An administration is an application to the court to put an Insolvency Practitioner (IP) in place to administer the affairs of a company, normally for a relatively short period of time up to a maximum of 12 months, although this period can be extend by application to the court by the administrator.
When applying for an administration order it must be with the view to achieving one or more of the following statutory purposes, which have been changed by the Enterprise Act 2002:
- Rescuing the company as a going concern.
- Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up.
- Realising property in order to make a distribution to one or more secured or preferential creditors.
These purposes of administration are hierarchial i.e. if it is not ‘reasonably practicable’ to acheive purpose 1, then the administrator must first aim to achieve purpose 2, before resulting to use purpose 3.
1. An application for an administration order is made to the court by one of the following :
» The company itself
» One or more of the company’s creditors
2. If the directors or the company apply, no court hearing is required. However, 5 business days notice of the administration application must be given to any holder of a floating charge.
3. A floating charge holder can also appoint an administrator via the court but also out of court providing the appropriate papers are filed.
4. A meeting of the company’s creditors is required to be convened and held within 10 weeks of the granting of the administration order for the purpose of the creditors to consider the administrator’s proposals for achieving the purpose of the administration. A physical meeting is not always necessary and therefore the meeting can be held by correspondence.
From the time of the filing of the administration application for the order, all actions and legal processes against the company are prevented due to an automatic moratorium taking effect.
Any floating charge holder has the opportunity to appoint its own choice of administrator or administrative receiver before the order is made. However, the creditor will still retain its security if this action is not taken.
The new administration procedure has been introduced to replace the role of administrative receiverships as the holder of a floating charge created after 15th September 2003 is no longer able to appoint an administrative receiver.
An administrator is an officer of the court and must exercise his functions on behalf, and in the best interests, of the creditors as whole, even when appointed on application of a qualifying floating charge holder.
The company can continue to trade during an administration whilst a buyer is sought or to complete any work in progress which would generate additional funds available to the company’s creditors.
The Enterprise Act 2002 also introduced a prescribed part for unsecured creditors in an administration. This is where a proportion of any realisations to be distributed to a holder of a floating charge is reserved and distributed to unsecured creditors. This applies to liquidations as well and is calculated on the net property available for distribution as follows;
50% of £10,000
20% of the balance, up to a maximum of £600,000