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Putting A Company Into Administration

23rd May, 2022

Written ByEric Walls MIPA FABRP

Director of Insolvency and Turnaround


Eric is a licensed insolvency practitioner regulated and licensed by the Insolvency Practitioners Association. His ethos is always "give the right advice, choose the right options, rescue first if possible." He has many years’ experience in accounting and insolvency having worked at Touche Ross (Deloitte) and has been involved in turnaround and insolvency since the late 80's.
Keith and Eric first met in a pub in Darlington in 2000(!) and have worked closely ever since, with Eric as a partner in Marlor Walls and now a director of KSA Group.
Eric has acted as nominee and supervisor of over 350 CVAs in that time and knows the pressures and difficulties of that approach on all parties involved in making the effort for a successful rescue of the business.
From smaller “family owned” companies, to businesses with a turnover exceeding £20 million, a CVA can prove an invaluable rescue package, securing not only a better return for creditors than might otherwise be generated, but also allowing the business to survive and to continue to work with its trusted suppliers.

Eric Walls MIPA FABRP
  • Putting a company into administration
  • What are the key components of administration?
  • Who can appoint an administrator?
  • How can the bank appoint an administrator?
  • Administration sale
  • How long does the administration process last?
  • Statement of affairs:
  • Creditor’s meetings
  • What are the disadvantages of administration?
  • What are the advantages of administration?
  • Types of administration procedure:
  • Administration followed by CVA
  • Administration followed by “better result”
  • Administration “pre-pack”

Putting a company into administration

Administration is a mechanism designed to protect a company from its creditors while a restructuring plan is completed. This rescue technique can be very powerful in situations where the company has a very aggressive creditor (s).  Administration can protect the company from creditors whilst a rescue plan is worked out. Read our guide below for details on how to put your company into administration

What are the key components of administration?

The company must be a reasonable size, have a predictable cash flow and could return to profitability. Thee company must be either insolvent, or contingently insolvent. The directors must believe that a hostile creditor will seriously affect the future trading possibilities, this is often a landlord or HMRC.

The administration process requires a licensed insolvency practitioner (IP) to act as the administrator appointed by the court. The court appointed administrator takes over the management of the company and takes responsibility for restructuring the company.

If the company has few assets, poor cash flow and no future then creditors voluntary liquidation is probably more appropriate than administration.

There are two types of application to the High Court. Firstly, there is the “without court order” appointment route for holders of qualifying floating charges, and companies/directors. This is quick and does not need a court application or hearing. Secondly, it may be more appropriate to make a more detailed application which asks for a court hearing.

Who can appoint an administrator?

Companies and directors can appoint an administrator quickly with the IP’s guidance. This does not require a Court Order.  It requires an email to be sent to the court with the appropriate forms  to ”apply for an administration’. Clearly the IP must have done some research first to establish;

  • If the company is insolvent,
  • Whether it is appropriate to put the company into administration,
  • What the process will involve,
  • What the planned outcome will be.

They also have to show that an administration will produce a “better result” than a liquidation.

Where a company is in liquidation, or in a CVA then the proposed administrator must obtain a court order.

No administration order will be granted unless the holders of all qualifying floating charges have been given 5 days clear notice of the directors’ intention to appoint an administrator.

The floating charge holder (usually a bank) will still retain the ability to step in and appoint their own choice of administrator, if they so wish.

So, it’s possible for the board to decide to appoint an administrator and have the bank refuse and appoint its own. However, experienced insolvency practitioners are unlikely to encounter much difficulty, if they are recognised by the bank, and there is a quality plan to protect the business.

How can the bank appoint an administrator?

Banks can appoint an administrator if they hold a qualifying floating charge, under debentures granted after 15th September 2003. If the bank holds an older debenture, it can appoint an administrative receiver. The banks have the right to appoint an administrator. It should be pointed out that the administrator has a duty to act in the interests of all creditors, not just on behalf of the bank/floating charge holders.

There must be one (or two) of three “objectives” for the administration:

In the application to the Court the proposed administrator must state what their main objective is out of the following three:

  1. Company rescue, as a going concern, should be the primary objective. This usually means that the company proposes a Company Voluntary Arrangement, or a scheme of arrangement.
    1.1. See administration followed by CVA below also see flowchart administration followed by CVA
  2. The administrator must show they can achieve a better result for the creditors than would be the case if the company was wound up or trading on for a while and selling the business as a going concern.
    2.1. This means trying to sell the business for more than a liquidation would raise (see creditors voluntary liquidation).
  3. Only if neither of the first two objectives is possible, can the administrator utilize the third objective, which is to realise any property to make a distribution to secured and/or preferential creditors.
    3.1. This means collecting and selling the assets for the best price to pay the bank.

