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Administration Services FAQ

Who can appoint an Administrator?

See our main company administration services page.

Companies and Directors can appoint an administrator quickly with the IP's guidance. This does not require a Court Order; it requires a fax to be sent to the court with the appropriate forms. Clearly the IP must have done some work to establish if the company is insolvent, should it go into administration, what the process will involve and the planned outcome but with the right advice and help an Adminisdtrator can be appointed relatively quickly and easily.

Where a company is in liquidation or in a CVA then the proposed administrator must obtain a Court Order.

No administration order will be granted unless the holders of all qualifying floating charges have been given 5 days clear notice of the company's or directors' intention to appoint an administrator.

The floating charge holder (usually a bank) will still retain the ability to step in and appoint their own choice of administrator should they so wish.
It is therefore possible that board decides to appoint an Administrator and the bank refuses and appoints its own. Quality IP's will not experience much difficulty if they are recognised by the bank and there is a quality plan to protect the business.

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How can the bank appoint an Administrator?

Banks can appoint an Administrator if they hold a qualifying floating charge under a debentures granted after 15th September 2003. If the bank holds an older debenture it can appoint an Administrative Receiver.

However, it should be pointed out that the Administrator has a duty to act in the interests of all creditors not just on behalf of the bank/floating charge holders.

There must be one (or two) of three "Objectives" for the Administration:

In the application to the Court the proposed Administrator must state which is his or her main objective of the following three:

Company rescue, as a going concern, should be the primary objective.
This usually means that the company proposes a Company Voluntary Arrangement or a scheme of arrangement.

1. Administration followed by CVA

If that is not possible (or if the second objective would clearly be better for the creditors as a whole), then the Administrator can achieve a better result for the creditors than would be obtained through an immediate winding-up of the company, possibly by trading on for a while and selling the business as a going concern.

2. In English this means trying to sell the business for more than a liquidation would raise (see Creditors Voluntary Liquidation).

Only if neither of the first two objectives is possible, can the Administrator realise the property of the company to make a distribution to secured and/or preferential creditors.

3. This means collecting and selling the assets for the best price to pay the bank.
In cases where speed is essential in making the appointment, the rules include a provision that will allow for filing a notice of appointment during times when the court is not open for business typically this is by FAX.

The filing of such a notice will bring into effect an interim moratorium on insolvency proceedings and other legal processes being taken against the company.

In a moratorium no one can "knock the company over" without the leave of the Court. Once the Court has effectively ratified the Administrator's appointment this is unlikely! The Court will want to have as much information as possible to ensure that the application for Administration is correct and appropriate.

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Administration sale

The company can enter Administration to be sold. A typical scenario might be:-

A company is under severe pressure, creditors circling, possibility of legal action.

The Directors properly decided to take professional advice . A decision is taken to protect the business and to stop legal actions. The company is insolvent but there is a viable business.

The company meets with its professional advisors and together they draw up a report on the options available looking at CVA, Administrative Receivership, Administration, trade sale etc. The board believes that a sale could be achieved but first the company needs to be protected.

An Administrator is appointed and he / she will then run the business for a short period.

During that time the business is actively marketed in accordance with insolvency guidelines called the Statement of Insolvency Practice 13. It is important that the business is seen to be for sale.

The Administrator will obtain valuations from a professional valuer for all of the assets, goodwill and so on.

In an agreed period the directors of the "old company" can buy the business of the "old company" provided the valuations are met and the Administrator gets the best deal for the creditors.

The "new company" can then start trading with no debt, no creditor pressure and, for example, it can take on leases and commit once again to a long term future. In this process it is critical, however, that professional advice is first obtained, that an experienced Administrator is appointed, that a proper valuation is made and the full amount of such valuation passes from the "new company" to the "old company".

The general guideline is that "TUPE" applies and therefore the employment and emoployment rights of all employees transfer automatically to the "new company".

The "old company" is then liquidated

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How long does the Administration process last?

The process can generally only last for up to 1 year, although this can be extended by the consent of the creditors and/or by the court. The Administrator is also required to do everything as soon as reasonably practicable. There is a time-limit of eight weeks for getting his / her proposals (in other words what he / she proposes to do with the company) distributed to creditors, and holding the initial creditors meeting. This can be extended by the creditors' consent and/or by the court.

These proposals will include full details relating to his / her appointment, and the circumstances leading up to it, as well as exactly how the Administrator proposes to achieve the purpose of Administration, including details of how h / she anticipates the Administration will end.

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Statement of Affairs:

Upon appointment, the Administrator will require one or more of the current or former Directors or company officers to provide him / her with a statement of the company's affairs.

This is a prescribed form which details the company's assets and liabilities, including those assets that are subject to any fixed or floating charges. This can be difficult to produce.

A copy of the statement of the company's affairs, or a summary of it, must be attached to the Administrator's proposals. See above for the 3 different types of proposals.

A copy of the proposals will also be filed with the registrar of companies for placing on the companies' public file. Interestingly though, where the information included in the statement of affairs is commercially sensitive, the administrator can apply to court to have the statement, or the relevant part of it, withheld. This can be important if the commercially sensitive information (or any process used) is an integral part of the business of the company so therefore to disclose it in the statement of affairs would decrease the value of the company.

Included with each creditor's copy of the Administrator's proposals will be an invitation to the initial creditors' meeting, at which the creditors vote on those proposals and whether to accept them.

