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Archive | ADMINISTRATION

Administration Order

Administration Order

Administration is an option where a company is of a reasonable size, have reasonably predictable cash flows and must be able to predict profitability. There must be an insolvent position or contingently insolvent position and the directors think that a hostile creditor will seriously affect the future trading possibilities.

Insolvency Practitioner

The administration process requires a licensed insolvency practitioner (IP) to act as the Administrator appointed by the court. The court appointed Administrator takes over the management of the company and takes responsibility for restructuring the company or business.

Administration proceedings are intended primarily to facilitate the rescue and rehabilitation of insolvent but potentially viable companies. An administrator’s objective is to consider and effect the reorganisation of a company in order to restore its profitability. The administrator can also make proposals for a better result for the creditors over that which might occur on immediate winding-up.

There are various parties that can apply for an administration order. These include directors of the company, creditors of the company, the justices’ chief executive of a magistrate’s court or the Financial Services Authority.

Upon appointment the Administrator will require one or more of the current or former directors or company officers to provide him with a statement of the company’s affairs. This is a form which details the company’s assets and liabilities, including those assets that are subject to any fixed or floating charges. A copy of the statement of the company’s affairs, or a summary of it, must also be attached to the administrator’s proposals. These proposals must be produced within eight weeks.

A copy of the proposals will also be filed with the registrar of companies for placing on the companies’ public file. Included with each creditor’s copy of the administrator’s proposals will be an invitation to the initial creditors’ meeting, at which the creditors vote on those proposals and whether to accept them.

The initial creditor’s meeting must be held within ten weeks of the date that the company entered administration and the creditors must be given at least two week’s notice of the meeting. The proposals can be accepted by a majority vote, modified and then accepted, or rejected. If the outcome is the latter, then the administrator is required to report that fact to the court and seek further directions from the court.

Once the proposals are accepted, the administrator then manages the company’s affairs, business and property in accordance with the proposals that have been agreed by the creditors. The administrator must send regular progress reports to the creditors, the court and the registrar of companies covering each six-month period from the date that the company entered administration until the administration ends, or until he ceases to act.

These reports will provide full details of the progress of the administration to date, including an account of what cash has been received and paid out and any other relevant information for the creditors.

The process can generally only last for up to one year, although this can be extended by the consent of the creditors or by the court.

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Moe Nawaz - Insolvency Auditor

WHAT IS ADMINISTRATIVE RECEIVERSHIP?

Administrative Receivership (“Receivership”) is a process under which the charge holder holds security by way of a Floating Charge, and appoints an IP known as an Administrative Receiver (“a Receiver”) to realise the assets which are subject to a Floating Charge. Typically this will be a bank who holds the Floating Charge by way of security over assets which due to their nature e.g. they are perishables cannot be properly made subject of a fixed charge.

The Receiver will actually take control of the company and sell the assets which are the subject of the Floating Charge and apportion those funds realised firstly to the discharge of the floating charge holders’ debt. If there are any funds left over these are first appropriated to the costs of the Receiver and then returned to the company. At the end of the Receivership, there are a number of routes which can be taken as follows:- (a) The company can be returned to the directors and shareholders; (b) The company can go into administration; (c) The company can be wound up; (d) The company can go into a CVA. In those circumstances a company is subsequently wound up, information concerning which please Click on this.

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Moe Nawaz - Insolvency Auditor

WHAT IS THE EFFECT OF AN ADMINISTRATION ORDER?

The effect of applying for an Administration Order is to freeze proceedings by creditors of the company. By way of example only, if a creditor of the company had commenced winding up proceedings against the company, then those proceedings cannot continue until the Administration Order has ceased to have effect or has been discharged.

Upon the making of an Administration Order and its approval by the creditors, all proceedings against the company cease. The Administration Order is made to the courts by an Insolvency Practitioner. There are exceptions to this rule however, and these are “self help methods” which are typically old common law remedies for certain types of creditors.

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Moe Nawaz - Insolvency Auditor

Insolvency Administrator

The Insolvency Administrator is an officer of the court and an agent of the company, and is not personally liable for any contracts he makes on behalf of the company. The Insolvency Administrator has the power to do anything necessary or expedient for the management of the affairs, business and property of the company that he has been appointed.

Under the 2002 Enterprise Act the insolvency administrator replaces the previous situation where insolvency administrative receivership was available as an alternative to administration, which has traditionally been a more rescue-oriented insolvency regime. This regime allowed the holder of a floating charge to appoint an administrative receiver to realise assets in his favour, and also to block an administration order sought by a borrower. This was felt to be too favourable to the floating charge holder at the expense of other creditors. Holders of a floating charge created prior to 15 September 2003 retain their right to appoint an administrative receiver, but all purported rights to do so created after that date will be construed as rights to appoint an insolvency administrator (subject to certain specific, rare exceptions).

A court order is issued that forbids any form of legal or insolvency action without the court’s permission. An application to the court for an insolvency administration order may be made by the company, the directors, a creditor or any combination of them. The Enterprise Act 2002 amended the Insolvency Act 1986 to provide an out-of-court process to appoint an insolvency administrator to the holder of a floating charge or the company or its directors. This is considerably cheaper and simpler than the previous system, which involved an application to court by the insolvency administrator.

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Moe Nawaz - Insolvency Auditor

Administrative Receivership

I remember James coming in to our London office for a meeting about a creditor who was threatening to appoint an administrative receiver unless James Company came up with £97,000 which was impossible as he explained. James was in the building and construction industry and had houses that were on sale but not selling. The £97,000 was owed to the bank and James was 3 months behind on his payments.

James wanted me to explain what an administrative receivership is and how it works. Let’s start with explaining what it is shall we, an administrative receivership is when an administrator is appointed normally by a creditor who has a fixed / floating charge over the assets of the company by way of a fixed / floating debenture registered at companies house over the assets of the same company.

Who is Administrator?

The Administrator is normally an Insolvency Practitioner who gets appointed as the Receiver by the creditor, this could be a finance house like the bank as in James case or other money lenders who in order to protect themselves have taken a registered charge over the company’s assets. The administrative receiver is appointed to liquidate whatever assets he or she sees fit to recoup the creditors funds and all costs associated with it, inc the administrators costs.

Time was not on James side as he was already 3 months behind on his repayment of the company loans, so we had to act quickly in order to save the company or find a solution to minimize his personal and business liabilities. After carefully examining the documents at companies house we found that James also had another business who had also lent money to this same company but James other company also had a debenture (a charge over the assets) the good point which we manage to pick up on was that James other company’s debenture was registered first before the banks charge.

Armed with this information we spoke with the bank’s lending and legal team and explained James other company could if needed to appoint an administrative receiver which would super seed the banks charge and this could leave the bank in the cold. To cut the story short the agreed to give James another 6 months to pay the loan off subject to the first property being sold.

So if you are being threatened by a creditor with an administrative receivership seek the advice of an experienced insolvency auditor like myself and seek his advice to provide you with other options to minimize your liabilities without going down the rout of administrative receivership.

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