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What is a Special Administration for a limited company?
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Special administration process explained
Special administration is a formal insolvency procedure for businesses that provide a statutory or public service or supply, or hold client money, such as businesses regulated by the Financial Conduct Authority (FCA). Such businesses must enter special administration as their collapse could have far-reaching effects on the market and wider economy.
Special administration is a process intended to support companies that provide a statutory or public service or supply, or that hold client money. Companies such as energy firms, pension operators, and other organisations regulated by the Financial Conduct Authority (FCA), may be placed into special administration if they fail.
There’s often wider public interest in these organisations when they fail, compared with other companies. Furthermore, the objectives of the special administrator appointed, and the powers bestowed on them, are different from those in a standard company administration.
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The ‘normal’ administration process is laid out in the Insolvency Act, 1986 - essentially, the administrator must be able to achieve one of the following three statutory objectives:
- Rescue the company as a going concern, or
- Achieve a better result for the company’s creditors as a whole than if the company entered liquidation, or
- Realise company property to make a distribution to one or more secured or preferential creditors
When considering a special administration the overall objectives are modified, and to achieve them the powers held by a special administrator differ slightly from a ‘standard’ administration.
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A variety of special administration regimes exist in the UK in relation to organisations that provide critical services. These include electronic money institutions, investment banks, further education institutions, pension firms, and utility companies.
Taking the example of an investment bank, a special administration would help to ensure that uncontrolled damage to the financial markets as a result of the bank’s failure was avoided. A special administrator would step in with a view to minimising the negative impact.
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Special administration is a relatively rare process, but it’s entered the spotlight recently due to the UK’s energy crisis. Energy firms entering special administration include Bulb, which was considered too big to appoint a Supplier of Last Resort (SoLR) to take over its customer base - the ‘standard’ approach in the case of smaller energy companies that have failed.
In the case of energy firms, special administration enables uninterrupted energy supplies to customers, despite the failure of their supplier. The administrator must balance this requirement to continue critical supplies, or services in the case of other sectors, against the standard obligation to work in the best interest of creditors as a whole, however.
The company in special administration continues to operate, but under the control of the special administrator. The office-holder must proceed until the business is sold, rescued via restructuring or additional funding, or in the case of an energy company, its customers have been transferred to another supplier.
In some cases the government may financially support the process in the form of loans, bonds, or guarantees. The aim is to resolve the situation as quickly as possible, however, and special administration is not intended to be a long-term solution.
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Under favourable circumstances it might be possible to sell the company that’s been placed in special administration, or to sell part of the business. Other larger and more financially stable companies in the same sector may wish to purchase all, or certain elements, of the failed business.
If you would like more information on special administration or any other aspect of insolvency, Real Business Rescue can help. Please get in touch with our partner-led team to arrange a free, same-day consultation. We’re a major part of Begbies Traynor Group and operate a nationwide network of UK offices.
Further Reading on What is a Special Administration for a limited company?
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