What Is Administration?
Administration is a formal process available to a company that is insolvent, or is likely to become insolvent, which places the company under the control of an Insolvency Practitioner and the protection of the court. It is a process that is often used to protect the company from pressing creditors while the company is restructured, usually by putting forward proposals for a Company Voluntary Arrangement or by disposing of either part or the whole of the company’s business.
When appointed, an Administrator must perform his duties with the objective of either:
- rescuing the company as a going concern, or
- achieving a better result for the creditors as a whole than would be likely if the company were wound up without first being in administration, or if the administrator thinks neither of these objectives is reasonably practicable
- realising property in order to make a distribution to secured or preferential creditors.
This means that if the company can not be rescued as a going concern, such as by implementing a Company Voluntary Arrangement, the Administrator must try and achieve a better result for creditors by, for example, selling the whole or part of the business or by disposing of assets in an orderly fashion.
The Courts Involvement
Administration is a Court process and while a company is in administration creditors are prevented from taking any action against it except with the permission of the Court. In recent years the process of obtaining an Administration Order has been simplified so as to encourage the use of Administration as the preferred vehicle for company and business rescue within formal insolvency.
An Administrator may be appointed either with or without a Court Order.
Without A Court Order
The company’s directors, the company itself acting by resolution of its shareholders or a secured creditor holding a qualifying security (usually a bank) may directly appoint an Administrator by filing a formal notice of appointment in Court. This is the extent of the Courts involvement although once in Administration the company has the full protection of the Court. This procedure allows the company to be placed into Administration in a matter of days or if necessary a matter of hours.
With A Court Order
The company’s directors, the company itself acting by resolution of its shareholders or an unsecured creditor may apply to Court for an Administration Order. This process will be much slower than if an Order is made out of Court and will be more expensive. If a creditor is applying for an Administration Order and the company defends the application, a lengthy Court hearing could take place.
It should be noted that a secured creditor who is qualified to make an appointment may intervene where an application for an Administration Order is made without a Court Order and so ensure that their choice of Administrator prevails.
An Administrator's powers are very broad and include powers to carry on the company's business and realise its assets. The Administrator displaces the company's board of directors from its management function and has the power to remove or appoint directors. The Administrator must prepare proposals for approval by the creditors setting out how he intends to achieve the purpose of Administration.
There is a one year time limit within which the Administration must be concluded, but this period can be extended with the agreement of the creditors or the permission of the Court if more time is needed to achieve the purpose of Administration. The Administration may also come to an end if the Administrator thinks the purpose of Administration has been achieved or cannot be achieved.
On conclusion of an Administration the company will either:-
- be returned to the control of its directors and management
- be placed into Liquidation
- be dissolved (if there are no funds for distribution to unsecured creditors)