Administration & Pre Packs
Administration Orders were introduced by the Insolvency Act 1986 as a means for the protection of companies from creditor action while a restructuring is carried out. The original Administration procedure was significantly changed after the introduction of the Enterprise Act 2002, the main effect of which was to streamline the process and thus assist companies in financial difficulty.
An application for an Administration Orders is lodged with the court and application can be made by the company, its Directors or one of the creditors.
This technique can be very powerful where the company has a very aggressive creditor or creditors and needs to protect itself from them whilst a rescue plan can be worked out. A company in administration may continue to trade (under the control of an Administrator) whilst a strategy is devised to accomplish one of three statutory aims:
- The rescue of the company as a going concern. This may be achieved by the sale of the company or, in many cases, by a proposal for a Company Voluntary Arrangement
- To achieve a better result for the company’s creditors as a whole than would likely be achieved if the company were wound up without first being in Administration. Simply stated, this means trying to sell the business for more than a liquidation would raise
- The realisation of assets for the benefit of one or more secured or preferential creditors
What is an Administration Order?
Simply stated, this is a company protection order from the courts.
How long does it take to get in place?
Depending on the creditor position, an Administration Order may be granted within hours. However, the law still requires that any finance provider (like a bank or lender), with the appropriate security, be contacted and the aims of the administration discussed. The finance provider must have a fixed and floating charge (usually under a debenture) and the charge holder will need to give permission for the process to go ahead. Five days clear notice is required.
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 will be 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.
What is the effect of the Administration Order?
No creditor can take any action against the company without the permission of the court.
What will it cost?
The initial costs are not usually prohibitive; however, it is essential that sufficient funds are either available or capable of being generated to fund continued trading. A specific estimate will be given prior to commencement.
How long does an Administration Order last?
An Order is usually granted for 12 months, although the Administration process is normally concluded sooner. In exceptional circumstances, the Order may be extended to 15 months.
Who runs the company?
The Administrator. He/She must be a licensed insolvency practitioner.
Can a Director still be involved?
Company Directors can appoint an Administrator. In that situation, the company will continue to be run by the Director(s), but this will be under the Administrator’s supervision.
Can a Director/shareholder buy assets back from the administrator?
Yes, but this transaction must be at a fair value. In some circumstances, a deal for the sale of the company’s assets is put in place prior to the passing of the Administration Order, but only when the Administration Order is filed is the contract signed off between the buyer and the Administrator.
Who else can appoint an Administrator?
Creditors, shareholders or a secured creditor can appoint as well as the Directors.
What happens to personal guarantees?
Every circumstance is different, but any plan submitted to lenders should take this into account, the aim being to minimise personal exposure within current legislation.
What happens at the end of the administration order?
The company could be:
- Enter a Company Voluntary Arrangement and so continue trading
- Sell its assets for the benefit of creditors and then enter into Liquidation
- Be struck off
Administration is a very powerful tool for companies in distress. However, do not appoint an Administrator before calling us on 01772 641146 to discuss questions you may have. Once appointed, it’s too late to change your mind.