Companies that need to enter administration have a number of methods available to them to enter into this insolvency procedure. These can broadly be broken down into two categories:
1. out of court administration appointments; and
2. court appointments.
If an out of court appointment can be effected then lawyers, in normal circumstances, would advise a company, the board of directors or a qualified floating charge holder (“QFCH”) to utilise the far simpler, and thus less expensive, out of court route.
In circumstances where:
1. a company is being threatened with creditor action which
could have a fatal effect on the company; and
2. one of the statutory purposes of administration can be achieved,
the company should obtain the benefit of an interim moratorium by filing a notice of intention (“NOI”) in court. Needless to say, when a company, usually acting by its directors and not its members, seeks to effect an out of court appointment, it must serve any QFCH with the NOI and cannot appoint an administrator until the earlier of (a) obtaining the QFCH’s written consent or (b) the expiration of 5 business days after service.
Conflicting case law
The unfortunate spate of conflicting case law surrounding directors’ appointments is confusing, but what is clear is that the safest approach when making such an appointment is to serve the company (and any other prescribed parties) with a NOI even if there is no QFCH. But then there is the question of delay before getting appointed.
5 days too long
A delay of 5 business days is simply too long and may irreparably damage the company to the extent that one or more of the purposes of administration can no longer be achieved. This notice period can put the company into a ‘no man’s land’ where the company is clearly heading for administration but currently no administrator has control of it. There might be, for example, a trade show taking place at the forthcoming weekend in which a considerable proportion of the company’s annual turnover is derived, which event ought properly to be controlled by administrators in office.
Where there is a QFCH then of course the easy way to overcome the delay is by requesting that the banks, usually being the QFCHs, place the company into administration immediately, as banks need only file and serve NOIs if there is a senior QFC. Otherwise, they can immediately appoint an administrator over the company (assuming that power has been triggered in their debenture). Banks can be hesitant to pull the plug themselves (chiefly for public relations reasons) but they remain amenable to having an administrator (that they approve of) be appointed by the directors.
In those circumstances, with careful coordination and full cooperation between all parties, it is possible to make a directors’ appointment in 1 working day. After careful due diligence to establish the powers of the directors to appoint, we tightly micro-manage this process with company board minutes which permit short notice, enter into early dialogue with the QFCH (if there is one) for consent, line up process servers to effect service, and attend Court to file the appointment (a whole 2 minute’s walk from our offices). This facilitates a valid administration appointment within 24 hours from our initial instructions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.