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Creditor's Meetings

The initial creditor's meeting must be held within 10 weeks of the date that the company entered Administration, and the creditors must be given at least 2 weeks notice of the meeting, although these time-limits can be extended by the creditors and/or the court.

The business of this meeting can be carried out in correspondence without an actual physical meeting, although if 10% or more of the creditors (in value of their claims) demand a meeting, then the Administrator is still required to call one.

The proposals can be accepted (by a majority vote, measured in value of claims), modified and then accepted, or rejected. If the latter, then the Administrator is required to report that fact to the court and seek further directions from the court.

Following the initial creditors' meeting, and any subsequent meeting of creditors, the Administrator is required to send a report of the outcome of the meeting to the court and to the registrar of companies for filing on the company's public file.

A creditors committee can be formed if the creditors require it. This must be between 3 and 5 people.

The Administrator then manages the company's affairs, business and property in accordance with the proposals that have been agreed by the creditors.

He / she must send regular progress reports to the creditors, the court and the registrar of companies covering each six-month period from the date that the company entered Administration until the Administration ends, or until he / she ceases to act.

These reports will provide full details of the progress of the Administration to date, including a receipts and payments account (or what cash has been received and paid out) and any other relevant information for the creditors.

Simply by reading this brief summary, you will appreciate the complexities of the law surrounding Administration but, when used properly, can be a very powerful tool for companies in distress.

So do not appoint an Administrator before calling us to discuss your options and we will answer any questions you may have. Once appointed it's too late to change your mind! We have considerable experience in company Administrations and company sales in these circumstances so genuinely we can help.

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What are the disadvantages of Administration?

The Directors are not in control of the business and an offer from a third party may lead to their removal as Directors. This is one reason why it is so important to first obtain professional advice before proceeding and to appoint the right Adnministrator.

Tax losses can be lost if no CVA is proposed.

Another buyer may buy the assets.

It is a public event, so all creditors and all correspondence (invoices, advice notes, orders, emails, websites, letters) must decsribe the conmpany as being "In Administration". Most customers and suppliers therefore become very aware of the insolvency.

All orders must be drafted by the Administrator or his / her staff.

The Directors have no powers to run the company.

As soon as reasonably practicable after his /her appointment, the Administrator must obtain details of the company's creditors and must notify the company and all of its creditors of his / her appointment. This is also an advantage as it stops legal actions.

The appointment must also be advertised in the London Gazette and in a relevant local or national newspaper - one that the Administrator thinks is appropriate for ensuring that the appointment comes to the notice of all of the company's creditors.

Clearly the bank can decide to appoint their own Administrator if it decides its position may be compromised by the proposed Administration of the company.

Costs are often very high for this procedure therefore in our opinion it is only really suitable for larger companies where aggressive creditors threaten future viability.

"TUPE" applies to the "new company" - in other words the new company cannot simply dismiss employees and must adopt their contracts with all of the employment law liabilities such as redundancy pay etc which may arise; the new company is deemed to have employed each employee from the date he or she started working for the old company. This can be a problem when planning how to cut costs in the new company.

Financing trade and other supplies can be difficult unless adequate resources are available and or new funds can be introduced in the Administration period.

What are the advantages of Administration?

Administration can be a very useful and powerful tool for insolvency practitioners to control the company, banks, and creditors to ensure survival of the business.

All legal actions are stayed by the process.

It stops the financial position getting worse and putting Directors at further risk.

It can be very quick and cost effective if an "Administration pre-pack" is used properly. (See below).

All unsecured debt is removed.

From the creditor's perspective, because a licensed insolvency practitioner is appointed to administer the company, it also ensures that the Administrator considers all creditors positions correctly.

Protection from creditors can allow the Administrator a reasonable time frame (usually an 8 week period) to negotiate a deal to achieve the objectives which may include selling the company thus protecting jobs and economic activity.

It is possible for the Administrator to appoint Directors or Managers to run the company. With our vast turnaround experience this is often preferable to the Administrator's staff. We are well versed in ensuring that the Administrator works with turnaround advisors such as us. This can ensure that we are involved in the management of the company to ensure professional and pragmatic management at a time when the company is under severe distress. We have wide experience in this field and are always happy to discuss this as a possible solution with clients.

Moneymeans Guide to the Types of Administration Procedure

Administration followed by CVA

The company is protected by court while the company and the Administrator put together a plan for the Company Voluntary Arrangement.

If there is a risk of a creditor winding the company up or of a landlord taking aggressive action then this is a powerful (but expensive) way of controlling them.

WE do not believe that Administration is necessary most of the time, going straight to a CVA cuts out costs (fees) and reduces market awareness of the troubles.

Administration followed by a "Better Result"

The company is protected by court while the Administrator runs the business for a while to see if anyone will buy it as a going concern.

Frankly, many administrations are glorified liquidations and the Administrator does NOT have to get the bank's permission to take fee as he/she has to in liquidation!

This can be a powerful tool though if the company has both poorly performing parts and good bits that can be sold to a new owner.

Administration "Pre-Pack"

As this name implies, in an Administration pre packaged sale the board or a third party (the "new company") agrees with the proposed Administrator to buy the assets/business of the insolvent company.

This is designed to reduce publicity and cut costs of a normal Administration.

When the plan is ready and a contract of purchase is drawn up, the company is quickly protected by the Court while the Administrator sells the business to the new owners.

This gets rid of debts, unwanted or onerous contracts and employees.

It's a very powerful, very quick technique (after the initial planning stages) and can be done over a weekend for example. But unsecured creditors usually see nothing in return and cannot understand how it is legal.

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