Notice of Intention to appoint administrators

notice of intention to appoint administration letter

I am reading in the press about companies filing a notice of intention to appoint administrators.What does this mean and can it give my company a breathing space?

A "notice of intention of appointing administrators" is where the company files, at court, a document that outlines that they intend to go into administration if a solution cannot be found to their immediate financial problems. Once this is notice has been sent to the court a moratorium is created over the company, for an initial period of 10 days, preventing any creditor from starting any legal action or continuing any existing legal action against the company without express permission from the court.

An example of the form is shown and if you click on it you can download the form.

Who can file this intention to appoint?

The directors of the company have the power to appoint an administrator but so to does the floating charge holder, usually the bank or factoring company. So it's possible that board decides to appoint an Administrator and the bank refuses and appoints its own. Although, if the Insolvency Practitioner is recognised by the bank and there is a quality plan to protect the business then there should not be a problem.

This breathing space is for 10 business days. It is possible to apply for an extension for another 10 business days if it looks like a "deal" is imminent although other reasons are of course acceptable. This "deal" usually involves another party that wishes to purchase the business or its assets and a little extra time is needed. However, it will need to be in the interest of creditors for an extension to be granted. Multiple applications to refile and ask for extensions are unlikely to be successful.  Recent case law has indicated that extensions for just a bit of breathing space may not be granted at all.  I.e the company really must be intending to appoint administrators.  See this page for more details on this point

The ability to stop any legal action, including a winding up petition, is a powerful tool to save the business. The downside is that it is a very public event and this can be damaging to the business.

What are the advantages and disadvantages of going into administration.

Advantages

  • All legal actions are stayed by the process.
  • It stops the financial position getting worse and putting directors at further risk.
  • It can be very quick and cost effective if an "Administration pre pack" is used properly.
  • All unsecured debt is removed.
  • New managers can be appointed to help the business most usually in the financial management area of the business.

Disadvantages

  • 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 buy 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 therefore become very aware of the insolvency. All creditors will be written to and an advert will be placed in the London Gazette.
  • All orders must be ratified by the Administrator or his staff.
  • The directors have no powers to run the company.
  • Bank may appoint their own administrator.
  • Costs are high so most suitable for large companies.
  • TUPE applies to Newco - in other words the new company cannot remove employees and must adopt their contracts. This can be a problem when planning how to cut costs in the new company.
  • Financing trade and other supplies can be difficult unless adequate resources are available and or new funds can be introduced in the administration period.

So if you are thinking of going down the route of appointing an administrator then talk to us on 08009700539 as we can advise on whether this is the best option. It may be that a company voluntary arrangement or CVA is an appropriate alternative.