Administration
An administration order will ‘ring-fence’ a company from potential legal proceedings, including the threat of winding up proceedings. Administration is an effective rescue tool and can be applied for when there is a prospect of rescuing a company as a going concern as a primary objective.
If this is not possible, then the secondary objective is;
- To achieve a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration)
If this is not possible the third objective is;
- To realise property in order to make a distribution to one or more secured or preferential creditors.
An Administrator may be appointed by the Court on the application of;
- Any creditor,
- The Company’s liquidator
- The Supervisor of a company voluntary arrangement, or
- The company itself, its members or directors.
In certain circumstances, an Administrator may also be appointed out of Court by;
- The holder of a qualifying floating charge holder (usually a bank)
- The company or its directors
In the event that an Administrator is able to pursue the primary objective of rescuing a company as a going concern, then the most likely exit route will be through the company voluntary arrangement procedure (‘CVA’). The principal advantage is that the existing entity will survive and the control of the company will be handed back to the existing management once the CVA proposal has been approved by the company’s creditors and shareholders. Control will be handed back to the directors once the Administrator has discharged all liabilities incurred when trading under the Administrator’s supervision.
If the primary objective is considered by the Administrator to be unachievable, then the second objective of achieving a better result for creditors will usually apply, and the Administrator will look to sell the business, its assets and undertakings for the highest price available under the circumstances.
On occasion this may be to the existing management after a marketing campaign has been undertaken in conjunction with independent selling agents.
It is common for a pre-packaged sale (‘pre-pack’) to take place using the Administration process. In essence a pre-pack sale is where negotiations for the sale of the company’s assets and business prior to the appointment of an Administrator are concluded immediately prior to the Administrator’s appointment. However, such sales are to be undertaken with full transparency, particularly where the assets and business are sold to the existing management. Under the terms of Statement of Insolvency Practice 16 issued by the insolvency profession’s regulatory bodies, the Administrator is obliged to provide creditors with comprehensive details of the decision making process and full justification of using the pre-pack process.