David Farnell and Charlotte Dack on what can happen when an HP client goes into administration
Most lessors’ terms and conditions provide for a hire purchase agreement’s automatic termination upon the lessee’s appointment of an administrator.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
Whereas under normal circumstances termination would entitle the lessor to enforce his right to the asset’s immediate possession, the administrator’s appointment triggers a moratorium. Its effect is to place a procedural bar on the enforcement by any creditor of his security or repossession of assets in the (lessee) company’s possession under a hire purchase agreement, unless the administrator consents or the court gives permission.
The purpose of the administration is to rescue the company as a going concern, achieve a better result for its creditors as a whole (than would be likely if the company were wound-up) or to realise property in order to make a distribution to one or more secured or preferential creditors. The administrator effectively manages the company’s affairs to this end.
If the administrator takes the view that your assets are needed for the company to continue trading, then as the lessor you should be in a strong position to negotiate with the administrator. He is empowered by law to make any payment necessary to perform his duties, which may include monthly rentals for your asset or (following termination and subject to negotiation) the discharge of arrears and perhaps even a full settlement of the agreement balance.
In such circumstances the administrator may therefore treat you as an essential supplier and ensure you are paid from the expenses of the administration (as opposed to the pot of money to be set aside for unsecured creditors’ claims against the company). The key to obtaining a full settlement is therefore to persuade the administrator that you are an administration expense creditor.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataSometimes the administrator may seek to sell your asset. He will need to obtain a court order and show that your rights as owner under the agreement were vested in the company and that the asset’s disposal of the goods is likely to assist the administrator in discharging his duties. Any order will be conditional upon the asset’s net sale proceeds being applied towards settling the agreement balance, so it stands to reason that a sale is only likely to be of interest to the administrator if the asset is not needed by the company, but has a substantial residual value.
If an agreement cannot be reached, you do, of course, have the option of applying to the court for an order requiring the administrator to deliver-up your asset or a direction for him to treat you as an administration expense creditor. However this is not a step to be taken lightly. The court must have regard to the purpose of the administration and consider carefully all of the relevant circumstances. It may be reluctant to interfere.
You may, of course, prove in the administration as an unsecured creditor for payment of the agreement balance. A sale of the company as a going concern, or of some or all of its assets, will generate funds for the administrator to pay such creditors. If the company has no assets then the administrator may seek to wind-up the company.
The administrator’s appointment usually lasts for a year. When the moratorium ends, so do payments to an administration expense creditor. If the administrator has sold the company’s business then you will find yourself trying to engage with the buyer with a view to novating the agreement. If this cannot be achieved, you will need to consider taking steps to repossess your asset.
The key considerations for any lessor are to contact the administrator quickly, ascertain his intentions and engage in negotiations to see what may be achieved. If a sale of your asset will not be mutually beneficial for you and the administrator, see if the company needs the asset so that you may be treated as an administration expense creditor.
At the conclusion of the administration, be ready to negotiate with the new company if appropriate, or take steps to recover your asset. Administrations often present challenging scenarios, because the law has been drafted for the benefit of the company, so you should always seek expert advice if uncertain about the implications of a particular development and certainly before instigating court action against the
administrator.
David Farnell is a managing associate and Charlotte Dack a legal executive with Addleshaw Goddard
