Administrator Proposals (Approval of)

17 OCTOBER 2024
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What are Administrator Proposals?

The approval of the proposals is a pivotal stage in the insolvency procedure, determining the future of a company in administration. For creditors, it provides clarity on how their claims will be handled, while for the company, it offers a structured pathway for recovery or an orderly liquidation. Understanding the process and significance of approving administrator proposals is essential for all parties involved in the administration.

Key Insights into the Insolvency Procedure

The Approval of Administrator Proposals is a crucial step in the insolvency procedure when a company enters administration. These proposals, prepared by the appointed administrator, outline the intended strategy for rescuing the business, realising assets, or achieving the best possible outcome for creditors. Understanding the process of approving these proposals is vital for creditors, shareholders, and other stakeholders involved in the company’s financial recovery.

What are Administrator Proposals?

When a company enters administration under the Insolvency Act 1986, the appointed administrator must produce a set of proposals. These proposals set out the administrator’s plan for dealing with the company’s affairs, business, and assets. They usually include:

  • The reasons for the company’s insolvency.
  • The administrator’s strategy to either rescue the business as a going concern, achieve a better result for creditors than immediate liquidation, or realise the company’s assets for distribution to creditors.
  • A timeline and key actions the administrator intends to follow.
  • Information on how the administrator plans to deal with the company’s liabilities and assets.

The proposals must be presented to creditors and other interested parties within eight weeks of the company entering administration.

Process of Approval

The approval of the proposals is an important part of the insolvency procedure. The administrator circulates the proposals to all known creditors, who then have the opportunity to vote on whether to approve them.

  1. Creditor Meeting (or Decision Process): In many cases, the administrator may call a creditors’ meeting to discuss and vote on the proposals. Alternatively, a decision process, such as written resolutions, may be used if the situation allows for a more straightforward approval.
  2. Creditor Voting: Creditors vote on the proposals, and approval requires a majority in value of those voting to agree to the plan. If creditors do not approve the proposals, the administrator may need to revise them or apply to the court for directions on how to proceed.
  3. Approval Outcome: Once the proposals are approved, they become binding on all parties. This allows the administrator to proceed with the plan for managing the company’s affairs, whether that involves restructuring, selling assets, or distributing funds to creditors.
Why is the Approval of Administrator Proposals Important?

The approval of the proposals is essential because it sets the course for the company’s future during the administration process. Once approved, the administrator has the legal authority to carry out the actions outlined in the proposals, ensuring that the insolvency process moves forward efficiently. This approval is crucial for creditors, as it offers them a clear plan for recovering some or all of their debts.

For the company’s directors and shareholders, the approval of these proposals can represent a chance for the business to be rescued or restructured, rather than facing immediate liquidation.

What Happens if the proposals are Rejected?

If creditors reject the proposals, the administrator may need to revise the plan or apply to the court for further instructions. This can delay the administration process and, in some cases, lead to alternative outcomes such as liquidation. Creditors may also propose modifications to the proposals, and these adjustments can be incorporated if they are considered viable by the administrator and other creditors.

Frequently Asked Questions

What are Administrator Proposals?

Administrator Proposals are a formal plan prepared by the administrator (an insolvency practitioner appointed under Schedule B1 of the Insolvency Act 1986) that sets out how the company’s affairs, business, and assets will be managed during the administration. These proposals are delivered to the company’s creditors and include the administrator’s strategy for achieving the objectives of administration (such as rescuing the company, obtaining a better result for creditors than if the company were wound up, or otherwise realising assets).

When and how must Administrator Proposals be approved?

Once the proposals are delivered to creditors, they must be approved either by creditors voting or via a deemed consent process under the rules. The process is governed by Rule 3.38 of the Insolvency (England & Wales) Rules 2016 among others. If enough creditors requisition a decision, a meeting or decision procedure is held; if no meeting is called and no decision requested, the proposals may be deemed approved. Then Companies House is notified via a form (e.g. AM06) to indicate the approval.

What happens if creditors reject or do not formally approve the Administrator Proposals?

If the proposals are rejected, or if they aren’t approved via the required process, the administrator may have to apply to the court for directions under Schedule B1 (for example under paragraph 55) to determine what should happen next. This could include modifying the proposals, changing the exit route (e.g. moving the company into liquidation), or in some cases the courts could wind up the company if the administration objectives cannot be met.

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