Administration
Administration is a process available to insolvent companies in order to provide protection from its Creditors whilst a plan outlining how to restructure or sell its business and assets is formulated.
Protection from Creditors is particularly useful and necessary in a situation whereby a company is being proactively or aggressively pursued for payment of a debt from one or more of its Creditors. A common reason for a company to enter Administration is if Creditors are threatening or have issued a Winding up Petition or is otherwise being pursued aggressively through the Courts by Creditors.
What Is Administration?
- It’s a rescue procedure for businesses first introduced by the 1986 Insolvency Act although there have been significant improvements with the 2002 Enterprise Act.
- It was designed as a procedure to hold together a business whilst rescue plans are put together, often at a time when there is aggressive creditor pressure.
- A common reason to place a Company into Admin is when it has received a Winding Up Petition.
- To place a Company into Admin, the proposed Administrator must be of the opinion that at least one of the following 3 objectives are likely to be achieved:
- Rescue the company as a Going Concern.
- A better result for creditors than winding up.
- To realise property to distribute to secured or preferential creditors.
- A creditor with a Qualifying Floating Charge (QFC) can overrule the appointment of an Administrator chosen by the Directors of the Company.
- Once an Administrator is appointed the powers of the Directors cease.
- The Administrator must send out his Proposals for creditor approval detailing a plan of action.
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An Outlook
What Are The Advantages Of Admin?
- As soon as a Notice of Intention to Appoint an Administrator is filed in Court, creditors are precluded from taking any enforcement action.
- Entering into admin ceases all legal action against the Company, providing breathing space for the Administrator to implement measures to achieve one of the purposes listed above.
- By preventing the financial position worsening it reduces the risk of the Directors opening themselves up to a potential wrongful trading action.
- The business may continue trading and maintain its employees.
- There are various exit routes now available to the Administrator, liquidation, dissolution, CVA, returning the Company to the Directors.
- The Administrator can now distribute funds to the unsecured creditors, from the Prescribed Part, without Court approval.
The Downside
What Are The Disadvantages Of Admin?
- If trading continues it's an expensive procedure as the Administrator takes over the day to day running of the Company.
- The Directors relinquish the control of the Company.
- Any QFC may overrule the Directors choice of Insolvency Practitioner and appoint an Administrator from their “panel”.
- Continuing to trade whilst in Admin is challenging, particularly in terms of funding and obtaining credit from suppliers.
What You Need To Know
What’s A Pre Pack?
- This is where a sale of the business and assets is agreed in advance of the appointment of the Administrator.
- As soon as he is appointed, the Administrator concludes a sale of the business.
- Pre Packs may be useful, for example, when there is a requirement for the immediate continuity of the business and ongoing trading is not feasible.
- They can be utilised to preserve jobs with employee contracts being transferred to the purchaser.
- A Pre Pack may provide the prospect of enhanced realisations in light of the continuation of the business.
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