Administration
The administration process is often confused with administrative receivership and to an external party they may appear very similar. However there are some significant differences between the two processes.
Administration is overseen by the court and Administrators are officers of the court. However, the court has very limited involvement in the process.
Administrators are typically appointed by the directors of a company or by its funders (known as Qualifying Floating Chargeholders). Some other parties can apply for the appointment of an administrator but this is rare.
The administration process is aimed at preserving businesses and an administrator is appointed to achieve the objective of the administration. The objectives are:
Rescuing the company as a going concern, or if that is not possible;
Achieving a better result for the company's creditors as a whole than would be likely if the company were wound up, or if that is not possible;
Realising property in order to make a distribution to one or more secured or preferential creditors.
The main advantage of Administration is the protection it provides the company against its creditors. A moratorium prevents any action being taken against the company without the agreement of the administrator or the court. This includes court action and repossession of goods (e.g. subject to Hire purchase or reservation of title).
Administrators have a duty to consider the interests of all creditors. This contrasts with administrative receivership where the receiver's duty is to the appointor (usually the bank) and the primary aim is to recover their money.
Administration may be the appropriate process if:
Following restructuring, there should be a viable business;
There is creditor pressure that is preventing the business from trading;
The value of the assets would be significantly reduced if the business was to be closed and placed into liquidation;
There is time pressure (an administrator can be appointed very quickly);
The Administration process
The administration process may commence before an administration order is made. A notice of intention to appoint an administrator may sometimes have to be filed and certain parties notified before an order can be made. The moratorium commences when the notice is filed in court.
Documents are then filed in court and an administration order is made. If there is an outstanding winding up petition and under some other circumstances it may be necessary for the court to hear the application and determine if an order should be made.
Once made, the administrator takes control of the company. They will usually go to the company and speak to the employees and explain the situation. An information gathering exercise is then undertaken to identify the creditors, customers and key employees to determine what the strategy of administration.
Creditors will usually be informed of the appointment shortly afterwards.
The administrator may then allow the company to continue to trade, seek a sale of the business, and/or close the business.
As soon as is reasonably practicable the administrator should convene a meeting of creditors to consider their proposals for dealing with the administration. The administrators have the power to sell the assets and business before this meeting. If there will not be a distribution to unsecured, non-preferential creditors such as suppliers and landlords then no meeting may be held. The administrator may also hold the meeting by correspondence. At this meeting the administrators will normally seek approval for their fees and creditors will be given the opportunity to form a creditors' committee of between 3 and 5 persons.
If the proposals are not agreed by creditors then the administrator must apply to court for directions.
Following the approval of the proposals the administrator will continue to manage the affairs of the company and prepare their report on the conduct of the directors.
The administrator will circulate 6 monthly reports to creditors on the progress of the administration.
At an appropriate time the company will, depending upon the circumstances either be placed into liquidation, dissolution or handed back to the shareholders. In the absence of any action to do the above or extend the administration, it will automatically end after 12 months from the date of appointment.
If there is to be a distribution to non-preferential creditors this is usually achieved through placing the company into liquidation or CVA.
