Administration

For the protection companies from creditors

What is an Administration?

An Administration is applied to companies and is granted by the courts.

An Administration protects the company against its creditors and is an alternative from going into liquidation (sometimes referred to as winding up). An Administration can be extremely useful because they can provide time and space to attempt to save or salvage part of a company. This could be done via a sale as a going concern or through restructuring a business.

Administration were introduced by the Insolvency Act 1986 as a means of an insolvency service and/or liquidation help to protect companies and businesses that are facing financial difficulties.

The Insolvency Act 1986 provides for three routes into Administration;
• By the Company or the Directors
• By a Qualified Floating Charge Holder (QFCH)
• By application to the court

Once appointed the Administrator acts as an office of the court.

An Administrator cannot be appointed by the company or its directors where

• There is an outstanding winding up petition.
• A court application for the appointment of an Administrator has been made and has not yet been disposed of.
• An Administrative Receiver is in office
• The company has been in Administration in the last 12 months - on an application or out of court appointment by the company or directors
• There has been an unsuccessful CVA moratorium in the last 12 months

By the company or the Directors

Usually the directors of a company will file a notice of intention to appoint an Administrator on behalf of the company. Five days notice is provided to the QFCH to allow them to consider the appointment of a Receiver or alternative Administrator. Once the notice period indicating an intention to appoint has expired, a notice of appointment and other related documents should be filed in court. Following this the duly nominated insolvency practitioner (IP) will be appointed as Administrator.

In the event that an Administrator is appointed, the Administrator must compile proposals containing details of the company's financial history, and the purpose of the Administration.

By a Qualified Floating Charge Holder

This procedure is an alternative appointment option allowing the lender (usually a Bank) to appoint an Administrator of its choice.

By application to the court

This route can be used by the Company, the Directors, (where there is a dispute between officers of the company) the Creditors or a Supervisor of a CVA. It can also be used by a Liquidator or a Floating Charge Holder (FCH) where the Company is in liquidation.

Given that a FCH, the Directors and the Company have an alternative direct route into Administration, direct applications to the court are less frequent.

How do you apply for an administration order?

Due to the nature of the procedures above it would be highly recommended that you contact one of our qualified insolvency team for further details. All Administrators must be a licensed insolvency practitioner (IP).

Exiting an Administration

The principal exit routes are:

• The company is returned to the directors following a successful rescue of the business
• Implementation of a proposal to put the company into a CVA or s425 CA 2006 scheme of arrangement
• Better realisation of assets than on winding up - distribution to secured creditors and preferential creditors - but no assets for distribution to unsecured creditors - proceed to dissolution
• Better realisation of assets than on winding up - distribution of funds to secured creditors and preferential creditors - some assets for unsecured creditors - choice of two alternative routes
‾ Go into CVL then pay a dividend
‾ Pay a dividend through the Administration then proceed to dissolve the company

What are the advantages of an administration order?

• Protection from creditors as soon as the notice of intention to appoint is filed at court.
• Provides time to consider the best course of action for the company and its creditors.
• Insolvency practitioners act in the interest of the creditors.
• Reduced creditor pressure
• Trading can continue in Administration with the consent of the Administrator

What are the disadvantages of an administration order?

• It can be an expensive procedure
• Directors are no longer in control of running the company

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