When a company goes into administration, an administrator is appointed to manage its affairs. The administrator must be an insolvency practitioner and they will also manage the company business and assets for the creditors. The administrator who is appointed has an Officer of the Court status.
Overall, the objectives of a company going into administration are:
- To rescue a company that on the brink of collapse.
- To negotiate a better price for the company assets.
- To negotiate a more favourable value for the company assets versus what a creditor would offer during liquidation proceedings.
- To realise the value of the company assets so that they can be distributed to preferential creditors.
How does a company go into administration?
Administration starts when someone is appointed to act as the Administrator. This appointment can take place in the following ways:
- A court makes an administration order.
- The floating charge appoints an Administrator.
- The company and its directors appoint an Administrator.
Once an administrator has been appointed, he or she must act quickly and perform their duties as efficiently as possible.
What happens when the company goes into administration?
What happens when a company goes into administration depends on the state the company is in. For example, if it is winding up at the time of going into administration, all such proceedings are either dismissed or suspended. There will also be a moratorium on insolvency and all other legal proceedings.The Administrative Receiver must also vacate office at this stage. Additionally, if there is a receiver of the company property they too must vacate office.
Sending notice to The Gazette
The Gazette is an official newspaper that records statutory notices and advertisements. It published daily and you may see it referred to when companies in England and Wales entering these types of proceedings are discussed. Any notices that are placed by the Registrar of Companies in England and Wales are featured in the Notifications Supplement of the London Gazette. You can view The Gazette online, as well as in the search rooms of Companies House in Cardiff and London.The Administrator must notify The Gazette of their appointment as soon as possible. Additionally, they must send notification to a local newspaper in the area where the company usually operates.
Sending notice to the company and creditors
In addition to notifying The Gazette and a local newspaper, the Administrator must send notification of their appointment to the company and each of its creditors. Again, this must be done as soon as possible.
What the Administrator must send and to whom
Once the Administrator is appointed they must send notification of their appointment to the registrar at Companies House. During the period of administration, any business documents that are issued by or on the behalf of the company must feature the Administrator name. It must also state that the Administrator is managing the company affairs, business, and assets.
Requesting and making statements
Once the Administrator has been appointed they will request a statement of the company affairs from relevant parties. They must then make a statement that outlines proposals for achieving the outcomes of the administration. If the outcomes cannot be achieved, they must make a statement highlighting why this is the case. The Administrator must make such statements as soon as possible, but no later than eight weeks after the company enters administration.After outlining proposals, the Administrator must send them to:
- The Registrar at Companies House
- Every creditor that they are aware of
- Every relevant company member they are aware of
With these proposals, the Administrator must include an invitation to a creditor meeting. At this meeting, they will seek to secure the approval of the proposals. Afterwards, they may:
- Hold another creditors meeting
- Form a creditors committee
- Deal with correspondence between the company members and the creditors
Any decisions made at this meeting must be sent to the Registrar of Companies.
When does administration come to an end?
An administration period can come to an end in several ways:
- The Administrator term of office expires. This usually lasts for a year, although it can be extended with the creditors consent.
- The Administrator applies to the court to end the administration as they dont believe its purposes can be met. The court will then discharge the administration notification.
- The purpose of the administration period has been sufficiently achieved and the company or its directors sends notification of this to the courts.
- A creditor alleges in the courts that the motives of the administration period are improper. The court must uphold this and the Administrator must send notification to the Registrar.
- Voluntary winding up takes place because the Administrator believes that each secured creditor is likely to be paid and that assets will be distributed to unsecured creditors.
- The Administrator moves the company into dissolution as they believe that the company has no assets to distribute to its creditors. Dissolution will occur within a three-month period of the Administrator filing the proposal with the Registrar unless an order successfully stops or suspends the proceedings.
Is it possible to change administration proceedings to a Company Voluntary Liquidation CVL?
The Administrator can apply to change to a CVL if they believe the company in question has enough assets to pay secured creditors and that a distribution will be made to any existing unsecured creditors.