What is it?
The company administration procedures primary purpose is the survival of the Company or of part of its operation as a going concern. This may be by way of a restructure, sale of business and assets. or by the Company entering into a Company Voluntary Arrangement (“CVA”).
Who is company administration for?
This process is of use to companies which have become insolvent and require protection of the legal process. It prevents creditors taking precipitative action against it whilst it is assessing its options for re-organisation, re-finance, re-structure or the sale of the business as a going concern.
How can Chamberlain & Co help?
The company will need to instruct an insolvency practitioner such as Chamberlain & Co to advise the directors on the most appropriate course of action for the company administration. If administration is the chosen option a licensed insolvency practitioner from Chamberlain & Co can be appointed as the administrator.
Prior to any appointment, Chamberlain & Co will be able to assist the directors to liaise with any funders who hold a floating charge over the company’s assets and whose consent is required for the appointment.
- Whilst in administration, the affairs of the Company are managed by a licensed Insolvency Practitioner.
- An administrator can be appointed out of Court by the holder of a qualifying floating charge or by the Company or its directors.
- An administrator can also be appointed by the Court on the application of the Company, its directors or one or more creditors.
The objective of company administration is:
- Rescuing the Company as a going concern, or
- Achieving a better result for the Company’s creditors as a whole than would be likely if the Company were wound up, or
- Realising the assets of the Company in order to make a distribution to one or more secured creditors
The company administration procedure can provide protection against aggressive creditor action.
Whilst in administration, other than with the consent of the administrator or the permission of the Court:
- No resolution may be passed for the winding up of the Company.
- No steps may be taken to repossess goods in the Company’s possession under a hire purchase agreement.
- A landlord may not exercise a right of forfeiture by peaceable re-entry in relation to premises let to the Company.
- No legal process may be instituted or continued against the Company or property of the Company.
- An administrative receiver may not be appointed.
- Allows protection (or a moratorium) while the rescue plan (such as a CVA) is being approved. This can often be essential if hostile creditors are trying enforcing their claims.
- The floating charge holder (i.e., the lender who holds a debenture) is entitled to five days’ notice and in this period can appoint an administrator of it’s choosing. Therefore, it is important to consult with the lender prior to presenting the petition for an administration order to agree the identity of the administrator.
- The administrator has a reasonable time period in which to create sound proposals. By comparison, standalone CVA proposals (without an administration order) often need to be drafted within pressurised time constraints.
- Key creditors are prevented from disrupting the business by taking precipitive action. For example, a landlord cannot forfeit a lease, a HP supplier cannot repossess equipment, nor can a trade creditor repossess goods supplied.
- A pre-pack company administration has the least detrimental impact upon the trading and value of the business. The sale of the business is explored and a sale contract is agreed prior to the administrators appointment. He executes the sale immediately upon appointment. Considerable work is done by the nominated liquidator and his solicitors and agents to ensure that this is the most appropriate procedure to utilise in the circumstances. A protocol has been established by the regulatory authorities for conducting this process, with appropriate disclosure made to all creditors.
- When a CVA is the intended final outcome, a company administration will add to the overall cost of the process. Provided creditors are not likely to take precipitive action it may be more appropriate to go directly to a standalone CVA without first obtaining an administration order.
- Whereas in a standalone CVA it is only the company’s creditors that are directly notified of the procedure, the administration process is more visible in the public domain.
- The administrator is in the day-to-day control of the company.
- Prior to entering administration the continued funding of trade will need to be secured.
- Secured creditors with a floating charge (i.e. a lender) may decide to appoint a different insolvency practitioner to the one chosen by the directors. This may be because they operate a restricted panel of appointees.