ADMINISTRATION

Definition

Schedule B1(10) to IA-1986 states simply that:
An administration order is an order appointing a person as administrator of a company. Whilst S8 (2) IA 1986 defines an administration order as an order directing that, during the period for which the order is in force, the affairs, business and property of the company shall be managed by a person (‘the administrator’) appointed for the purpose by the court.

New legislation has created a ‘fast track’ administration procedure where the appointment is made by the company or its directors and registered with the court. Where a lender holds a debenture granting a qualifying floating charge (QFC), the debenture holder may also appoint an administrator. If there is a dispute between the directors and the debenture holder as to the choice of administrator the debenture holder’s choice takes preference.

The fast track legislation is available only to companies who fulfil two of the following requirements

• annual turnover not exceeding £5.6 million
• net assets not exceeding £2.8 million
• less than 50 employees

Larger companies which do not satisfy the necessary criteria may still continue to petition the court for the appointment of an administrator. A creditor may also seek the appointment of an administrator to a debtor company, through petition to the court (but not via the fast track legislation, irrespective of the size of the debtor company)

Effect of administration – legal

Once a petition for administration has been made to the court or an administrator appointed through the fast track procedure, no resolution may be passed for the winding up of the company.

In addition, without the leave of the court

• no landlord may exercise any right of distraint or forfeiture
• no steps may be taken to enforce any security over the company’s property or to repossess goods
• no other proceedings, execution or other legal process may be commenced or continued

Effect of administration – practical

The administrator of a company must perform his functions with the objective of

   a) rescuing the company as a going concern, or

   b) achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration), or

   c) realising property in order to make a distribution to one or more secured or preferential creditors

Unless the company is restored to solvency within the administratin, then an exit route will be required via either a Company Voluntary Arrangement (CVA) or liquidation.

The implementation of a CVA following administration, present the administrator / supervisor and professional advisers with great opportunity to formulate innovative rescue strategy in seeking to maximise recovery prospects.