Secured creditors having deeds of all assets debentures executed in their favour, most often activate their powers under the instrument, by appointing a receiver manager over the entire assets, undertaking and goodwill of the debtor company, out of court without requiring any court order.

The Companies and Allied Matters Act, 2020 (“CAMA 2020”) which was recently signed into law to repeal and replace the Companies and Allied Matters Act, 19901, introduced “administration of companies”2, a new insolvency and business rescue process which involves the appointment of an administrator to manage the affairs, business and properties of the company, with a view to rescuing the whole or part of the debtor company’s undertaking as a going concern, achieving better result for the company’s creditors as a whole, or realising the company’s properties in order to make a distribution to secured or preferential creditors.

Just like the receiver, an administrator can also be appointed out of court, by a holder of a floating charge3. Nonetheless his appointment without any court order, he is by law, an officer of the court4, and in performing his functions, he acts as an agent of the debtor company.5 On the other hand, a receiver manager appointed outside court, is deemed as an agent of his appointor, although, he stands in a fiduciary relationship to the company.6 So, it appears that the secured creditor has more influence over the actions of his agent, the receiver manager, who just needs to ensure that he does not act in bad faith towards the debtor company whilst working for his principal (the secured creditor).

It is instructive to note that the purpose of the administrator’s appointment is basically for him to rescue the debtor company from imminent liquidation, ensure its survival, and achieve a better result for all the secured creditors of the debtor company. It is when the above is unachievable or not reasonably practicable, that the administrator may introduce the option of realization of the assets.7 A receiver manager on the other hand, is not statutorily bound to first ensure the business is run and rescued before he can exercise his power to realise the assets of the debtor company for the benefit of his appointor.

An appointment of an administrator is not permitted if he has not given at least 2 working days’ written notice to the holder of any prior floating charge or if such person has not consented in writing, to the making of the appointment.9 The notification can even spur the holder of the prior charge to exercise its power of appointment within the 2 days notification. A receiver manager on the other hand, does not have such restriction during his appointment; his powers are exercisable once appointed but only needs to be exercised subject to any prior encumbrance existing on the assets of the debtor company.

The appointment of an administrator expires at the end of a period of one year from the date on which the appointment took effect, except where it is extended by the court for a specified period (prior to expiration) or extended for a period not exceeding six months with the consent of each secured creditor of the debtor company (and preferential creditor(s) where applicable).10There is no limited period for receivership.

There is a wide moratorium for companies under administration, as no legal process, proceedings or execution, or enforcement of security over the company’s asset, or repossession of goods in the company’s possession under higher purchase agreement, can commence except with the consent of the administrator or the permission of the court11. Although, in receivership, no execution can be levied against the company also,12 legal proceedings can still be initiated against the debtor company without the consent of the receiver or the leave of court. The prohibition on levying of execution against a debtor company under receivership is inviolable without any room for any discretion whatsoever, whereas, under the moratorium in administration, the court or the administrator may in exercise of their discretion, permit such execution and third-party creditors are not excluded.

As regards distribution of the assets, the administrator can distribute the realized assets to one or more secured or preferential creditors; and can extend the distribution to creditors who are neither secured nor preferential, if only the court gives permission.13 Furthermore14, in the distribution of the assets, the administrator shall subject to the provisions requiring preferential payments to be made first, apply the property of the company in satisfaction of its liabilities pari pasu and then, distribute among the members according to their rights and interest in the company.

In my humble opinion, these statutory powers of the administrator cannot be compared to the power of the receiver manager to realise the assets of the debtor company solely for the benefit of his appointor, which is only subject to the rights of prior encumbrances. I am also of the view that the provisions of Section 657 of CAMA
2020 on preferential payments relate to distributions during winding up and not when the receiver manager is applying the realised assets to the repayment of the debts of his appointor. Even if it applies to when the receiver manager is applying the realised assets to the repayment of the debts of his appointor, the position is still more favourable for the secured creditor who chooses to appoint a receiver manager instead of an administrator.

Based on the above juxtapositions, I submit that the secured creditor is more favourably positioned to recover his debt where he opts for the appointment of a receiver manager than when he uses the new regime of administration of companies under CAMA 2020. Administration of Companies appears to be more favourable to the debtor company itself and to all the creditors as a whole, than to the single creditor that appoints the administrator. Creditors should bear these in mind in choosing the method of receivership or administration in recovering their money from debtor companies.