Updated: 5th February 2020
A notice of intention is used to inform certain parties that a company intends to enter administration. The document is submitted to court, typically by directors striving to prevent their company’s liquidation.
The Notice of Intention to appoint an Administrator stops creditor legal action and offers a short period of time to determine the best way forward for the business. The result of filing this notice can vary - sometimes restructuring of the company’s debt is the optimal solution, but in other instances it could involve the sale of business assets under a process known as pre pack administration.
The company, its directors, or a qualifying floating charge holder (typically the bank), can all file a notice of intention with the court. Once this has been done, an administrator of their choice will be appointed.
The floating charge holder is able to object if they disagree with the administrator chosen. Although it rarely happens, they have the power to appoint their own under these circumstances.
So are there any instances when a notice of intention would not be sanctioned by the court? If the company has entered administration during the previous 12-month period, or a winding up petition has already been filed against them, a notice of intention is unlikely to be accepted by the court.
The company must notify qualifying floating charge holders and supervisors of any company voluntary arrangements already in place, at least five business days before the notice is filed at court.
This provides the opportunity for the qualifying charge holder to object to the choice of administrator if they deem it necessary, but as we mentioned earlier, this rarely occurs in practice.
The notice of intention requires the name and address of the administrators to be completed, in addition to other information about the company and its situation.
Some recent case law directly affects the Notice of Intention and a company’s ability to issue one; Davis Haulage Limited Vs JCAM Commercial Real Estate Property XV Ltd. Essentially, a notice of intention may only be filed in court where there is a qualifying floating chargeholder. This is a floating charge created on or after 15 September 2003.
Where there is no qualifying floating chargeholder, a notice of intention may not be used.
When the notice of intention has been filed at court, an interim moratorium period of 10 business days is triggered. This allows the directors and administrator to make plans for dealing with the financial decline of the company, and ultimately avert liquidation.
During this moratorium period the company’s creditors are not able to begin or continue legal action against the company unless they obtain authority from the court, which in practice is unlikely to happen.
If the initial 10-day moratorium period ends without a plan being concluded – the sale of the business is being negotiated, for example, but a deal hasn’t been finalised – a further moratorium period of 10 days may be applied for.
The court will need to be convinced that a deal is in progress and likely to result in a defined outcome for the company, however. They will look unfavourably on any attempt to abuse court process by making multiple applications via a number of different notices of intention.
Administration can be the best solution for eligible companies experiencing severe cash flow issues, but that have a viable business underlying their problems. It’s a formal insolvency procedure that’s commonly used to restructure a company, and can lead on to a Company Voluntary Arrangement or a process known as pre pack administration.
Pre pack administration involves the quick sale of a company’s assets, often to the existing directors who use their own funds to purchase the assets. The buyers then set up a ‘newco’ and continue trading without the debt.
This process is open to abuse, however, and a licensed insolvency practitioner must by law demonstrate that a pre pack administration offered creditors a better return than if the company was liquidated.
Although the business assets are sold quickly under this arrangement, if the IP can show they reached a fair value rather than being purchased at below their market value, and that the procedure was used to benefit creditors, pre pack administration can be the best option after the notice of intention has been filed.
Real Business Rescue are insolvency specialists and can offer the professional support you need if your company is in serious decline. We’ll explain more about the notice of intention in relation to your own situation, and ensure you understand the implications of all the options open to you. To arrange a free same-day consultation please call one of the team or use our call-back feature on our website.