Administration Order

Introduction Company Voluntary Arrangement Administration Order Members Voluntary Liquidation S425 Scheme of Arrangement Informal Agreement Print option

What is it?
Who can benefit from it?
The Procedure in Brief
Key Components for a Successful Administration Order
Advantages of an Administration Order
Disadvantages of an Administration Order

What Is It?

A court driven interim procedure designed to protect a company from its creditors, whilst attempts can be made to secure the survival of a whole or part of the company via a sale or through the formulation and implementation of a restructuring plan. Alternatively the procedure may be utilised as a means of arranging the orderly wind up of the affairs of the company allowing completion of contracts and work in progress thus enhancing realisation of the assets and consequently improving dividend prospects to creditors.

Who Can Benefit From It?

Companies requiring protection from creditors to provide breathing space to enable either a sale of the business or a restructuring plan to be implemented thus securing its survival, to enable an orderly wind down of contracts and working in progress to enhance the realisations of the assets thus improving the dividend prospects to creditors.

Due to the high cost of this procedure, historically it has generally been utilised by larger companies. However at BRA we have negotiated a preferential rate with a number of leading insolvency solicitors making this procedure available as an option to small and medium sized businesses.

The Procedure In Brief

A petition for and Administration Order may be presented by the company, the directors or by a creditor(s). In practice most are presented by the directors of the company.

If following the outcome of our free business review and consultation process our recommendation is for appointment of an Administrator, the directors instruct BRA to prepare an independent persons report (“Rule 2.2 report”). This report includes detailed information on the company both from a financial and organisational nature, which is then appended in support of the petition for an Administration Order. This report can be very expensive often between £7,500 and £10,000 depending on the size and complexity of the company. However, BRA can keep these costs to a minimum as much of the information will have already been obtained during our free business review process.

The petition and independent persons report is lodged at court providing automatic protection against virtually all creditors with the exception of those who hold security in the form of a debenture against the company and therefore have the right to veto the making of an Administration Order through appointment of an Administrative Receiver. (New legislation is shortly to be introduced to dispense with debenture holder’s rights to appoint Administrative Receivers and to promote the use of alternative procedures such as Administration Orders and Company Voluntary Arrangements. When introduced, the legislation will remove the debenture holder’s rights to veto).

Upon the petition and rule 2.2 report being lodged at court a hearing date is given and notice served on those entitled to appoint an Administrative Receiver who must do so before the hearing. Additionally notice of the petition for an Administration Order must also be served on a creditor who has petitioned for the winding up of the company or such other persons as the court prescribes.

At the hearing, the Judge considers the merits of the petition placing particular emphasis on the contents of the independent persons report before granting an order and appointing an Administrator. Licensed Insolvency Practitioners are then appointed Administrator(s).

Following appointment the Administrator takes control of the day to day affairs of the company with a view to achieving one of the following objectives: -

(i)The survival of the company, and the whole or any part of its undertaking, as a going concern.
(ii)The approval of a voluntary arrangement under Part 1 of the Insolvency Act 1986.
(iii)The sanction under Section 425 of the Companies Act for the compromise or arrangement between the company and any such persons as are mentioned in that section.
(iv)A more advantageous realisation of the company’s assets than would be effected on a winding up.

Within 3 months or such period extended by order of the court, the Administrator must decide on which of the above strategies to pursue and seek acceptance of his proposals from creditors which requires a simple majority in value.

Once the Administrator has achieved one of the above purposes he will at this time seek to place the company into liquidation or CVA with a view to distribution of a dividend to the creditors of the company. Alternatively, in the event that a restructuring has taken place and a CVA agreed in respect of the continued trading of the business, the Administrator will seek to return it to the control of the directors.

Key Components for a Successful Administration Order

The Administrator must be able to fund his continued trading of the business either directly from the ongoing cash flow generated through the continued trading of the company or alternatively from funds secured against the assets of the company.

Although the Administrator has 3 months in which to decide on his intentions for the business from a practical point of view this decision will more than likely have been made prior to the petition for the administration order. The Administrator must be confident of achieving one of the relevant purposes.

Advantages of an Administration Order

The Company

Extremely powerful procedure precluding creditors from taking enforcement action against the company as soon as the petition is lodged at court.

Provides breathing space for the Administrator to implement measures designed to meet one of the purposes listed above. In particular provides an opportunity for the survival of the business either by sale or restructuring, thus saving jobs.

Directors

Likely to reduce for scope S213 and 214, fraudulent or wrongful trading actions being brought against the directors.

Creditors

Insolvency Practitioner assumes control of the company with a view to implementing proposals which hopefully will be to the benefit of creditors.

Administrator required to investigate and report on the conduct of the directors.

Administrator can bring actions pursuant to S238 and S239, transactions at an undervalue and preferences. (see the Director’s Responsibilities of this website).

Disadvantages of an Administration Order

The Company

Is an expensive procedure as the day to day control of the affairs of the company is assumed by the Administrator’s firm.

Directors

Directors lose control of the day to day running of the company and can often lose their jobs.

Creditors

Administrator cannot bring actions for fraudulent or wrongful trading, although if the company proceeds into liquidation following the Administration actions can be brought at that time by the liquidator.

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