In cases where speed is essential in making the appointment, the rules include a provision that will allow for filing a notice of appointment (via email) during times when the court is not open for business.  The following day the solicitor will go down to the court and get the notice filed and stamped.

The filing of such a notice will bring into effect an interim moratorium legal processes being taken against the company.

In a moratorium, no one can “knock the company over” without the leave of the Court. When the Court has effectively ratified the administrator’s appointment the Court will want to have as much information as possible to ensure that the application for administration is correct and appropriate.

Administration sale

The company can enter administration to be sold. This is an example of a typical scenario.

  1. A company is under severe pressure, creditors are circling, and there is the possibility of legal action.
  2. Directors decide to take advice from KSA Group, or a similar firm, and a decision is taken to protect the business and stop legal actions. The company is insolvent, but there is a viable business.
  3. The company meets with KSA advisors, who draw up a report on the options available. Looking at CVA, administrative receivership, administration, trade sale etc. The board believes that a sale could be achieved but the company needs to be protected.
  4. An administrator is appointed and he / she runs the business for a period of around 1-2 weeks.
  5. In that time the administrator markets the business under insolvency guidelines called Statement of Insolvency Practice 13. The administrator must be seen to market the business for sale.
  6. The administrator obtains valuations from a professional valuer for all of the assets and goodwill
  7. In an agreed period, the directors of the old company or “oldco” can buy the business provided the valuations are met and the administrator gets the best deal for the creditors.
  8. The new company or “Newco” is created. It has no debt, no creditor pressure, and it can take on leases.
  9. Generally TUPE applies and therefore all employees rights move across to “newco”.
  10. The “oldco” is then liquidated

How long does the administration process last?

The process can generally only last for up to 1 year, although this can be extended by the consent of the creditors and/or by the court. The administrator is also required to do everything as soon as reasonably practicable. There is a time-limit of eight weeks for getting their proposals out to creditors, and holding the initial creditors meeting. This can be extended by the creditors’ consent and/or by the court. These proposals will include full details relating to the administrator’s appointment, and the circumstances leading up to it, as well as exactly how the administrator proposes to achieve the purpose of administration – including details of how they anticipate the administration will end.

Statement of affairs:

Upon appointment, the administrator will require one or more of the current or former directors or company officers to provide them with a statement of the company’s affairs. This is a prescribed form which details the company’s assets and liabilities, including those assets that are subject to any fixed or floating charges. This can be difficult to produce. A copy of the statement of the company’s affairs, or a summary of it, must be attached to the administrator’s proposals. See above for the 3 different types of proposals. A copy of the proposals will also be filed with the registrar of companies to be placed on the company’s public file. Interestingly though, where the information included in the statement of affairs is commercially sensitive, the administrator can apply to court to have the statement, or the relevant part of it, withheld. Included with each creditor’s copy of the administrator’s proposals will be an invitation to the initial creditors’ meeting, at which the creditors vote on those proposals and whether to accept them.

Creditor’s meetings

The initial creditor’s meeting must be held within 10 weeks of the date that the company entered administration, and the creditors must be given at least two weeks notice of the meeting, although these time-limits can be extended by the creditors and/or the court.

  • The business of this meeting can be carried out by correspondence, although if 10% or more of the creditors (in value of their claims) demand a meeting, then the administrator is still required to call one.
  • The proposals can be accepted (by a majority vote, measure in value of claims), modified and then ultimately accepted, or rejected. If the latter occurs, then the administrator is required to report that fact to the Court and seek further directions.
  • Following the initial creditors’ meeting, and any subsequent meeting of creditors, the administrator is required to send a report of the outcome of the meeting to the court and to the registrar of companies for filing on the company’s public file.
  • A creditors committee can be formed if the creditors require it. This must be between 3 and 5 people.
  • The administrator then manages the company’s affairs, business and property in accordance with the proposals that have been agreed by the creditors.
  • They must send regular progress reports to the creditors, the Court and the registrar of companies covering each six-month period from the date that the company entered administration until the administration ends, or until he ceases to act.
  • These reports will provide full details of the progress of the administration to date, including a receipts and payments account ( information on the amounts of cash that have been received and paid out) and any other relevant information for the creditors.

