Edwin Coe | Administration Advice | Insolvency Lawyers

Introduction

Administration is a process whereby an insolvent company is placed under control of an insolvency practitioner to achieve one of the following objectives:

To rescue the business as a going concern (i.e., to allow it to return to solvent trading).
If the rescue is not possible, to achieve a better result for the company’s creditors as a whole than would be likely if the company were put into liquidation.
If objectives (1) and (2) above are not possible, to realise the company’s property to make a distribution to its secured or preferential creditors.

An administration process provides a fast, flexible and cost-efficient route into formal insolvency, and is often utilised when the company (or a part of its business) is salvageable. The administrator’s power to continue trading the company during their appointment allows them to achieve a better price for assets such as goodwill, intellectual property, equipment, customer databases, or websites, than would be possible in a liquidation process. While the directors may continue to assist the administrator during this time, the daily management and control of the company passes to the administrator upon their appointment.

To improve the chances of a company returning to solvency, the Act imposes a moratorium to prevent creditors and other third parties from taking legal action, including enforcement action, against the company while it is in administration.

Upon the sale of any assets, the proceeds (after payment of the costs of the administration) will usually be distributed to creditors in accordance with the statutory order of priority. There are specific rules regarding distributions, but generally secured creditors will be paid first, followed by preferential creditors, unsecured creditors, and finally shareholders or members.

Edwin Coe has an experienced Restructuring and Insolvency team of partners and associates who are well-placed to assist you with the administration process. Administration is a technically complex area of law and is often utilised in high-pressure situations where the future of the business is dependent on making strategic decisions quickly. It is therefore crucial to seek timely and expert advice. The Edwin Coe team regularly advises on associated court applications, negotiations with creditors, and other steps required in for the appointment of administrators.

Services we offer in this area include:

Advising on the appointment of administrators, including acting for creditors, directors, and the company itself

Advising parties in opposing the appointment of administrators, seeking to appoint alternative office holders, or otherwise wishing to protect their position during the appointment process

Advising on the formalities necessary to secure the appointment of administrators;

Advising administrators or other interested parties throughout the administration, including:

Assisting in ongoing investigations

Advising insolvency practitioners in relation to extension applications and remunerations applications

Advising on the ongoing rights of creditors throughout an administration

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Corporate Insolvency

Administration
Individual Voluntary Arrangements
Company Voluntary Arrangements
Members Voluntary Liquidation
Creditors Voluntary Liquidation
Statutory Demands
Winding Up Petitions: Guidance for Creditors
Winding Up Petitions: Rescinding an Order
Winding Up Petitions: Defending an Order
Compulsory Liquidation
Restructuring Plans

Personal Insolvency

Claims against Directors

The Administration Series

Edwin Coe’s Restructuring & Insolvency team has put together a series of blogs on all matters administration related, covering background and insights into the process, technical guidance, case law updates and practical tips:

A Short History of Administrations

The Rise of the Pre-Pack

Factors Affecting the Ebb and Flow of Administrations

Key Information

How does a company go into administration?
There are two routes to placing a company into administration:
1. Administration Application, which involves applying to the court for the appointment of administrators; or
2. Out-of-court Appointment, which involves filing prescribed documents at court.
Edwin Coe can advise on the appropriate route for the particular circumstances.
What is a Qualifying Floating Charge Holder?

It is important to understand the nature of creditors that a company has before deciding the appropriate route into administration. Although creditors may be categorised as secured or unsecured, a subcategory known as “Qualifying Floating Charge Holders” (“QFCH”) are particularly relevant to administrations.

A QFCH is a person or entity which holds a debenture secured by (i) a qualifying floating charge which relates to the whole or substantially the whole of the company’s property, (ii) a number of qualifying floating charges which together relate to the whole or substantially the whole of the company’s property, or (iii) charges and other forms of security which together relate to the whole or substantially the whole of the company’s property and at least one of which is a qualifying floating charge.
An Out of Court Appointment (where there is a QFCH)

Step 1: Before steps can be taken to appoint an administrator, it is essential that certain checks are carried out for existing insolvency proceedings against the company. It is also necessary to check whether the company is FCA regulated, as further consents will be required if it is regulated.

