Company Administration

Originally introduced in 1986, the Administration process is a business rescue procedure that protects the company from any creditor action, while a recovery plan is formulated or a sale of the business achieved.

When formulating a rescue plan for an ailing business a licensed insolvency practitioner must consider the various procedures available to effect a successful recovery of the business. Where a sale of the business is likely to be the most effective method, he will usually consider advising the directors to place the company into Administration. Where however there is a prospect that the company itself may be rescued, he will consider the merits of a Company Voluntary Arrangement (“CVA”).

Often, when a CVA is appropriate, it may be necessary to carry out an appraisal of the business or an element of restructuring, whilst the company is protected from adverse action that may be taken by creditors. In those cases, he may well consider placing the company into Administration, to provide the necessary protection and once his appraisal or the restructuring is complete, he will propose a Company Voluntary Arrangement to exit from Administration.

Until the Insolvency Act 1986 came into force in late December 1986, the only insolvency process available to a limited company that had not granted a floating charge to a secured creditor was liquidation. Companies that had granted a floating charge were capable of entering into Administrative Receivership, which enabled the company to trade under the supervision of an insolvency practitioner with a view to selling the business.

The disadvantage with this process was that it could only be initiated by the secured creditor. It was possible for the directors to request the secured creditor to appoint an Administrative Receiver however. Companies that had not granted a floating charge were therefore faced with an inevitable closure, with little prospect of the business or jobs being saved.

The Administration process opened up the prospect of recovery to such companies but initially it was an expensive and cumbersome process.

An application had to be made to the court and it was necessary for an insolvency practitioner to carry out a review of the company and prepare a detailed report for the court to consider. The application was considered by a judge and if he thought fit, an order was made placing the company into Administration. Significantly, the company or its directors as well as any unsecured creditor, could make an application for an Administration Order.

Following the enactment of the Enterprise Act 2002 in September 2003, the process was simplified in cases where there was no winding up petition pending. In such cases there is no longer a need to make an application to court. Now it is possible for the company or its directors to simply file a Notice of Intention to appoint an Administrator in the court. Once filed, a copy must be served on any holders of floating charges, who then have a period of five working days to confirm whether they are content to allow the company to enter into Administration and for the proposed Administrator to be appointed.

The licensed insolvency practitioner appointed by the applicant also files a document in the court indicating whether in his opinion there is a realistic prospect of achieving at least one of three statutory purposes, which are as follows:

  • Rescuing the company as a going concern
  • Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in Administration) or
  • Realising property in order to make a distribution to one or more secured or preferential creditors.

If there is no prospect of any of the above being achieved then the company cannot enter into Administration.

During the five day notice period given to the holders of floating charges, those holders can do one of three things.

  • They can agree to the Administration and the appointment of the proposed Administrator.
  • They can agree to the Administration but appoint their own choice of Administrator.
  • They can do nothing.

In a well-planned Administration application, the proposed Administrator will have entered into discussions with all floating chargeholders before the application is made, to ensure that they are comfortable with what is proposed. This removes any prospect of doubt as to what they will do within the five day notice period and ensures smooth progress.

If the floating chargeholders are in agreement, or do nothing within the five day notice period, the applicant is allowed to file a further notice in the court confirming that an Administrator has been appointed, provided this notice is filed within ten working days of the date the original notice was filed. If that deadline is missed and it is still intended to appoint an Administrator, then the process must begin over again, with the relevant notice being given to holders of floating charges.

Once appointed, the Administrator takes control of the company and begins to implement the strategy to achieve the statutory purposes. Immediately upon his appointment he will advise creditors and employees of the fact and he must convene a meeting of creditors within eight weeks and hold it within ten weeks of the date of his appointment.

Prior to that meeting, he will forward creditors details of his proposals for achieving one or more of the statutory Administration purposes and provided a majority of creditors agree, he will continue with the proposed strategy. There is however nothing to prevent an Administrator from selling a business before the creditors meeting takes place and this does often happen, notably in a pre-pack administration. However, he must ensure that he makes a full disclosure of all of the circumstances and facts relating to the sale.

For more information please email us using the form on the “Contact us” page or call us on 01384 686 800 to talk things through or to arrange a free, initial, no obligation consultation.

By law, an Administration must come to an end after the expiry of one year, unless the Administrator makes an earlier application for it to be extended. Extensions are usually limited to a further period of six months.