You will see the law surrounding administration is complex and very powerful for companies in distress.

But, do not appoint an administrator before calling us to discuss any questions you have. Once appointed, it’s too late to change your mind!
As part of the procedures the administrators have to report to the creditors and file reports to Company House over a year period. For an example of a six month report and one year report please see below. After 6th April 2017, these reports are not mandatory and the creditors can ‘opt-out’ of receiving future correspondence.
6 Month report of administrators
Final Report into administrators

What are the disadvantages of administration?

  • The directors are not in control of the business and an offer from a third party may lead to their removal as directors.
  • Tax losses can be lost if no CVA is proposed.
  • Another buyer may purchase the assets.
  • It is a public event – all creditors and all correspondence (invoices, advice notes, orders, emails, websites, letters) must say XYZ Co Ltd (In administration). Most customers and suppliers will therefore become very aware of the insolvency.
  • All orders must be ratified by the administrator or his staff.
  • The directors have no powers to run the company.
  • As soon as reasonably practicable after their appointment, the administrator must obtain details of the company’s creditors and must notify the company and all of its creditors of his appointment. However this can also be an advantage, as it stops legal actions.
  • The appointment must also be advertised in the London Gazette and in a relevant local or national newspaper – one that the administrator thinks is appropriate for ensuring that the appointment comes to the notice of the company’s creditors.
  • Clearly the bank can be forced into appointing their own administrator if it decides its position is going to be compromised by the proposed Administration of the company.
  • Costs are often very high for this procedure. Therefore in our opinion it is only really suitable for larger companies where aggressive creditors threaten future viability.
  • TUPE applies to the new company “newco” – in other words the “newco” cannot remove employees and must adopt their contracts. This can be a problem when planning how to cut costs in the new company.    However, the law is very fluid in this area and so it is always advisable to get detailed legal advice on this subject.
  • Financing trade and other supplies can be difficult unless adequate resources are available and or new funds can be introduced in the administration period.

What are the advantages of administration?

Administration can be a very useful and powerful tool for insolvency practitioners to control the company, banks, and creditors to ensure survival of the business.

  • All legal actions are stayed by the process.
  • It stops the financial position getting worse and the directors being put at further risk.
  • It can be very quick and cost effective if an “administration pre pack” is used properly. (See below).
  • All unsecured debt is removed.
  • From the creditor’s perspective, because a licensed insolvency practitioner is appointed to administer the company, it also ensures that the administrator considers all creditors’ positions correctly.
  • Protection from creditors can allow the administrator a reasonable time frame (the 8 week period) to negotiate a deal to achieve the objectives. This may include selling the company to protect jobs and economic activity.
  • It is possible for the administrator to appoint directors or managers to run the company. With our vast turnaround experience this is often preferable to the administrator’s staff. We are well versed in ensuring that the administrator works with turnaround advisors such as KSA. This means that we are involved in the management of the company to ensure professional and pragmatic management at a time when the company is under severe distress.

Types of administration procedure:

Administration followed by CVA

The company is protected by Court while the company and the administrator put together a plan for the company voluntary arrangement. See Administration followed by CVA Flowchart

If there is a risk of a creditor winding the company up or a landlord taking aggressive action then this is a powerful (but expensive) way of controlling them.

KSA Group believes that administration is unnecessary most of the time. Going straight to a CVA cuts out costs (fees) and reduces market awareness of the troubles.

Administration followed by “better result”

The company is protected by Court while the administrator runs the business for a while to see if anyone will buy it as a going concern.

Many of these administrations are glorified liquidations where the administrator does NOT have to get the bank’s permission to take fees as he/she has to in liquidation!

However, this can be a powerful tool if the company has good parts of the business that can be sold to a new owner.

Administration “pre-pack”

As this name implies in an administration pre packaged sale the board or a third party agrees with the proposed administrator to buy the assets/business of the insolvent company. See Administration followed by CVA Flowchart here

This is designed to reduce publicity and cut costs of a normal Administration.

When the plan is ready and a contract of purchase is drawn up, the company is quickly protected by the Court while the Administrator sells the business to the new owners.

This gets rid of debts, unwanted or onerous contracts and employees.

