Petition is presented in Court, notice thereof should be given to any person who is entitled to appoint a receiver (section 248 (2) (a)). Therefore, depending on the circumstances leading to making the Application, one should consider whether it should be made under a Certificate of Urgency.
It should be noted that the Petition for an Administration Order will be dismissed if, at the time of making the Application, the Court is satisfied that there is a receiver already appointed in respect of that company unless that receiver consents to the making of the administration order or the appointment of the receiver was invalid. On hearing of the Application, the Court has powers to adjourn the hearing, make interim orders or any other orders it deems fit (which can include restricting of directors powers).
Pursuant to section 248 of the Act, between the time of making of an Administration Order and ending of such an order, no resolution may be made for winding up of the company, no steps may be taken to enforce any security over the company’s assets or repossess goods in the company’s possession under hire-purchase agreements unless with leave of the court and subject to its terms, no other proceedings and no other execution may be commenced or proceed or no distress may be levied against the company or its property unless with leave of the court and subject to its terms. It should be noted however that leave would not be required as above if these events (the appointment of a receiver) were carried out prior to the Administration Order being issued or if the receiver has not consented to the making of the order (section 249 (2) and (3)) of the Act.
The Court will issue/grant an Administration Order if it is satisfied that a company is or is likely to become unable to pay or make an order to pay its debts when they become due or that the company’s liabilities (contingent and actual) are more than its assets (section 280 of the Act), and beyond that, that granting such an order will achieve one or more of either (a) the survival of the company and the whole or any part of its undertaking as a going concern, (b) the sanctioning of a compromise arrangement already made by the company (c) that a more advantageous realization of the company’s assets than would be effected if the company was to be wound up.
Administration Procedure-Process:
The Petition shall state the following:-
The Affidavit shall be prepared by the person who is proposed to be the administrator or any other person who has adequate knowledge of the company’s affairs, not being a director, secretary, manager, member or employee of the company
The Affidavit shall state the following:-
The Petition and Affidavit shall be filed in Court with sufficient number of copies for service. Each copy delivered to Court shall be sealed and endorsed the date and time and filing. The Court shall fix a place for hearing of the Petition and endorse the same on each copy thereof.
After filling the Petition, the Petitioner or his advocate or any instructed person shall serve the Petition on the person proposed as Administrator, not less than seven (7) days before the date fixed for the hearing.
At all the times during the hearing proceedings, the Petitioner, the company, the proposed person for appointment as an Administrator and with the leave of the court, any other person who has an interest in the Petition, may appear or be represented.
If the Court grants an Administration Order, it shall give notice to the Administrator who shall advertise it once in the government gazette and once in the newspaper that circulates widely to ensure that the order comes to the notice of the company’s creditors within twenty eight (28) days of such an order being granted.
Powers, Duties and Responsibilities of the Administrator:
The Administrator may do all such things that may be necessary for the management of the company’s affairs.
The following are general powers, duties and responsibilities of the administrator:
The Administrator’s Proposal:
It is a statement made by an Administrator stating current situation of the company and possible ways to handle it. It further states costs of the Administrator. The Administrator may notify a responsible person in the company to supply him with the company’s statement of affairs. The statement of affairs shall be supplied by an officer of the company, by affidavit, stating particulars of the company’s assets, debts and liabilities, names and addresses of all its creditors, securities held (if any), dates when the securities were given and any other relevant information he deems fit. The Act requires for an administrator to send to the Registrar of Companies, members and to all creditors, a statement of proposal and company’s statement affairs within three (3) months from the date when administration order was made unless otherwise extended by the Court.
In its proposal the Administrator may suggest to restructure, sell, liquidate the company or may propose other voluntary arrangements with creditors.
Creditor’s Meetings:
There shall be creditors’ meeting where the protection of the interests of creditors and the Administrator’s proposal will be discussed and the latter be revised, if necessary, and with the approval of the Administrator (section 262 (2) of the Act). The Administrator shall notify all creditors of the company who are identified in the statement of affairs or who are known to him personally of the time and venue of the meeting at least fourteen (14) days prior to the proposed meeting. Any meeting summoned by creditors shall be presided by the chairman (i.e. the Administrator) or any other person nominated by the chairman in writing to act on his behalf.
The Administrator shall prepare a report from the creditors meeting and annex it to the proposal within fourteen (14) days of the conclusion of creditors’ meeting. The Administrator shall send the result of the meeting to all creditors who were notified about the meeting and submit the same in Court (section 262 (4)).
Where it is resolved in creditors’ meeting to establish creditors’ committee for purposes of the Administration, the committee shall consist of at least three (3) and not more than five (5) creditors of the company elected at the meeting. A creditor’s committee may meet and if they elect to do so, shall give the administrator seven (7) days’ notice of the meeting.
It should be noted that any of company’s shareholders or creditors, may, during the pendency of an Administration Order file an application in Court, by way of petition, on the ground that the company’s affairs are being managed by the Administrator in a manner which is unfairly prejudicial to the creditors or members (including at least the applicant) or that the proposed acts or omissions of the Administrator are prejudicial (section 265 of the Act).
Where it is resolved to pay creditors. Payment shall be allocated to creditors, ranked in the order of priority as follows:-
Advantages of the Administration Process:
Administration puts the company’s affairs and property (including charged properties (section 254 of the Act)) in the control of a qualified insolvency practitioner for the benefit of the company so that it can be guided to avoid liquidation, if possible.
The Administrator manages the affairs of the company taking into consideration all creditors’ interests in respect of their ranking, shareholders and other interested parties.
Upon an Administration Order being issued, the Administrator is given a moratorium hence the assets of the company are protected from seizure from various creditors, unless ordered otherwise by the Court.
This may result in compromise arrangements with creditors so as to allow the company to conduct its affairs as a going concern.
Actions of creditors have to be approved by the Court, in the event that the Administration Order is granted before any receiver is appointed.
Disadvantages of the administration process:
This process can be very costly as it involves payment of the Administrator’s fees and any other consultants whom he may engage which payment will be derived from the Company. According to the World Bank’s Doing Business Report on Tanzania published in June, 2016 the average costs associated for processes of this nature include court or government agency fees (3%), attorney fees (3%), insolvency representative’s fees (3%), fees of accountants, assessors, inspectors and other professionals (3%), fees of auctioneers (7%) and fees of service providers and/or government levies (2%).
This may lead to a multiplicity of suits from various secured and/or preferential creditors, as they have the right to file applications by way of petition to enforce their respective securities.
Creditors may challenge the acts and/or omissions of the Administrator in Court by way of petition, which ought to be defended.
Note: This is not a legal opinion and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
