The Administration Process

Who can appoint an Administrator?

There are various ways in which an Administrator could be appointed:-

By Notice of Appointment

• At the request of the majority of shareholders;
• At the request of the majority of directors;
• At the request of any creditor who holds qualifying security (“a QFCH”).

By Court Order

• By court order, on application by the majority of shareholders
• By court order, on application by the majority of directors;
• By court order, on application by one (or more) of the company’s creditors.
• A creditor who holds the relevant security can overturn the appointment of an Administrator who was nominated by a company, or its directors via the out of court process.

In simple terms, this means that the secured creditor’s choice of Administrator takes precedent over the company’s, or the director’s choice.

How is the appointment made?

By Notice of Appointment

The procedure to appoint an Administrator, without obtaining a Court Order, is fairly straightforward.

The applicant will nominate their choice of Insolvency Practitioner (“IP”) to act as Administrator to the company, and must provide evidence that the IP consents to act as the Administrator.

The applicant then completes and files Notice of Appointment at court, which becomes effective from the date (and time) on which it is filed. In practice the nominated IP will assist with the preparation of this necessary paperwork on behalf of the applicant.

In certain circumstances the applicant must give notice of their intention to appoint an Administrator to the company. If the applicant is the company or its directors, at least five business days’ written notice must be given to any person (usually a QFCH) who has the right to appoint an Administrative Receiver or an Administrator to the company themselves.

If the application is being made by a QFCH, at least 2 business days’ written notice must be given to any person with prior security.

Please refer to our FAQS for more information about this process.

By Court Order

The procedure to appoint an Administrator by Court Order is a little more detailed. Similarly, the applicant must nominate their choice of Insolvency Practitioner (“IP”) to act as the Administrator to the company, and obtain confirmation that the IP consents to act as Administrator.

In addition, the applicant must make an application to court for an Administration Order. This must contained detailed information and also requires submission of the following:-

• A statement by the proposed administrator that he (or she) consents to act and considers that the purpose of the Administration is reasonably likely to be achieved. 
• A statement that for the reason set out within the witness statement that the company is, or is likely to become, unable to pay its debts.
• A witness statement in support of the application.

The Court will then endorse the application with the date and time of filing, and the date fixed to hear the application. The endorsed application will then be served on a number of parties, and at least five business days’ written notice must be given to any QFCH.

If the Court grants the application at the hearing the costs incurred by the applicant must be paid as an expense of the Administration. The Administrator Order will become effective from the date (and time) on which it is made.

Please refer to our FAQS for more information about this process.

What is the effect of Administration?

Once the company has entered into Administration the powers of the director(s) will cease, except for those which are specifically authorised by the Administrator. The Administrator will become the sole officer of the company and acts as an agent of the court, without any personal liability.

A moratorium will be automatically established when an Administrator is appointed, and last until the Administration is concluded. A ‘moratorium’ is essentially a protective period during which no action can be taken against the company and as a result:-

• Any winding up petition would be dismissed
• Any receiver appointed to the company would be dismissed

In addition:-

• No step may be taken to enforce security over the company’s property;
• No step may be taken to repossess goods subject to hire purchase agreement;
• No landlord may exercise a right of forfeiture by peaceable re-entry;
• No legal process may be commenced or continued against the company or its property;

except with the consent of the Administrator or the consent of the Court.

Where the applicant is required to give prior notice of their intention to appoint an Administrator, the company will benefit from an ‘interim moratorium’, starting with the date on which that notice is filed, until the company subsequently enters into Administration.

The interim moratorium has the same effect, and means that the company’s position is protected.

What will happen next?

Notice of Appointment

Following his (or her) appointment, the Administrator must give notice to the company, the creditors, and also arrange for notice of the appointment to be published. From the outset all communication in the name of the company and its website must state that the company is “in Administration” and managed by the Administrator.

In addition, the Administrator must notify Companies House within 7 days.

Statement of Affairs

The Administrator will require one (or more) ‘relevant persons’ to provide a statement of affairs of the company. For this purpose a relevant purpose will usually be a Director of the company, but could be any other officer of the company, any person involved in the formation of the company or employed by the company within the previous 12 months.

In practice the Administrator will assist with the preparation of the Statement of Affairs, which must be reviewed and verified by a Statement of Truth from the relevant person(s).

Proposals

The Administrator, with the co-operation of the Directors of the company, must prepare proposals as to how the purpose of the Administration is likely to be achieved. The Administrator must perform his role with the objective of

• Rescuing the company as a going concern;
• Achieving a better result for creditors as a whole than if the company were to be wound up;
• Realising property in order to distribute to one or more secured or preferential creditors.

These proposals must be prepared as soon as reasonably possible and presented to the company’s creditors for consideration. At the very latest, these proposals must be presented to the company’s creditors by no later than 8 weeks beginning with the day on which the company entered into Administration.

Within 10 weeks of appointment, the Administrator is obliged to seek a decision from the company’s creditors as to whether they approved the proposals.

The Administrator will not be required to seek a decision from the company’s creditors if the company has sufficient property to enable each creditor of the company to be paid in full, or alternatively where there is no prospect of a return to the company’s unsecured creditors.

Progress of the Administration

The Administrator has a general duty to take custody (or control) of all of the company’s property, and has the power to do anything necessary in relation to the management of the company’s affairs.

The Administrator will submit a detailed progress report to creditors every six months. This report will outline what action the Administrator has taken, and provide an update as to whether the purpose of the Administration has been, or will be achieved.

As with other formal insolvency procedures, the Administrator has a responsibility to investigate the conduct of any person who acted as a Director of the company at any time within the 3 years prior to the start of the Administration. The Administrator’s findings must be submitted online via the Director Conduct Reporting Service, and will not be made available for review.

Generally, the Administrator should be transparent in his (or her) dealings, and consistently act within the parameters of the Insolvency Code of Ethics.

How does the Administration come to an end?

An Administration will reach automatic conclusion one year after its commencement. The duration of the Administration may be extended by a maximum of six months, by obtaining the consent of the company’s creditors, or alternatively by a longer period with the consent of court.

The proposals (mentioned above) will outline how the company will exit Administration.

• If the purpose of the Administration has been successfully achieved, the Administrator can conclude the Administration by either;
  • If appointed by court order, applying for another court order for the Administration to end.
• If appointed by giving Notice of Appointment, the Administrator can simply conclude the Administration without further approval.
  • If the purpose of the Administration has not been achieved, or is in doubt, the Administration will end by making an application to court, irrespective of how the original appointment was made.

Once an Administration is brought to a conclusion, there are several options available. These depend entirely on what the purpose of the Administration is:-

• Successful Rescue of the Business – the company can return to the control of its management team and directors.
• Company Voluntary Arrangement – the company will return to the control of the directors, subject to the terms of a voluntary arrangement, and under the Supervision of an Insolvency Practitioner.
• Creditors’ Voluntary Liquidation or Compulsory Liquidation – the company will enter into liquidation, to realise any remaining assets and distribute funds to creditors.
• Dissolution – the company can simply be dissolved if there are no funds available to pay back any remaining unsecured creditors, and no other to be dealt with.

Careful consideration must be given to all options available to a financially distressed business. For more advice, fill out our Contact Form and we will be in touch.