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Administration

Administration Orders

A legal process that aims to help a company in financial difficulty restructure and, where possible, recover.

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The process is governed by the Insolvency Act 1986, and it is typically used as an alternative to liquidation (the process of shutting down a company and distributing its assets to creditors).

When a company enters Administration, an administrator is appointed to take control of the company’s affairs, and the primary goal of the process is to try to rescue the company as a going concern. The administrator has broad powers to make decisions about the company’s assets and liabilities, and to take whatever action they consider necessary to achieve this goal. This can include renegotiating contracts with suppliers, selling off assets, or cutting costs.

One of the key advantages of Administration is that it provides a company with a period of “breathing space” during which it is generally protected from legal action by its creditors. This can give the company time to restructure its affairs, or to negotiate a formal arrangement with its creditors to pay off its debts over time.

An Administration Order can also be used as a way to implement a pre-packaged sale of a business, with the aim of transferring the most important parts of the business and its assets to a new entity or buyer in an orderly way.

Administration is not an easy or inexpensive process, and not all companies can be saved through it. In some cases, the company may still have to be liquidated if there’s no way to save it.

What is the process for getting a company into Administration?

  1. The directors, the company or a qualifying floating charge holder can appoint an administrator. This is often done by filing notices at court, and in some cases by applying to the court for an Administration Order. The company must be, or be likely to become, unable to pay its debts.
  2. Where a court application is made, the court will consider whether Administration is reasonably likely to achieve its purpose and whether it is in the interests of the company’s creditors.
  3. Once the appointment is made, an administrator is put in place to take control of the company’s affairs. The administrator must be a licensed insolvency practitioner.
  4. Once the company is in Administration, the administrator has a number of specific duties, including: to take control of the company’s property; to carry on the company’s business with a view to rescuing it as a going concern; to keep the company’s creditors informed about the progress of the Administration; and to act in the best interests of the company’s creditors as a whole.
  5. The administrator is also required to provide a detailed report to stakeholders within 8 weeks of their appointment, setting out their proposals for achieving the purpose of the Administration.
  6. The administrator will work to maximise the value of the company’s assets and try to reach a compromise or arrangement with the creditors, such as a company voluntary arrangement (CVA) or the sale of the business.

What are the advantages of an Administration Order?

An Administration Order can be a useful tool for a company director to help rescue a company (or the business that the company carries on) that is experiencing financial difficulties. Here are some of the key advantages.

When a company enters Administration, a statutory moratorium generally prevents creditors from taking legal action without the administrator’s consent or the court’s permission. This can give the company time to restructure its affairs, or to negotiate a formal arrangement with its creditors to pay off its debts over time.

Breathing space

An Administration Order provides a company with a period of “breathing space” during which it can focus on trying to rescue the business, without the pressure of ongoing legal action and the threat of winding up.

Control

The administrator is appointed by the court and takes control of the company’s affairs. With the administrator’s permission, this can free the directors from daily management responsibilities, letting the management team focus on ongoing operations and giving them the flexibility to make the changes needed to improve the company’s financial position.

Expertise

The administrator, being a licensed insolvency practitioner, has the necessary expertise and experience to deal with the complex legal and financial issues involved in the Administration process.

Creditor protection

The administrator has the power to negotiate with the creditors, and the creditor protection can help the company reach a compromise or arrangement to pay the creditors (if funds allow).

Pre-pack administration

It can also be used as a way to implement a pre-packaged sale of a business, with the aim of transferring the most important parts of the business and its assets to a new entity or buyer in an orderly way.

The company’s interest

The administrator is required to act in the best interests of the company’s creditors as a whole, while keeping them informed of the progress of the Administration.

It starts with one conversation.

The first chat is free and confidential, with no obligation. Half an hour with a licensed insolvency practitioner costs you nothing, and getting advice early usually means more options are open to you.

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