It’s a very powerful, very quick technique (after the initial planning stages) and can be done over a weekend for example. But unsecured creditors usually see nothing in return and cannot understand how it is legal.

Call us if there are still unanswered questions – contact KSA Group Ltd on 08009700539 or 020 7887 2667

Man with umbrella

What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

Read
What Is A Winding Up Petition By HMRC or Other Creditor
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Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

Read
Notice of Intention To Appoint Administrators
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What Does Going Into Administration Mean?

Going into administration is when a company becomes insolvent and is put under the control of Licensed Insolvency Practitioners.  The directors and the secured lenders can appoint administrators through a court process in order to protect the company and their position as much as possible. Going Into Administration - A Simple Guide Administration is a very powerful process for gaining control when a company has serious cashflow problems, is insolvent and facing serious threats from creditors. The Court may appoint a licensed insolvency practitioner as administrator. This places a moratorium around the company and stops all legal actions.The administration must have a purpose and the Government encourages the use of company rescue mechanisms after administration. The 3 purposes (or objectives) of Administration Rescuing the company as a going concern. (Note: this purpose is to rescue the Company as opposed to rescuing the business undertaken by the Company.)Company rescue as a going concern – this is usually a  company voluntary arrangement. The company enters protective administration and is then restructured before entering into a CVA. The CVA would set out proposals for repayment of debts to secured, preferential and unsecured creditors. When the company has its CVA approved by creditors, then the administration process comes to an end after 28 days. Achieving a better result for the company's creditors This is as a whole than would be likely if the company was to be wound up (liquidation) See the differences between Administration and Liquidation.  This better result is usually obtained by selling the BUSINESS as a going concern to one or more buyers. The company and the debts are “left behind”. The better result may include securing transfer or employees under TUPE, as well as selling goodwill, intellectual property and assets. Controlling and then selling property/debtors. This is called realising assets. Then the administrator makes a distribution to one or more secured or preferential creditors, in order of creditors priority. Usually the business ceases trading and employees are made redundant.Only if the first two options are deemed unattainable, can the administrator use this third option.Under the administration option, it is possible for the company and its directors (or a creditor like the bank) to apply to the court to put the company into administration through a streamlined process.However, the law requires that any finance provider (like a bank or lender), with the appropriate security, is contacted and the aims of the administration be discussed and approved. The finance provider must have a fixed and floating charge (usually under a debenture) and the charge holder will need to give permission for the process to go ahead. Five days clear notice is required.  Be aware, though, that a secured lender can appoint administrators over a company without notice if it thinks its money is at risk.  So communication with the secured lender is essential.  

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What Does Going Into Administration Mean?

What is Receivership?

in What is …? What is receivership?

