Administration

Overview of Administration

Administration is a formal insolvency procedure designed to rescue a company in financial distress or achieve a better outcome for creditors than would be possible through liquidation. It provides a breathing space for the company by imposing a moratorium, preventing creditors from taking legal action without court permission, allowing the company to restructure or seek a buyer.

The Administration Process

The Administration process involves several key steps, typically overseen by a licensed insolvency practitioner appointed as the administrator. Below is a simplified outline of the process:

Appointment of an Administrator: An administrator can be appointed by the court, the company, its directors, or a qualifying floating charge holder (e.g., a bank). The appointment must be made with the intent to achieve one of the statutory objectives. There are some specific groups of creditors entitled to receive advance Notice of Intent to Appoint an Administrator – they are usually the holders of particular types of charges, or maybe a particular governing body (for example, the FCA).
Moratorium: Upon appointment (or earlier if a Notice of Intent to Appoint Administrator is issued), a moratorium takes effect, halting legal actions (e.g., winding-up petitions or enforcement of security) against the company without court or administrator approval.
Administrator’s Proposals: Within eight weeks, the administrator must propose a plan to achieve one of the statutory objectives, which is presented to creditors for approval.
Implementation of Proposals: The administrator manages the company’s affairs, which may involve trading the business, restructuring, or selling assets to achieve the best outcome.
Outcome: The administration may result in the company’s rescue, a restructuring of debt via a Company Voluntary Arrangement, a sale of its business or assets, or, if rescue is not possible, liquidation or dissolution.

About the Administration Process

Administration aims to achieve one of three hierarchical objectives:

Rescuing the company as a going concern: The primary goal is to save the company by restructuring its operations or finances.
Achieving a better result for creditors: If rescue is not feasible, the administrator seeks to maximise returns for creditors compared to liquidation.
Realising property to make a distribution: As a last resort, the administrator may sell company assets to pay secured or preferential creditors.

The administrator, a licensed insolvency practitioner, takes control of the company, managing its affairs, assets, and operations during the process. The moratorium provides a critical shield, giving the administrator time to assess the company’s viability and explore options without creditor pressure.

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FAQs

What are the benefits of Administration?

Moratorium Protection: Prevents creditors from taking legal action, giving the company breathing space to restructure.
Business Continuity: Allows the company to continue trading, potentially preserving jobs and business value.
Better Returns for Creditors: Often achieves higher returns for creditors than immediate liquidation.
Flexibility: Enables restructuring, asset sales, or finding a buyer to rescue the business.
Creditors: Directors do not have to face creditors in person.

What are the disadvantages of Administration?

Cost: The process can be expensive due to administrator fees and legal costs.
Loss of Control: Directors lose control of the company to the administrator.
Reputation Impact: Entering administration may damage the company’s reputation and relationships with customers or suppliers.
Uncertainty: There’s no guarantee of rescuing the company, and it may still end in liquidation.

Who can appoint an administrator?

An administrator can be appointed by:

The court, following an application by the company, its directors, or creditors.
The company or its directors, by filing a notice of appointment.
A qualifying floating charge holder (e.g., a bank with a floating charge over the company’s assets).

What is a Pre-Pack Administration?

In certain circumstances, it may be better for the business to be marketed outside of an Administration procedure (there is usually some form of argument that value may be preserved, or it may not be possible to trade the business within an Administration environment). At which point, all the negotiations are undertaken, the deal struck with the buyer of the business and then the company enters Administration. Minutes after appointment, the deal is formally finalised, and the purchase is completed.

However, if a Pre-Pack sale is made to a connected party, the potential purchaser must pay for & obtain an independent report from an Evaluator who will review the proposed offer. If such a report is not obtained, the Administrator is prohibited from concluding the deal for a period of 8 weeks (which may damage any potential trading activity) unless creditor consent is obtained for the deal – and that is most likely to take about 2 weeks. So, an Evaluator’s Report is a good idea under such circumstances.