What is Administration?
Administration is a formal insolvency procedure which provides a business with protection against legal action allowing a business to be sold or restructured. It also provides time to consider various fund raising options if these are suitable.
There are key criteria which have to be met but this powerful procedure can provide immediate protection against winding up proceedings/bailiffs etc.
In order for a company to be placed into Administration it must fulfil one of 3 purposes.
Purposes of Administration
Schedule B1 of The Insolvency Act 1986 provides that an insolvency Administration of a limited company can only take place if there exists one of three possible “statutory purposes” set out in Paragraph 3 to schedule B1.
- Rescuing the company as a going concern (this implies survival of ltd company not just the business of the company)
- Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up
- Realising property to make a distribution to one or more secured or preferential creds.
There are certain preconditions which must exist for a company to be placed into Administration.
- The Company has not in the previous 12 months been in Administration as a result of either a direct appointment by the Company or its Directors or an application by them, and it has not during that period been subject to a moratorium in respect of a failed Company Voluntary Arrangement (“CVA”) under Schedule A1 to the Act or a moratorium not followed by a CVA;
- The Company is or is likely to become unable to pay its debts;
- There is no outstanding application for Administration in respect of the Company;
- The Company is not in liquidation; and
- There is no Administrator or Administrative Receiver in office.
In certain cases, the Insolvency Practitioner will be able to consider what is often referred to as a “pre pack” administration in which in urgent circumstances an immediate sale of the business is achieved.
Pre-pack administration is an insolvency procedure in which a company will make arrangements to sell some of all of its assets before appointing an administrator to facilitate the sale. It differs from conventional administration in that the sale of assets is negotiated before an administrator is appointed.
Pre-pack administration sometimes involves selling the business and assets of the old company to its current directors, who then form a new company. This can be the most advantageous solution but may also be controversial with creditors. It is essential therefore to take advice early from a licensed insolvency practitioner.
For a no obligation discussion or more information on any of the above, call our enquiry team on 0800 085 1706, we’ll be happy to help.