There are cases where it is simply not possible to reach a compromise with creditors, or where the directors’ objectives cannot be met with a creditors’ agreement. An Administration Order can be obtained which allows the Administrator to trade the company’s business whilst being protected from creditor action whilst the sale of the business, or part of it, can be arranged.
Directors are able, to take appropriate advice and procedures, to buy part or all of the business and assets of a company. If certain criteria are met this can be completed very quickly – this is called a Pre Pack.
It is possible for a creditor or the company’s directors to apply to the court for an order to place the company in Administration. A Licensed Insolvency Practitioner takes control of the business and assets of the company, and the creditors’ claims are frozen whilst a solution is worked out and proposals are made to the creditors. Generally these proposals will result in one of the following outcomes:
- Sale of the business and assets, followed by a liquidation of the company to enable funds to be passed to the unsecured creditors
- The agreement of a Company Voluntary Arrangement
- In the absence of alternatives, a sale of the assets to repay the secured creditors after which the company may be struck off if there are no funds for other creditors and if there are no issues of further investigation by a Liquidator.
The process involves the court and the filing of appropriate documents. On filing, a legal stay against actions by the creditors is granted and breathing space is obtained in which to develop further proposals. Ideally jobs are saved and the returns to creditors enhanced.
An Administration Order must be concluded within a year of the granting of the order.
There can be clear advantages in using this procedure over Liquidation as Liquidation does not involve any trading activity.
Although the Administrator can be proposed to the Court by the Directors, the secured lenders will often have a say in the process. Before a Court will grant an Order, the Court must be satisfied that the secured creditor has been provided with proper notice and has not registered any objection; usually they prefer their own nominees to be appointed.