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.
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.