Powers of directors of a company which is placed in administration

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Essar Steel Ltd v Arcelormittal USA LLC

The Court of Civil Appeal of the Supreme Court of Mauritius has recently opined in the case of Essar Steel Ltd v Arcelormittal USA LLC [2020 SCJ 191] that the directors of a company, which has been placed in administration retain no residual power to initiate proceedings on behalf of the company. The Chief Justice, in delivering his judgment in this case referred to the detailed provisions of the Insolvency Act with regard to the functions and powers of the administrator and the functions and powers, if any, of the directors of a company which has been placed in administration. According to the provisions of the Insolvency Act, it is expressly provided that as soon as an administrator is appointed, a director is not entitled to exercise or perform any function or power or exercise an administrative act as an officer of the company, except with the prior written approval of the administrator or with authorization of the court. It is the administrator who is vested with the power to manage the property and affairs of the company.

The court went on to distinguish instances where a company is placed in receivership by the appointment of a receiver manager and instances where the company is placed in administration by the appointment of an administrator. The court opined that the appointment of an administrator entirely supersedes the powers of the company and the authority of the directors in the conduct of its business and management of its assets.

The court of civil appeal concluded that in the absence of the prior written approval of the administrator or authorization of the court as expressly required under the Insolvency Act, there is no basis for the directors to claim that they retain a residual power to initiate proceedings on behalf of the company to challenge the appointment of an administrator. Whilst dismissing the appeal, the court ordered the directors who initiated the appeal to personally bear the costs of the case.

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