A company can be placed into administration in one of the following ways:
- By court order application by the company directors;
- By court order application by a majority of shareholders (50% or more);
- By court order application by one or more of the company’s creditors;
- Without a court order at the request of a majority of shareholders (50% or more), the directors (with shareholder approval) or any creditor who holds a qualifying floating charge.
What Happens in a Company Administration?
Below we’ll describe the stages of a company administration process,
(1) Directors Powers Cease
Once an administrator (a qualified insolvency practitioner) is appointed, the company is no longer managed by the company directors. Instead, complete control of the company and everything it owns is handed over to the administrator.
(2) Administrator Contacts Creditors
The administrator will write to all known creditors of the company (as recorded by the company) as soon as is reasonably practical to inform them formally of the appointment.
(3) IP collects Information and Reviews Company Position
At this point, the administrator (insolvency practitioner) must manage the company in the best interests of the company’s creditors as a whole. To do this, they will review the company’s position and collect information about the company before deciding on the best way forward.
The administration stops any legal action or process against a company from proceeding. This means that creditors can’t take action against a company in administration to recover outstanding amounts. This protection gives the administrator a reasonable time frame to negotiate a deal to achieve their objectives.
(4) Eight Weeks to Decide
The administrator initially has eight weeks to decide what to do with the company. The primary objective of the administrator is to rescue the company as a going concern; however, if that course of action is not in the best interests of creditors as a whole, they will either:
- Achieve a better result for the company’s creditors as a whole, than compared to if the company had not entered into Administration, or failing that;
- Sell company assets to pay to one or more secured or preferential creditors.
(5) Official Creditors Report
The administrator must send a report to all known creditors within eight weeks of their appointment. This report is known as the administrator’s proposals and will outline steps taken by the administrator to date, and the strategy going forward. The administrator must also call an initial creditors’ meeting within ten weeks of the date the company entered administration, giving creditors at least two weeks’ notice of the meeting.
How Long Can the Administration of a Company Last?
The administration process can only last for up to one year, although this can be extended by the consent of the creditors and the court. The administrator is also required to provide a written update of their progress to all known creditors every six months.
During this time the administrator has wide-ranging powers to achieve their goals. These exceed any of the powers held by the existing company directors, who are effectively powerless during this time. The administrator can even remove and replace directors as they see fit.
When Does it Come to an End?
An administration comes to an end in the following ways:
- The one-year time limit comes to an end (although this can be increased with the agreement of the company’s creditors or the court);
- The purpose of the administration has been achieved;
- The administrator’s ability to achieve the intended purpose is in doubt. In that case, the administration can be brought to an end by making an application to the court.
Once the Administration has ended
- The company can return to the control of the directors;
- The company can enter liquidation;
- If there are no funds left to pay the remaining unsecured creditors the company can be dissolved;
- The company can enter into a Company Voluntary Arrangement.