Administration

An administration is a powerful insolvency process whereby a company is placed under the control of licensed insolvency practitioners.

The appointment can be made quickly thus protecting the company against actions being taken by its creditors. Statute sets out the objectives of the Administrators as follows:

  1. Rescuing the company as a going concern
  2. Achieving a better result for the company’s creditors as whole than would be likely if the company were wound up
  3. Realising property in order to make a distribution to one or more secured or preferential creditors

How might a company be placed in administration?

One route involves a formal court hearing whilst the other involves filing prescribed documents at court.

An application for an administration order that is heard at a formal court hearing may be made by:

  • A creditor (or more than one creditor) of the company
  • The company’s directors
  • The company itself
  • A Liquidator
  • A Supervisor of a Company Voluntary Arrangement
  • Under other statutory legislation (not common)

The alternative procedure may be commenced by:

  • The company itself
  • The company’s directors
  • A “qualified floating charge holder” (often a bank or commercial lender) that meets relevant statutory requirements

What is a “pre-pack” administration?

We have seen increased media coverage and scrutiny surrounding this rescue option. Prior to the appointment of Administrators, a sale and purchase agreement for the company’s assets is drafted and agreed in principle with either a new company or a separate company altogether. This sale then “completes” shortly after the Administrators’ appointment when the “old company” is placed in administration. This often protects the business, including jobs.

What are the key impacts of an administration on creditors of the company?

To assist the Administrators in achieving their statutory objectives, there is an automatic full moratorium which means that a creditor cannot bring or pursue legal proceedings against the company or its assets. However, a creditor can seek the consent of the Administrator or the permission of the court to bring (or continue with) legal proceedings against the company. If the creditor is claiming monies owed to them, such consent is unlikely to be given.

In addition, an interim moratorium applies prior to the commencement of the administration. This will commence when an application is made to the court for an administration order. Similarly, an interim moratorium also commences from the time that a Notice of Intention to appoint Administrators is filed in court.

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