Step 2: The board of directors of the company will need to pass resolutions approving the appointment. Where the appointment is being made by the company, shareholder resolutions are also required.

Step 3: A Notice of Intention to appoint must be filed with the court together with copies of any resolutions and FCA consent, if required. Once the Notice has been sealed by the court, it must be served on the company and on any QFCHs. At this stage the company has the protection of an interim moratorium. However, the moratorium does not apply to QFCH and a QFCH still has the ability to appoint different insolvency practitioners.

Step 3: If the QFCH consents to the appointment, or if five business days has passedsince service of the Notice of Intention, the applicant may proceed with filing the necessary statutory documents with the Court to effect the appointment of administrators.

It should be noted that a Notice of Intention is only valid for 10 business days. Applicants must therefore be mindful of any deadlines and what steps must be taken if it is not possible to secure the appointment of administrators in that time.

Step 4: Upon the Notice of Appointment being sealed by the court, the company is deemed to be in administration and the administrators appointed. Notice must then be given to the company and its creditors.

Please note that if the appointment is being made by a QFCH the timescales referred to above are shortened. Please contact us for further information regarding the appointment of administrators by a QFCH.
An Out of Court Appointment (where there is no QFCH)

If there are no QFCHs, an out of court appointment may be sought without giving prior notice. As such, it is not necessary to file a Notice of Intention, and the applicant may skip Step 3 above. In such circumstances, any resolutions should be filed alongside the Notice of Appointment.
Appointment by Court Order

Step 1: As with any other appointment of administrators, the applicant must carry out the necessary checks for existing insolvency proceedings against the company. A further search must be carried out to determine if the company is FCA regulated.

Step 2: An application may be made to the court by various different parties, including any of (i) the company itself, (ii) the directors of the company, (iii) the company’s creditors, or (iv) a liquidator. In addition to the application notice, the applicant must also file a witness statement in support of the application and a statement from the insolvency practitioner confirming their consent to act.

Step 3: The applicant will need to give notice of the application to the company and other relevant parties. Upon the application being issued, an interim moratorium will be in place to prevent creditors from commencing action against the company before the application is heard by the court.

Step 4: The application will be heard by the court shortly after it has been issued. If the court is satisfied that the company is, or is likely to become, insolvent, and that an administration is likely to achieve one of the purposes outlined above, an administration order will be made.
What is a Pre-Pack Administration?

Pre-pack administrations are a special type of administration process which facilitates the transfer of viable parts of the company’s business quickly and confidentially. Such administrations are often utilised where any delays would cause particular disruption to trade or cause a significant drop in value of the assets being transferred.

In a pre-pack, the sale of assets is agreed prior to the administrator being formally appointed. All negotiations take place while the company continues to trade and the sale completes immediately upon the administrator’s appointment.

While there are clear benefits to affecting a sale in this manner, the time constraints and complexities of both the sale and the administration mean that it is important to seek legal advice at an early stage.
What happens once the company is in administration?
As set out above, an administrator is appointed to achieve one of the following objectives:
1. To rescue the business as a going concern (i.e. to allow it to return to solvent trading).
2. If rescue is not possible, to achieve a better result for the company’s creditors as a whole than would be likely if the company were put into liquidation;
3. If objectives (1) and (2) above are not possible, to realise the company’s property to make a distribution to its secured or preferential creditors.
In order to achieve one of the above objectives, the administrators have broad powers allowing them to (amongst other things):
- Continue to trade the company’s business;
- Collect in and realise the assets of the company, including marketing and selling assets to third parties;
- Conduct investigations into the company’s affairs, including into the actions of officers of the company; and
- Commence proceedings against third parties on behalf of the company.
Questions can often arise in relation to jurisdiction, sales to third parties or members of the ‘OldCo’ management team, the standards applied in the sale, or the process of appointment itself. The Edwin Coe R&I team has the necessary experience to advise and act on a broad range of administration related matters.
How does an administration end?

If the administrators are able to rescue the business, they will eventually return the company to the control of its directors. If the business is no longer viable and returns have been made in line with objective (1) or (2) above, the company will be placed into liquidation to be wound down.

An administration has an automatic term of one year. The administration may be extended beyond that period if so required, but it is necessary to seek either approval from the company’s creditors or the court to do so. Edwin Coe is well placed to advise on such applications.