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 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.
Who can file a notice of intention to appoint administrators?
- Company directors
- Qualified floating charge holders i.e. the bank or factoring company
How to go about filing?
A maximum of 5 business days before filing the notice with the court, certain parties must be informed of the intended action. Such parties include qualified floating charge holders (QFC), supervisors of a voluntary arrangement and any others who are entitled to appoint an administrator. A rare scenario but, if any of these parties object to the proposed appointment they have the chance to appoint their own.
What happens once this notice has been sent?
A moratorium is created over the company for an initial period of 10 days, preventing any creditor from starting legal action or continuing any existing legal action against the company, without permission from the court.
An extension of 10 days can be applied for if it looks like a deal is imminent – but this extension must be in the interest of creditors and must be justified.
The notice informs parties, namely, creditors and floating charge holders of the current events.
In some situations the notice of intention will not be accepted, for example;
- The company cannot have been in administration within the last twelve months
- An administrative receiver must not be currently in office
- The company has received a winding up petition that has not yet been withdrawn
In the past, the process was used to buy time for a financial investment or to propose a CVA. The Court of Appeal judgement in JCAM v Davis Haulage said there has to be a “real intention to appoint”
Going into administration Advantages and Disadvantages
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.
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.
