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Administrations

Purpose

Administration is a process that protects a company against creditor actions and is usually aimed at rescuing insolvent businesses, enabling them to put in place a restructuring plan.

This is done by way of a moratorium, a court-based freeze on creditors’ actions, which provides breathing space for the company to look for a way forward.

When a company goes into Administration, the business and process is managed by an insolvency practitioner (the administrator). The administrator’s primary goal is to rescue the company and restore it to profitability, which would be the best outcome also for creditors.

 

 

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Objectives

Any Administration must fall within one of three stated statutory objectives.

These objectives have a hierarchy. So, if the first cannot be achieved then the administrator must look to the second or, if not that, then the third.

The hierarchy of objectives are:

  • the rescue of the company as a going concern (e.g. via a CVA); or
  • achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up/liquidated; or
  • realising property to make a distribution to one or more secured or preferential creditors.

 

Process

The process for Directors to place a company into Administration is shown in our flowchart. The process is affected by whether or not the company has a qualifying floating charge registered against it.

When a company has borrowed funds, the lender usually takes security by way of a debenture. That debenture normally contains fixed and floating charges. The position can be checked by undertaking a Companies House online search.

Any lender with a qualifying floating charge has to have notice of the Director’s intention to place the company into Administration. If dissatisfied with the position, it is able to take matters into its own hands.


Click, tap or hover on the chart to explain the process in more detail:

COMPANY INSOLVENT CASHFLOW AND / OR BALANCE SHEET


DIRECTORS HOLD BOARD MEETING TO RESOLVE TO PLACE COMPANY INTO ADMINISTRATION AND NOMINATE THEIR CHOICE OF ADMINISTRATOR(S)

The Director(s) instruct(s) an Insolvency Practitioner to advise whether or not this is the correct regime and assist with the necessary paperwork. The Director(s) hold a Board Meeting to resolve to place the company into Administration and nominate their choice of Administrator(s).

No floating chargeholder

Is a floating chargeholder


DIRECTOR SWEARS AND FILES NOTICE OF APPOINTMENT AND COMPANY IN ADMINISTRATION

A Director swears a Notice of Appointment (NOA) before a solicitor. This NOA seeks to place the company into Administration and appoint the nominated choice of Administrator(s). Once sworn the NOA is filed at court. Upon filing the company is in Administration. An automatic moratorium freezes all creditor actions.


DIRECTOR SWEARS AND FILES NOTICE OF INTENTION AND SERVES FLOATING CHARGEHOLDER(S)

Following the Board Meeting a Director swears a Notice of Intention (NOI) before as solicitor. This shows the company’s intention to seek Administration and its choice of Administrator(s). The NOI is filed at court and the floating charge holder is served. Upon filing, an automatic moratorium arises. The company is not in Administration at this point.

Floating chargeholder(s) objects within 5 business days

Floating chargeholder(s) consent to proposed Administrator(s) appontment within 5 business days OR 5 business days lapse without an objection form floating chargeholder(s)


FLOATING CHARGEHOLDER APPOINTS OWN CHOICE OF ADMINISTRATORS

If the floating charge holder is against the Director’s proposed choice of Administrator, it may appoint its own Administrator within five business days. It does so by filing its own NOA. This immediately places the company into Administration, with the lender’s own choice of Administrator. The moratorium obtained at the NOI stage, remains in place.


DIRECTOR SWEARS AND FILES NOTICE OF APPOINTMENT AND COMPANY IN ADMINISTRATION

Once served, the floating charge holder has several options. If it does nothing within 5 days of service, the company can progress to the next stage. Alternatively, it can consent to the proposed Administrator(s) appointment and the company can progress to the next stage. A Director then swears and files in court an NOA. Upon doing so, the company is placed into Administration. The moratorium obtained at the NOI stage, remains in place.

FAQs

Who can appoint an Administrator?

The Director(s) of a company (or the company acting through its shareholders), although a floating charge holder is able to take control of this decision. A floating charge holder can also take its own steps to place a company into Administration, if it is concerned about the recoverability of its security. A creditor may also start an Administration by going to court.

What is the position if the company has several Floating Charge Holders?

If several floating charge holders each want to appoint different Administrators, the floating charge creditor in the strongest position is the one whose security was created first. This may, however, alter if the charge holders have previously entered into a Deed of Priorities, which may override this principle.

What happens once a company is placed into Administration?

Management and control of the company passes to the Administrator, in furtherance of one of the objectives. The Administrator has various powers, including continuing to trade the company. Within eight weeks the Administrator is required to present his proposals for approval by the company’s creditors.

 

What other duties does an Administrator have?

The Administrator has a duty to investigate the company’s prior affairs in order to provide a report to the Insolvency Service detailing his findings. The Insolvency Service will then consider disqualification proceedings. He also has the power to seek recovery of assets from parties to certain transactions prior to Administration.

How does an Administration work alongside a CVA?

The moratorium can enable an Administrator to seek a CVA. Whilst the Proposal is drafted and necessary meetings convened, the Administrator will trade the company. If the CVA is approved, control of the company is handed back to its Director(s).

How does an Administration business sale work?

If a company rescue is not achievable, the Administrator will maximise the sale value of the company’s assets to achieve one of the two other objectives. This is best achieved by going concern sale. He will advertise the business and set a deadline for offers. There may only be a very small window of opportunity to do this.

Are the directors of a company in Administration able to buy the business back?

Yes. It will need to be demonstrated that the Directors were not afforded some unfair advantage over other interested parties and any offer received must be considered the best reasonably achievable by an independent valuation agent. Most businesses are built around the relationships between owners and customers, so the Directors will often be the only interested party.

What is a Pre-Pack?

This is a business and/or asset sale that is negotiated prior to Administration, which takes place shortly after it. There can be various reasons for a pre-pack sale to be considered. To avoid abuse there are additional rules and regulations covering pre-packs.

How long does an Administration last?

An Administration ends automatically after 12 months. It can be extended by creditors or by court application. There may be various reasons for extension, such as ongoing efforts to sell remaining assets or to collect remaining debts.

How does an Administration end and what happens when it does?

This will depend upon what was achieved. If the company were rescued, control of it will be returned to the Director(s). If there were significant recoveries to benefit unsecured creditors, the company will move into Liquidation to pay a dividend. If only enough recoveries were made to pay secured and/or preferential creditors and/or a dividend from a prescribed part to unsecured creditors, the Administrator will pay these and then terminate the Administration so that the company is later dissolved.

Benefits of using us

SFP is an Award winning Insolvency company that provides expert assistance in Turnaround and Restructuring services.

Choosing the right practitioner from the start will have major implications on any case and here at SFP we will take the time and effort to look into your business accordingly.

Having worked with a large number of clients over the last 18 years, we pride ourselves on being a trusted partner to UK businesses who are looking to survive in what is becoming an ever-increasingly challenging business economy.

Get in touch with one of our experts and they will:

  • Listen to you in confidence about the challenges you currently face
  • Analyse your business finances to realise your current scenario
  • Help you understand available restructuring options
  • Recommend, define and agree the way forward
  • Support you through all processes as a result of your taken actions

Call us on 0203 5877700 or fill out the form and talk to us today.

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What our clients say

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"SFP Restructuring were appointed administrators to my company and I worked with David Kemp and his team during the course of the administration over about a month. SFP responded immediately to the initial requirement to appoint administrators and carried out the assignment quickly and professionally. They worked as a team with property and valuation specialists as well as with relevant management team members to seek the best outcome for the company, the staff and the creditors, while remaining focused on implementing a timely solution. I would be happy to use them again."

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