Administration

Introduction

Administration involves the appointment of an insolvency practitioner, known as an administrator, to manage the affairs, business and property of a company. It was first introduced by Schedule 16 of the Insolvency Act 1986, but has subsequently been amended by the Enterprise Act 2002.

Alternative to liquidation

Administration is often used as an alternative to putting a company into liquidation, e.g. to:

• rescue a company in financial difficulty with the aim of allowing it to continue as a going concern
• achieve a better result for the creditors than would be likely if the company were to be wound up
• realise property to pay one or more secured or preferential creditors.

The administrator can only use the third option where:

• he thinks it is not reasonably practicable to rescue the company as a going concern, and
• where he thinks that he cannot achieve a better result for the creditors as a whole than would be likely if the company were to be wound up, and
• he does not unnecessarily harm the interests of the creditors of the company as a whole.

Who can appoint an administrator?

An administrator can be appointed by any of the following persons:

• the court in response to a petition by, e.g. a creditor, the directors or the company itself
• the holder of a qualifying floating charge over the company's assets
• the company or its directors provided that winding up has not already begun.

The court will only agree to appoint an administrator if it is satisfied that:

• the company is or is likely to become unable to pay its debts, and
• the administration order is likely to achieve its objectives

Consequences of administration

The appointment of an administrator has the following effects:

• the rights of creditors to enforce any security over the company's assets are suspended
• there can be no enforcement of charges, retention of title clauses or hire-purchase agreements against the company
• any outstanding petition for winding up is dismissed
• no resolution may be passed to wind up the company
• the directors still continue in office, but their powers are suspended.

Administrator tasks and duties

The administrator has a number of tasks:

• He is the company's agent, but must act in the best interests of all the company's creditors. He can do anything necessary for the management of the company.
• He has wide powers to manage the business and property of the company, including the power to bring and defend legal proceedings, sell assets and borrow money. With regards to selling assets this includes property which is subject to both fixed and floating charges, which may be disposed of without the consent of the charge holder, although they retain first call against any money realised by the sale of the asset.
• He has the power to remove and replace directors and employees. If an employee's contract is not adopted by the administrator within 14 days, that employee is made redundant.
• He can pay out monies to secured or preferential creditors without the need to seek approval of the court. He can also pay out monies to unsecured creditors but this must be with the approval of the court.

The administrator also has a number of legal duties. As soon as is reasonably practicable after appointment:

• He must send notice of appointment to the company and publish notice of appointment.
• He must obtain a list of company creditors and send notice of appointment to each.
• Within 7 days if appointment, he must send notice of appointment to the Registrar.
• He will arrange for certain relevant people to provide a statement of affairs of the company.
• He must ensure that every business document of the company bears his identity as administrator and a statement that the company affairs and property are being managed by him.
• Based on the statement of affairs, he must draw up a statement of his proposals, which must be approved at a meeting of creditors within eight weeks of the commencement of administration.
• If the meeting does not approve the proposals, the court may dismiss the administrator or make such provisions as it sees fit.
• If the meeting approves the proposals, the administrator can carry them out.

Ending the administration

The administration will end when it is completed or when the administrator is discharged by the court:

• The administration must normally be completed within 12 months of the date on which it commenced. However, this term can be extended with the consent of the court or the secured creditors.
• The administrator may apply to the court for discharge at any time. He must make an application when the purpose of the order has been achieved. He must also notify the registrar and all of the creditors.

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Tags:	Insolvency Act 1986;Enterprise Act 2002