A company can be put into administration when it is unable to pay its debts as they fall due and a licensed insolvency practitioner is willing to express his opinion to the Court that doing so will result in one of the following statutory purposes of the administration regime being achieved:
- the rescue of the company as a going concern,
- a better outcome for the company's creditors than an insolvent liquidation, or
- the company's property being collected in with a view to making payment to one or more secured or preferential creditors.
Either the company or its directors may appoint an administrator, although if there are any floating charge holders they must be given notice of the intention to appoint an administrator, which will allow them to make an appointment themselves in the intervening notice period. It is also open to the holder of a qualifying floating charge to make an appointment of its own accord, without having received any other notice of intention to appoint. Unsecured creditors of the company also have a right to apply to the Court for an Order appointing an administrator.
When a company goes into administration it can continue to trade, as long as the administrator remains of the view that one of the objectives mentioned above can be achieved. The company acts via its administrator and he/she has the power to do anything in the name of the company that the company could do pre-administration. A moratorium is imposed on court or other legal proceedings against the company in administration, which can only be circumvented by obtaining the consent of the administrator or the court.
An administration can last up to one year without the need for the administrator to take any further action and at the expiry of a year can either be extended for up to 6 months with the consent of all of the company's secured creditors and at least 50% of the its unsecured creditors or indefinitely with the Court's permission (although the court will only normally grant extensions up to one year). Once an extension has been approved by creditors any further extension can only be obtained by applying to Court.
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.