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ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration

Marlowe Foods Ltd has entered administration. A supplier, Tandem Packaging, which is owed money, wishes to start court proceedings to recover its debt from Marlowe. Under the usual administration rules, what is the position?

Tandem cannot commence proceedings against Marlowe unless the administrator consents or the court gives permission. Administration imposes a moratorium on legal action against the company so the administrator has breathing space to pursue the statutory purpose. The debt itself remains owing and is not cancelled.

  1. ATandem may sue freely because administration only affects secured creditors
  2. BTandem may sue only if the administrator consents or the court gives permissionCorrect
  3. CTandem may sue, but only after the creditors' committee has been dissolved
  4. DTandem's debt is automatically cancelled once administration begins

Explanation

Administration carries a moratorium. Legal proceedings against the company cannot be started or continued without the administrator's consent or the court's permission. The debt is not cancelled, and the restriction applies to unsecured creditors as well as others, so the first option is wrong.

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