Administration is an alternative to liquidation so that where possible the company, or its business, can be rescued. Most commonly an administrator will be appointed either by the Company (via its shareholders or Directors) or a floating charge holder.
The administration must achieve one of three purposes:
1. Rescue the company as a going concern;
2. Achieve a better result for creditors than a liquidation; or
3. Realise property to make a return to secured or preferential creditors.
The advantage of this process is that the company will be protected from its creditors taking legal action whilst an attempt to rescue or sell the company is undertaken.
The appointment of an administrator (who must be a licensed insolvency practitioner) may either be done out of court or by way of a Court Order, dependent on certain preconditions. Assuming the appointment can be done out of Court, a notice of intention to appoint an administrator is prepared and sent to any floating charge holders. Once the notice period has expired or if the charge holder has consented, a notice of appointment is filed in court. The administrator will write to your creditors and Companies House to say they’ve been appointed.
Thereafter, the administrator has 8 weeks to draw up proposals explaining what they plan to do. This proposal must be to achieve one of the three administration criteria detailed above.
It is up to the creditors whether to agree to the administrator’s proposals. The proposals will also contain a statement of affairs detailing all of the company’s assets and liabilities. For as long as the company is in administration the administrator will take control and run the business.
When administration ends
The company’s administration will end when either:
- the administrator decides the purpose of administration has been achieved; or
- the administrator’s contract ends – this happens automatically after a year, but it can be extended by agreement with the creditors or Court order.
The administrator’s proposals will have detailed an exit strategy for the administration which could
1. Handing the Company back to the Directors;
2. Placing the company into liquidation;
3. Dissolving the Company; or
4. Entering into a CVA.