If your business is struggling and administration seems like a suitable route, our solicitors can provide advice and assistance with the process. Whether you are a company director, a creditor or an insolvency practitioner appointed as an administrator, we have the expertise to help you ensure the best possible outcome is achieved.
Where a company is insolvent and the directors believe that the potential of the company is about to be harmed by the actions of a hostile creditor - often an aggressive landlord or the Crown - thought should be given to going into administration. This protective mechanism is designed to shield the company from its creditors while a restructuring plan can be completed.
Is Administration Suitable for All Companies?
An administration is most appropriate for a reasonably sized company with generally predictable profitability and cashflow.
An insolvent company with few assets, limited prospects and poor cash flow is more likely to be a candidate for creditors’ voluntary liquidation.
The Purpose of Administration
A company is in administration when a licensed insolvency practitioner is appointed as administrator to manage the affairs of the company for the benefit of its creditors. The administrator’s main aims are to
- Attempt to rescue the company as a going concern
- Achieve a better outcome for creditors of the company than what would be achieved by liquidation
This might mean selling the whole or part of the business. If these aims are not possible, the administrator may realise the company’s assets and make a distribution to one or more secured or preferential creditors.
How an Administrator Rescues a Company
When a company enters into administration, Parliament’s preference is for a company’s business to continue as a going concern, saving as many jobs as possible. A Company Voluntary Arrangement (CVA) is one way for this to be achieved.
A CVA is a legally binding agreement with creditors, requiring in excess of 75% approval (in terms of total value of debt) from them to repay all or some of the company’s debts from future profits over an agreed time period. For more information on CVAs, take a look at our dedicated page.
Another solution an administrator may consider is to sell part or all of the business as a going concern. For an administrator to do this, they will need to extensively market the sale of the business to generate as much interest as possible. Any buyer is unlikely to have the opportunity to conduct extensive due diligence or receive the usual warranties and representations from the vendor, in this case, the administrator.
The ‘pre-pack’ administration route is another viable solution. This is where a buyer for the business is found before the company is placed in administration, which is increasingly becoming a more common resolution. It is a legitimate yet sometimes controversial method, as it permits the existing management team or another third party to purchase parts of the business it knows to be viable via a ‘newco’, effectively leaving behind existing liabilities in the ‘oldco’. This procedure is fairly strictly controlled because there is additional regulation for administrators.
Appointing an Administrator for a Company
The insolvency practitioner has the status of an officer of the court and may be appointed by one of the following:
- The company (i.e. its members/shareholders)
- The directors of the company
- The holder of a qualifying floating charge over the company’s assets
- The court
Appointing an administrator can happen relatively quickly if carried out by the company, its directors or someone holding qualifying floating charge holders, as a court order is often not required. In cases where a company is already in liquidation or has entered into a Creditors’ Voluntary Arrangement (CVA), a court order is required. In addition, a creditor of a company must apply to court when they seek the appointment of an administrator over that company.
Qualifying floating charge holders, such as the bank, must be given five days clear notice of the intention of the company or directors to appoint an administrator. The charge holder may then choose instead to appoint its own administrator.
Regardless of who appoints the administrator, it is the duty of those who appointed them to act in the interests of all creditors. The administrator must send notice of their appointment to each of the company’s creditors, the Registrar of Companies and the company itself. They must also publish notice in a newspaper local to the company’s place of business.
Any letter or business document sent out by or on behalf of the company or the administrator must show that the company is in administration, clearly state the name of the administrator and address the fact the affairs and business of the company are being managed by them. Reference to the appointment of an administrator must also be included on any website set up by the company.
Placing a Moratorium on a Company
When you have started the procedure to enter into administration, a moratorium is placed on any insolvency or any other legal proceedings against the company, and any pending winding-up petitions are suspended or dismissed.
If administrative receivers have already been appointed, they are required to vacate office - in essence, this means that no-one can “knock the company over” while it is in administration.
Supplying a Statement of Company’s Affairs
One or more of the company’s directors is required to provide the administrator with a statement of the company’s affairs. This is a prescribed form used to detail the company’s assets and liabilities.
Attending the Initial Creditors’ Meeting
Within eight weeks of appointing an administrator, a statement must be circulated to the company’s creditors setting out proposals for achieving the purpose of the administration along with an invitation to an initial creditors’ meeting.
Proposals may include a voluntary arrangement or a compromise or agreement with the company’s creditors or members. At the initial creditors’ meeting, the proposals will be voted upon and may be approved with or without modifications.
Administration of a company ends when one or more of the following occurs:
- The purpose of the administration has been sufficiently achieved
- The administrator thinks that the purpose of the administration cannot be achieved
- Administration has ran for 12 months or an extended period, sanctioned by the creditors or the court
- The company is moved into creditors’ voluntary liquidation
- The company moves to dissolution
Why Choose JMW?
We can provide tailored advice and assistance to company directors, creditors and insolvency practitioners on a wide range of issues relating to administration.
For directors, we can:
- advise whether administration is appropriate;
- help with selecting an insolvency practitioner;
- give guidance on the necessary steps prior to and during administration;
- provide advice on the possibility of a turnaround or sale of the entire business, or part of it.
For qualifying floating charge creditors who find they have received a letter informing them of the proposed appointment of an administrator, we can act quickly to assist with finding and appointing an alternative. For landlords, creditors with existing security or creditors with retention of title, we can provide advice and assistance with all relevant documentation.
Our team helps insolvency practitioners acting as administrators by:
- providing advice on all aspects of insolvency law;
- assisting with the legal aspects of CVAs, group reorganisations and restructurings, business and property sales and pre-packs;
- investigating prior transactions entered into by the company or its directors.