Understanding Receivership: Receivership, also known as administrative receivership, is a legally sanctioned procedure where an entity, typically a lender like a bank, appoints a receiver. The primary role of this receiver is to "receive" and liquidate the company's assets, if necessary, to repay the lender. This process is particularly beneficial to creditors as it aids in the recovery of defaulted funds, potentially preventing the company from facing liquidation The introduction of a receivership simplifies the lender's task of securing owed funds in cases of borrower default.Receivership should not be confused with administration and a receiver can only be appointed by a holder of a qualifying floating charge created before September 2003. Changes to this procedure were brought in by The Enterprise Act 2002 which promoted company rescue and saving struggling businesses. Why would a company go into receivership?The company requires finance for its activities and borrows from a bank (or other secured lender). In consideration for providing the loan, the bank requires security. Normally the company will sign a debenture with a fixed and floating charge. This offers the bank security over the assets of the company. If the terms of the agreement are breached or the company does not conform to the bank's wishes, the charge holder can:Appoint investigating accountants to ascertain how secure or not the bank's debt is and determine the best route forward (not always receivership). Demand formal repayment of the loans without notice. Appoint a receiver to administer and receive the company's assets.The receiver has a duty to collect the bank's debts only,they are not generally concerned with the other unsecured creditors or shareholders' exposure.Receivership - A typical appointment Having borrowed against a business plan that has not worked, a company finds that it is suffering cashflow problems. In an effort to survive, the company reports its problems to the bank and the bank asks for more information on the problems the company faces. Struggling with the problems of firefighting, the directors find it difficult to produce the information. Often the accountancy and reporting systems are not robust and a lot of time is needed to work out where the company is going, what the depth of the problems is and the necessary reporting to the bank is delayed.As time goes by, the company's overdraft is constantly at its limit, because monies don't come in fast enough from customers. Clearly this should set alarm bells ringing at the company - it most certainly does at the bank. They call this ceiling borrowing, and take it as a sign that the directors are losing control.  When this happens the bank will review the account and will typically take some or all of the following steps: What the Bank will doThe bank will ask for a reduction in its exposure. It will ask for increased security from the directors or shareholders. Usually this takes the form of personal guarantees to support the security that the company has given through the debenture. It may ask for new capital to be introduced by the shareholders. Problem is though, occasionally, this only has the effect of reducing the bank exposure as the bank takes this cash to reduce the borrowing. It can ask for a new business plan from the directors, along with regular reporting. It may ask for the company to consider receivables finance (factoring) to remove its borrowing and move to a factor. Often the bank's own factoring company. If they are still not satisfied that the directors are in control and if the bank is concerned about its exposure it will ask for investigating accountants (or reporting accountants) to look at the business. Normally this is a large firm of accountants who send an insolvency practitioner (IP) into the business to ascertain:Is the business viable? Is the company stable? Does it have a long term future if the present difficulties can be overcome? Is the bank's exposure sufficiently covered in the event of a failure? In this report the IP calculates what the assets of the business are worth on a going-concern basis and in a forced sale scenario (or closure basis). Investigating accountants often recommend that the bank sticks with the business, but that the bank should limit any further borrowing to the fully secured variety - in other words the directors must secure it personally against property for example. If the IP thinks that the company is in serious risk of failure and that the banks may lose money in that event, he/she will usually recommend to the bank that they appoint a receiver or administrator. Usually the bank (bizarrely) requires the directors to "request the bank to appoint a receiver". This is face-saving, and designed to deflect criticism from the bank to the directors.At Company Rescue, we believe that it is wrong that the insolvency practitioner that carries out the investigation could also be the receiver - We think it is essential that his/her role as investigating accountant is limited to just that. However, fortunately most banks now agree that this is not a good approach. Once they are appointed what is the receiver's role and powers?A receiver will quickly ascertain what the prospects for business are and decide whether to sell some or all of the assets, the business as a whole, or to continue to trade whilst a better deal can be achieved. Because of the rules and case law, he may wish to get rid of the assets and staff as soon as possible. (They will have to adopt employment contracts 14 days after the appointment). They may remove directors and employees without impunity. They ultimately decides the way forward and will (often) not take advice from the directors. They must pay the preferential debts (employees claims for arrears of pay and holiday pay) first from any floating charge collections. If a deal is to be done with directors the receiver must first advertise the business and its assets for sale. They must conform to the tight rules and regulations governing receivership and report to the DBEIS. A receiver must investigate the conduct of the directors of the business and file a report with the DBEIS.Disadvantages of Receivership The company is rarely saved in its existing form. Its assets will be subject to "meltdown" ( most people know that in receivership or liquidation assets are sold at a knock down price), often jobs and economic activity are lost.The directors will typically lose their employment and any monies the company is due to them, and the company may cease to trade. In addition the director's conduct is investigated.From the creditors' perspective, it is unlikely that any unsecured creditors will receive any of their money back and often they lose a valuable customer. Clearly the cost of receivership can be very high and the bank has to underwrite the receiver's costs. Advantages of Receivership The bank can take control where directors have maybe lost control. The receiver also has power to act to save the business quickly. The bank can ensure that its exposure is (at least) not increased and hopefully recover all of its money. For directors, the advantages are that it mitigates the risk of wrongful trading and may crystallise a very difficult position allowing them to get on with their lives.Preferential creditors may see their debts repaid by the receiver.Still got questions? Click here for Receivership FAQs. If there are still unanswered questions contact us by email or call 08009700539.If your business is in trouble and the relationship with the bank is breaking down, we suggest that you look carefully at the guides in this site. Receivership may be an option. Work out the viability of the business - can you trim costs? Work out the problems, set out the position and have a meeting of directors. Decide if the business can continue but needs to be restructured or if just not viable then consider administration or if the company's lenders have a debenture pre-dating 2003 then receivership.Please call us on 020 7887 2667 (London) or 08009700539 to talk to an expert turnaround advisor if you would like to talk through your company's options.

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What is Receivership?

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