Administration

This is an alternative procedure to liquidation and will allow an insolvent company to obtain protection from creditors. It will enable an insolvency practitioner to restructure or to sell the business and assets of the company.

The insolvency legislation states that an administration must achieve one or more of the following objectives:-

  • Rescuing the company as a going concern.

  • Achieving a better outcome for creditors that would be likely if the company was wound up.

  • Realising property in order to make one or more distributions to secured or preferential creditors.

An administrator can be appointed in various ways but, most commonly, the appointment will be made by the court on the application of the company’s directors or by the holder of a qualifying floating charge (“QFC”).

A ‘Pre-Packaged Administration’ (“pre-pack”) is a popular, and topical, procedure for rescuing a company’s business and often preserving jobs. A pre-pack will normally result in the sale of the company’s assets immediately following commencement of administration via a previously agreed deal.

Subject to any extension by the court, an administration will conclude within twelve months. Once concluded the company may return to the control of existing management (often by way of a Company Voluntary Arrangement), enter liquidation (if there are funds to pay unsecured creditors) or be dissolved (if there are no funds for creditors after payment of any secured creditors).

  • Protection from creditors which may be taking steps to enforce their debt or to issue a winding up petition.
  • The possible restructuring of the business allowing valuable segments to be retained or sold, whilst non-profitable elements are closed.
  • Any associated redundancy costs can be claimed from the Redundancy Payments Fund.
  • A better return for creditors since the proposed course of action in the administration must be likely to produce a better outcome for creditors than liquidation.
  • Administration may affect a company’s ability to trade with existing suppliers which are likely to reduce credit or stipulate pro forma terms.
  • The administrator takes over the running of the company and the directors lose day to day control of the business.
  • An administrator has a duty to investigate the conduct of the directors and the affairs of the company.
  • The costs of administration will be higher than those in a liquidation and the procedure may not be relevant to small companies.