What is Administration?

COMPANY DEBT ANALYSER

What is Administration?

Company Administration was first introduced by the Insolvency Act 1986 as a procedure to protect a company from its creditors giving time for significant operational changes to be made thus leaving the business as a viable going concern.

An Administrator is appointed to manage a company’s affairs, business and property for the benefit of the creditors. The person appointed must be an insolvency practitioner and has the status of an officer of the court (whether or not he or she is appointed by the court).

If an Administration order is granted, this gives a company a vital breathing space whilst a business recovery or restructuring package can be formulated and implemented.

When would a Company Consider Administration?

Company Administration is designed to allow a business to continue to trade while a plan is formulated to achieve one of the following:

  • Rescue the company as a going concern after making operational changes.
  • Achieve a better price for the company’s assets or otherwise realise their value more favourably for the creditors as a whole than would be likely if the company were simply wound up without first being in administration.
  • Realise property in order to make a distribution to one or more secured or preferential creditors.

How does a Company enter Administration?

An Administration Order must be granted by the court. It can be applied for by a company’s creditors or the company’s director’s or shareholders.

A company enters administration when the appointment of an administrator takes effect.

What happens once an Administrator is Appointed?

When a company enters administration and an Administrator is appointed, the company is protected in the following ways:

  • Any pending winding-up petitions will be dismissed or suspended
  • There is a moratorium on insolvency and on other legal proceedings
  • If a Receiver has been appointed, he or she must vacate office
  • If a receiver of part of the company’s property has been appointed, he or she must vacate office (if the administrator requires this).

The administrator will work with the relevant people (normally the company Directors, Accountant or suitable employees) to understand the company’s affairs.

No later than 8 weeks after the company enters administration, the administrator must make a statement setting out proposals for achieving the purpose of the administration or explaining why they cannot be achieved. The proposals may include a voluntary arrangement or a compromise or arrangement with creditors or shareholders.

The statement setting out the proposals must be sent to the following:

  • The Registrar of Companies
  • Every creditor of the company with an invitation to an initial creditors’ meeting, if one is to be held
  • Every shareholder of the company, unless the administrator publishes a notice to the effect that he will provide a copy free of charge to any member of the company who applies in writing for a copy.

An initial Creditors Meeting will be held to approve (with or without modifications) the Administrator’s proposals. Following the initial meeting, the Administrator may hold further creditors meetings, form a creditors committee, or deal with matters in correspondence between the administrator and creditors.

The Administrator must notify any revisions to the proposals following the creditors’ meeting to members. Decisions taken at creditors’ meetings must be reported to the Register of Companies and to the court.

When does Administration End?

There are a number of ways in which administration can come to an end:

  • An administrator appointed by the holders of a floating charge or by the company or its directors may end administration when the purpose of administration has been sufficiently achieved.
  • Administration can end automatically when the administrator’s term of office expires. The appointment of an administrator expires after 1 year. However, this may be extended with the consent of creditors or the court.
  • An administrator appointed under a court order may apply to the court to end administration if he or she thinks that the purpose of the administration cannot be achieved or the company should not have entered administration. The court will discharge the administration order and the administrator must notify the Registrar.
  • Administration may end on the application of a creditor to the court alleging an improper motive on the part of the person who appointed the administrator or applied to the court for an administration order.
  • Administration may end when the company moves into creditors’ voluntary winding up. This can happen where the administrator thinks that each secured creditor is likely to be paid and a distribution will be made to unsecured creditors, if there are any. The administrator must notify the Registrar and send copies to the court and each creditor. The company will then be wound up as if a resolution for voluntary winding up had been passed on the day on which notice is registered with the Registrar.
  • Administration may end when the company moves into dissolution. This can happen if the administrator thinks that a company has no property with which to make a distribution to its creditors. The administrator must send notice to the Registrar and send copies to the court and each creditor. 3 months after the date the form is registered with the Registrar, the company will be dissolved unless, on application to the court, an order is made to extend or suspend the period or stop the dissolution.
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