The Enterprise Act 2002: Past, Present & Future

Abstract

The administration procedure is designed to hold a business together while plans are formed either to put in place a financial restructuring to rescue the company, or to sell the business and assets to produce a better result for creditors than a liquidation. Before the Enterprise Act 2002 (hereafter 'EA 2002') came into force, administrative receivership was the preferred mode of debt enforcement against distressed companies by banks holding fixed and floating charges over substantially the entire estate of the debtor. This was seen as too detrimental to the interests of the unsecured creditors and businesses. The Insolvency Act 1986 as an alternative to receivership was the first legislation to introduce the administration procedure. The beauty of Administration as an insolvency modus operandi is that it comes with a moratorium on creditor enforcement actions thereby giving the company the necessary breathing space to allow the objectives of the procedure to be achieved. The EA 2002 practically re-wrote the law on administration by replacing the entirety of Pt II of the Insolvency Act 1986. Some commentators share the view that the EA 2002 revolutionised the UK insolvency regime. Mokal et al agrees, but argues that it has been a relatively quiet one. Vanessa Finch on the other hand is more optimistic, she believes that the EA 2002 is a sign that corporate and creditor practice in the UK has moved from a focus on ex post responses to corporate crises to one that increasingly involves influencing the way that corporate actors manage the risks of insolvency ex ante. The new administration procedure has received mixed to negative reviews by academics and professionals alike.