20th February 2021
Once an insolvent company enters administration, a licensed insolvency practitioner will be appointed as the administrator to oversee the company and its assets.
A company administration process can be quick and simple or long and complicated, depending on the status of the insolvent company, however, it is only ever an interim holding position; at some point the company will need to exit administration, whether this is to carry on trading or to cease operations altogether. The ultimate aim of company administration is to bring about the recovery of the business, while also acting in the best interests of the company’s creditors.
During a company’s time in administration, there are various routes it can take. The company may be sold altogether, some of its assets may be separated and sold to a third-party, or the administrator may decide to continue trading as usual while a future strategy is devised and implemented.
Company directors can choose to appoint an administrator themselves in order to safeguard their company from creditor pressures, or alternatively the holder of a floating charge can forcefully appoint an administrator over a company if it fails to uphold the conditions of a debenture agreement. By law the appointed administrator must be a licensed insolvency practitioner.
After being appointed, the administrator has a period of 8 weeks in which to send out formal administrative proposals to all creditors, detailing the objectives of the administration. A creditors’ meeting is also likely to be held during this time.
Before placing the company into administration, the appointed insolvency practitioner is obligated to examine all options in search of a more suitable course than administration before proceeding. For example, if the company has poor cash flow, few assets, and a dim chance of recovery, then the insolvency practitioner would consider whether a shutdown liquidation procedure such as a Creditors’ Voluntary Liquidation (CVL) would be more appropriate.
Once the administration begins, the appointed administrator will request that one or more of the company’s former or current directors or officers provide a detailed statement of company affairs. This document will simply detail the assets and liabilities of the business, including any assets that are subject to fixed or floating charges.
The administrator must have a copy of the SOA to attach to their proposal within the aforementioned 8 week time period. Once the proposals have been sent out to creditors, a copy of them will also be stored with the registrar of companies on the company’s public file. Sent along with the administrator’s proposals will be an invitation to the creditors’ meeting, during which floating charge holders will announce whether they accept the proposals.
A formal creditors’ meeting must be held within 10 weeks of entering administration, and each creditor must be given at least 14 days’ notice; these time constraints may be extended by the Court or creditors in some cases. The creditors’ meeting does not necessarily have to be a physical meeting – the matters can be handled via correspondence between the creditors and the administrator. However, if more than 10% of the creditors request a physical meeting then it must be held. The creditors can also choose to form a creditors’ committee of 3 to 5 people to represent the company’s creditors as a whole. Following the creditors’ meeting, the administrator is required to send an administrative progress report to the creditors, the Court, and the registrar of companies at least once every six months until the company exits administration.
At Real Business Rescue our licensed insolvency practitioners are experienced in all matters related to company administration. For free advice or to arrange a no obligation consultation call us today on 0800 644 6080. With over 100 UK offices, you are never far from expert help and advice.