ADMINISTRATION
The IA 1986 made provisions for the concept of administration. The process involved making an application to the court to safeguard the continued existence of the company that was in financial difficulty.
Initially the application could be made by the company or any of its directors or creditors, by the court, pursuant to IA 1986. Initially complex and costly process.
Process was simplified in Enterprise Act 2002, and following this, an application could be made out of court, by the holder of either a floating charge or by the company or any of its directors. Cost effective, accessible and easier.
The aim of an administration order is to save the company, as a going concern, by taking control of the company out of the hands of the directors and placing it in the hands of an administrator.
Once the company is placed into administration, it is no longer possible for any creditors to commence winding up proceedings against the company or to enforce any charges, retention of title clauses or even hire purchase agreements against the company.
So the powers that are granted to the administrator are substantial. They may do anything necessary for the management of the company.
Initially, upon appointment, the administrator must make a statement that details objectives that they proposed to achieve and how they propose to do so within 10 weeks of entering into administration.
The proposals must be put to the company's creditor's at a meeting and failure to hold such a meeting is punishable as a criminal offence. Creditors at the meeting may approve or reject the proposals or make modifications to them. Whatever the outcome, the results must be reported to the court.
Initial period of administration is 12 months. This is the minimum period that the administrator would have to try and recover the company. It can be extended if the court, with the consent of the creditors, agrees to the extension. Any extension is time limited (6 months or upto 6 months) - so by this time, if the administrator has not achieved that which they set out to do, then the company will need to be wound up.
APPOINTMENT OF AN ADMINISTRATOR CAN BE DONE IN THREE WAYS:
- An application to the court by the company, any of its directors or creditors (IA 1986)
- An application OUT of court by the holder of a floating charge (Enterprise Act, 2002)
- An application out of court by the company or its directors (Enterprise Act, 2002)
AIM OF THE ADMINISTRATOR
- Rescue the company as a going concern - primary objective. (if this can't be achieved, then administrator will move on to the next objective)
- Achieve a better result for the company's creditors as a whole than would be likely if the company were to be wound up, or where this is not possible...
- Realise the value of the property in order to make a distribution to the secured or preferential creditors
ADMINISTRATORS POWERS
They may:
- remove or appoint directors (often it is the poor running or management of the company by the incumbent board of directors that results in the company being in a financial difficulty)
- it is not uncommon to appoint a new board of directors
- they may work alongside current directors and oversee them. If financial instability is due to outside factors, then administrators would acknowledge that directors are the best ones to continue running the company under supervision and guidance.
- Administrator would take possession of and collect/arrange to get in property of the company and if necessary to take proceedings against any debtors to bring this into effect.
- sell or dispose of property at auctions or private sales
- bring or defend any action or other legal proceedings in the name and on behalf of the compay
- make payments that are necessary or incidental to the performance of their functions
- carry on the business of the company and establish subsidiaries of the company
-present or defend a petition for the winding up of the company if that is inevitably the case
STATUTORY MORATORIUM
- This is effectively a block during the period of administration on any creditors taking any steps to enforce security over company property, to take steps to repossess any goods in the company's possession. This includes any goods that are subject to hire purchase agreements and also prevents any creditors being able to commence any legal proceedings or execution of any warrants (where they seek to enforce debts or judgement that have already been obtained against the company or any of its property).
- Most importantly, the moratorium prevents a petition being brought to wind the company up.
- it gives the company some breathing space allowing the new regime under the care of the administrator to put the proposals or any agreements that have been reached with the creditors at the meeting into effect - make arrangements so that they can go back to the process of rescuing the company.