Administration is a court based procedure which prevents creditors from taking enforcement action (such as a winding up petition) against a company.
Administration is usually used where there is a prospect of rescuing all or part of a business. It is used to protect a business whilst it is restructured (for example reducing costs or exiting onerous contracts), sold as a going concern or its assets are sold.
How does Administration work?
Various parties can apply to court for an Administration order, but the most common approach is what’s known as an ‘out of court’ application by a company’s directors.
This process is relatively straightforward.
- The directors choose a licensed insolvency practitioner (usually an IP will have been advising the company in relation to its financial position for some time beforehand) and file the relevant forms with the court.
- If a company has one or more debenture holders (typically a bank or an asset based lender) then the director must notify them that they intend to appoint an Administrator. The debenture holder then has five days within which to choose an alternative IP or consent to the directors’ original choice. If the debenture holder doesn’t intervene during this five day period the directors are then free to proceed with the appointment of their chosen IP.
- The appointment of an Administrator is immediate upon the filing of the requisite forms at court.
Other parties that can also apply for an administration order would typically be either:
- A debenture holder (technically a “Qualifying Floating Charge Holder”) who can obtain an administration order using a similar filing process to the directors; or
- Other creditors, who must make a formal court application. This is a lengthier and more expensive process which requires a hearing in front of a judge.
What happens when a company is in Administration?
Various parties can apply to court for an Administration order, but the most common approach is what’s known as an ‘out of court’ application by a company’s directors.
This process is relatively straightforward.
- The directors choose a licensed insolvency practitioner (usually an IP will have been advising the company in relation to its financial position for some time beforehand) and file the relevant forms with the court.
- If a company has one or more debenture holders (typically a bank or an asset based lender) then the director must notify them that they intend to appoint an Administrator. The debenture holder then has five days within which to choose an alternative IP or consent to the directors’ original choice. If the debenture holder doesn’t intervene during this five day period the directors are then free to proceed with the appointment of their chosen IP.
- The appointment of an Administrator is immediate upon the filing of the requisite forms at court.
Other parties that can also apply for an administration order would typically be either:
- A debenture holder (technically a “Qualifying Floating Charge Holder”) who can obtain an administration order using a similar filing process to the directors; or
- Other creditors, who must make a formal court application. This is a lengthier and more expensive process which requires a hearing in front of a judge.
