Administration

Introduction

This mechanism is designed to protect companies from their creditors while a restructuring plan is completed.

This process requires a licensed insolvency practitioner to act as the administrator appointed by the court.

There must be three objectives for the Administration:

1. Company rescue (as a going concern) being the primary objective.
2. The administrator can achieve a better result for the creditors than a winding-up of the company.
3. The administrator can realise property to make a distribution to secured and preferential creditors.

Holders of floating charges can make the application. Though unlikely, this opens up the possibility that an administrator can be appointed without the directors of the company being aware.  The filing of such a notice will bring into effect an interim moratorium on insolvency proceedings and other legal processes being taken against the company.

What is included in the Administration proposal?

• Full details relating to the Administrators appointment
• The circumstances leading up to Administration
• Details of how the Administrator proposes to achieve the administration
• Details of how the administration will end.
• A statement of the company's general affairs.

Details of the Creditors Meeting

• Included in each creditors' copy of the proposals must be an invitation to the creditors meeting,
• The creditor's meeting must be held within 10 weeks of the date the business entered administration
• The proposals can be accepted, modified and then accepted, or rejected.
• If rejected the administrator is required to report to the court to seek further directions.
• The administrator is required to send a report of the final outcome of the meeting to the court

The Administrator then manages the company's affairs, business and property in accordance with the proposals that have been agreed by the creditors.

Disadvantages:

• The directors may not be in control of the business and may lead to their removal as directors.
• The bank can appoint their administrator if their position is compromised by proposed Administration.
• Most customers and suppliers become aware of the insolvency.
• All orders must be ratified by the Administrator.
• Costs are often high for this procedure.
• Financing trade and other supplies can be difficult.
  

Advantages:

• Administration is a useful tool for IP's to control the company and ensure survival of the business.
• It is possible for the administrator to appoint directors or managers to run the company.
• Directors cannot usually be accused of wrongful trading since action is being taken.
• Protection from creditors can allow the administrator a reasonable time frame to negotiate a deal.