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When a company is facing financial
difficulties, the court can order that the company be put
into administration. This means that, during the period for
which the order is in force, the affairs, business and property
of the company will be managed by a person ('the administrator']
appointed for that purpose by the court. The administrator
must be a licensed insolvency practitioner.
"…. The affairs, business and property of the
company will be managed by a person ('the administrator')
appointed for that purpose by the court."
Who can apply for an administration order?
The company, the directors or one or
more creditors, amongst others, can present a petition to
the court for an administration order.
What is the purpose of the administration order?
The court will only grant an administration
order if it is satisfied that it would be likely to achieve
at least one of the following purposes listed at Section 8(3)
of the Insolvency Act 1986: ·
- the survival of the company
and the whole or any part of its undertaking as a going
concern;
- the approval of a voluntary arrangement
under Part I of the Insolvency Act 1986;
- the sanctioning of a scheme of arrangement
under Section 425 of the of the Companies Act 1985; and
- a more advantageous realisation
of the company's assets than would be effected on a winding
up (liquidation).
What are the powers of an administrator?
An administrator's powers are very
broad. They include powers to carry on the company's business
and realise its assets. The administrator displaces the company's
board of directors from its management function and has the
power to remove or appoint directors.
The administrator must prepare
proposals for approval by the creditors setting out how he
intends to achieve the statutory purposes for which he was
appointed.
Does the administrator pay unsecured creditors
the money owed to them?
Except in certain very limited
circumstances, the administrator is not empowered to deal
with the claims of unsecured creditors in respect of money
owed to them prior to his appointment. Such claims are frozen
during the administration.
If the outcome of the administration
is survival of the company, the management of the business
and assets can be returned to the directors when the court
discharges the administration order. The directors and staff
of the company will then deal with unsecured creditors' pre-appointment
claims.
If survival of the company is not
possible, the business and assets will be sold. After payment
of the costs and expenses of the administration, any surplus
funds will normally be passed to a liquidator, who will deal
with creditors' claims.
Sometimes the outcome of the administration
will be a company voluntary arrangement, within which creditors'
claims will be dealt with.
Six months after writing off a
debt in your accounts, you can claim VAT Bad Debt Relief from
HM Customs & Excise for the VAT you have paid.
If you believe that you own something
in the company's possession, you should contact the administrator
as soon as possible with full proof of ownership and be prepared
to identify what you are claiming. The administrator will
examine your claim carefully before deciding whether to release
the goods in question, pay you for them or otherwise.
Does administration automatically end when the
company goes into liquidation or a voluntary arrangement?
It is possible for a company to
be in administration and subject to a voluntary arrangement
at the same time. Indeed, this is quite a common situation.
During this period, both the supervisor and the administrator
will continue to perform their respective functions and duties.
However, a company cannot be in
both administration and liquidation. For a company to be put
into liquidation, the administrator would have to vacate office.
Is the administrator bound by contracts entered
into by the company prior to his appointment?
An administrator has a general duty to
the company to attempt to achieve the purpose or purposes
for which the administration order was granted. In doing so,
the administrator may find it impractical to have the company
perform certain contracts entered into prior to his appointment,
although he will have regard to the financial implications
of breaches of the company's contracts. Special provisions
apply to employment contracts.
Is the administrator liable for sums due under
contracts entered into by the company subsequent to his appointment?
An administrator s not personally liable
for contracts entered into as administrator, but normally
the administrator will pay for goods or services provided
subsequent to his appointment, as an expense of the administration.
As an unsecured creditor, what information am
I entitled to?
Unless the court orders to the contrary,
the administrator will notify all known creditors of the administration
order within 28 days. A meeting of all creditors is then normally
held within three months of the administration order to consider
the administrator's proposals. After approval of the administrator's
proposals, a report on the progress of the administration
is sent to all creditors every six months and at the end of
the administration.
Can the unsecured creditors form a creditors'
committee?
Yes. A creditors' committee may
be appointed at a meeting of creditors and must consist of
at least three and not more than five creditors.
The creditors' committee receives
reports from the administrator and may meet periodically.
Creditors' committee members are
not paid, but will receive their reasonable travelling expenses
as a cost of the administration.
Can a creditor initiate or continue legal actions
against a company in administration?
No. Any petition for the winding-up of
the company must be dismissed. In addition, except with the
consent of the administrator or the leave of the court:
- no steps may be taken to enforce
security over the company's property or to repossess goods
in the company's possession under any sale or hire agreement;
and
- no other proceedings, execution,
or legal process may be commenced or continued, and no
distress may be levied, against the company or its property.
How is the administrator's fee determined?
The creditors' committee {if there
is one) agrees the administrator's fee. Otherwise, it can
be fixed by the creditors or the court. Although the fee can
be fixed as a percentage of the value of the property dealt
with, it is normally based on the following factors:
- the time properly spent by
the administrator and his staff;
- the complexity of the case:
- any exceptional responsibility
borne by the administrator;
- the effectiveness with which
the administrator carries out his duties; and
- the value and nature of the
company's assets.
R3 is preparing a separate guide explaining
insolvency office holders' remuneration, which will be available
from the person who gave you this guide.
When is the administration complete?
The administrator must apply for the
discharge of the administration order when the purposes for
which the administration order was granted have been achieved,
or are deemed by the administrator not to be achievable. The
administrator will vacate office by obtaining his discharge
from the court and will notify the Registrar of Companies.
What should do if I am dissatisfied with the
administrator's handling of the case?
You should first contact the administrator
to try to resolve the problem. If you are still not satisfied,
you may be able to make an application to court. If you think
that the administrator is guilty of professional misconduct,
you should contact his recognised professional body (see below).
R3 is a centre of excellence representing
all those who work with under-performing businesses in the
UK. R3 does not license or discipline insolvency practitioners;
this is the responsibility of the practitioner's recognised
professional body. The RPB's are:
- The Association of Chartered Certified Accountants
- The Institute of Chartered Accountants in England and
Wales
- The Institute of Chartered Accountants in Ireland
- The Institute of Chartered Accountants in Scotland
- The Insolvency Practitioners Association
- The Law Society
- The Law Society of Northern Ireland (for Northern Ireland
only)
- The Law Society of Scotland
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