The Administration Process
The process for Directors to place a company into Administration is affected by whether or not the company has a qualifying floating charge registered against it.
When a company has borrowed funds, the lender usually takes security by way of a debenture. That debenture normally contains fixed and floating charges. The position can be checked by undertaking a Companies House online search.
Any lender with a qualifying floating charge has to have notice of the Director’s intention to place the company into Administration. If dissatisfied with the position, it is able to take matters into its own hands.
The company is insolvent satisfying the cashflow and/or balance sheet tests
Where there are one or more qualifying floating charge holders (i.e. debentures at Companies House):
Directors Hold a Board Meeting to Resolve to Place the Company into Administration and Nominate their choice of Administrator
The Directors instruct an Insolvency Practitioner to advise whether or not this is the correct regime and assist with the necessary paperwork.
Director Swears and Files Notice of Intention and Serves the Floating Chargeholders
Following the Board Meeting a Director swears a Notice of Intention (NOI) before a solicitor. This shows the company’s intention to seek Administration and its choice of Administrator. The NOI is filed at court and the floating charge holder is served. Upon filing, an automatic moratorium arises. The company is not in Administration at this point.
If the floating chargeholders consent within 5 business days OR after 5 business days there are no objections
The Director Swears and Files a Notice of Appointment and the Company is placed into Administration
Once served, the floating chargeholder has several options. If it does nothing within 5 days of service, the company can progress to the next stage. Alternatively, it can consent to the proposed Administrators appointment and the company can progress to the next stage. A Director then swears and files an NOA in court. Upon doing so, the company is placed into Administration. The moratorium obtained at the NOI stage, remains in place.
Where there are no qualifying floating charge holders (i.e. no debentures at Companies House):
Directors Hold a Board Meeting to Resolve to Place the Company into Administration and Nominate their choice of Administrator
The Directors instruct an Insolvency Practitioner to advise whether or not this is the correct regime and assist with the necessary paperwork.
The Director Swears and Files a Notice of Appointment and the Company is placed into Administration
This NOA seeks to place the company into Administration and appoint the nominated choice of Administrator. Once sworn the NOA is filed in court. Upon filing the company is in Administration. An automatic moratorium freezes all creditor actions.
FAQs
Who can appoint an Administrator?
The Director(s) of a company (or the company acting through its shareholders), although a floating charge holder is able to take control of this decision. A floating charge holder can also take its own steps to place a company into Administration, if it is concerned about the recoverability of its security. A creditor may also start an Administration by going to court.
What is the position if the company has several Floating Charge Holders?
If several floating charge holders each want to appoint different Administrators, the floating charge creditor in the strongest position is the one whose security was created first. This may, however, alter if the charge holders have previously entered into a Deed of Priorities, which may override this principle.
What happens once a company is placed into Administration?
Management and control of the company passes to the Administrator, in furtherance of one of the objectives. The Administrator has various powers, including continuing to trade the company. Within eight weeks the Administrator is required to present his proposals for approval by the company’s creditors.
What other duties does an Administrator have?
The Administrator has a duty to investigate the company’s prior affairs in order to provide a report to the Insolvency Service detailing his findings. The Insolvency Service will then consider disqualification proceedings. He also has the power to seek recovery of assets from parties to certain transactions prior to Administration.
How does an Administration work alongside a CVA?
The moratorium can enable an Administrator to seek a CVA. Whilst the Proposal is drafted and necessary meetings convened, the Administrator will trade the company. If the CVA is approved, control of the company is handed back to its Director(s).
How does an Administration business sale work?
If a company rescue is not achievable, the Administrator will maximise the sale value of the company’s assets to achieve one of the two other objectives. This is best achieved by going concern sale. He will advertise the business and set a deadline for offers. There may only be a very small window of opportunity to do this.
Are the directors of a company in Administration able to buy the business back?
Yes. It will need to be demonstrated that the Directors were not afforded some unfair advantage over other interested parties and any offer received must be considered the best reasonably achievable by an independent valuation agent. Most businesses are built around the relationships between owners and customers, so the Directors will often be the only interested party.
What is a Pre-Pack?
This is a business and/or asset sale that is negotiated prior to Administration, which takes place shortly after it. There can be various reasons for a pre-pack sale to be considered. To avoid abuse there are additional rules and regulations covering pre-packs.
How long does an Administration last?
An Administration ends automatically after 12 months. It can be extended by creditors or by court application. There may be various reasons for extension, such as ongoing efforts to sell remaining assets or to collect remaining debts.
How does an Administration end and what happens when it does?
This will depend upon what was achieved. If the company were rescued, control of it will be returned to the Director(s). If there were significant recoveries to benefit unsecured creditors, the company will move into Liquidation to pay a dividend. If only enough recoveries were made to pay secured and/or preferential creditors and/or a dividend from a prescribed part to unsecured creditors, the Administrator will pay these and then terminate the Administration so that the company is later dissolved.
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