here, under Section 534 of the Insolvency Act, the holder of a qualifying floating charge in respect of a company's property may appoint an administrator of the company. According to the said provision, a floating charge is a qualifying floating charge if it is created by a document that: -As previously discussed in our Article “To appoint a Receiver or an Administrator – the Conundrum with Debentures Executed pre-2015” available
- states that this section applies to the floating charge; or
- purports to empower the holder of the floating charge to appoint an administrator of the company.
Restrictions on the appointment of an Administrator.The Insolvency Act places some restrictions on the power of the holder of the floating charge to appoint an administrator. The said restrictions include but are not limited to: -
- Where the floating charge on which the appointment is being made is unenforceable under the Insolvency Act and the other relevant laws.
- A person may appoint an administrator under section 534 only if such person has given at least three days' notice to the holder of any prior floating charge that satisfies the provisions of Section 534 of the Insolvency Act.
Conclusion.Based on the foregoing, when requiring the issuance of a debenture over the debtor’s assets as security for a finance facility, a financier must ensure that due diligence checks are conducted to determine whether competing security rights exist. Further, in addition to registering the debenture at the companies’ registry, a financier must also ensure that the debenture is registered at the collateral registry to ensure priority and compliance with the Insolvency Act and the Movable Property Security Rights Act. Also, when appointing an administrator under Section 534 of the Act, the debenture holder must ensure due diligence searches are conducted in the Companies registry as well as the collateral registry to ensure that it has priority in the appointment of such an administrator.
How can we help?The Debt Recovery Restructuring and Insolvency team at CM Advocates LLP prides itself in having a wide variety of resources, skills, and experience on matters of Insolvency including but not limited to offering advisories and representing clients in administration proceedings, liquidation of Companies, and Limited liability partnerships (LLPs) having a high-end client portfolio. We are practical and innovative in our approach and offer quick turnaround timelines. We will be delighted to receive your feedback and inquiries and offer our services in this and any other of our practice areas.Please click here to download the alert.
Contact Persons & ContributorsCaroline Kendi–Senior Associate Wamuyu Mathenge- Associate
This alert is for informational purposes only and should not be construed as legal advice.