When a person ceases to be an administrator he is discharged from liability in respect of any action of his as administrator, provided that this release has been properly granted under S98 of Sch B1 of the Insolvency Act 1986. The validity of his release from personal liability is probably even more important to an administrator than the validity of his appointment. S105 of Sch B1 IA 1986 validates any act of the administrator in spite of a defect in his appointment. There is no such validation clause for the administrator’s release.
The administrator’s release from liability does not happen automatically. The administrator can obtain his release from liability from the court or if the administrator has been appointed under S14 or S22 of Sch B1 IA 1986 (appointment by the holder of a floating charge or by directors) then release may alternatively be granted by a resolution of the creditors committee or if there is no creditors’ committee, a resolution of creditors.
Every administrator should ensure, before ceasing to act, that his release has been granted either by the court or a resolution of creditors. Exactly when the administrator should apply for his release is not specified in the legislation. It would appear that some administrators ask creditors to resolve to grant their release from liability in the period immediately after their appointment rather than as part of their closing procedures.
By asking for his release at the start of the administration the administrator would be asking creditors to release him from any liability from actions that had not yet taken place. It would seem that creditors would be passing a resolution without knowing what they were agreeing to. A release from liability that was obtained in this way could surely be open to challenge and there would be a genuine risk that the administrator would not be able to rely on it.
An administrator could alternatively obtain his release (from court or creditors as appropriate) at the end of the administration as part of his case closure procedures. Creditors can pass a resolution by post under rule 2.48, so there is no need for a creditors’ meeting that no-one attends. Information about the resolution can be included with the final progress report so there is no need for additional correspondence.
Caroline Clarks insolvency career started over 30 years ago and since 1994 RMCS has been handling insolvency compliance, specialising in regulation and compliance.
Contact: Caroline Clark
M: 07854 967976