Appointing an Administrator
Whether your company enters administration voluntarily or is ordered to by court, an administrator would be appointed to handle the process. In order to facilitate a company’s administration, it’s important to understand the administrator’s role. In this article, we’ll discuss the appointment of administrators and what happens when an administrator is appointed.
Why Do Companies Appoint Administrators?
When a company is facing financial difficulties – whether an inability to repay debts, cover overhead costs, or pay employees – they may be forced to consider administration. Regardless of administration being voluntary or compulsory, companies are legally required to appoint an administrator. The administrator’s primary job is to work on behalf of the company’s creditors to secure an advantageous debt repayment plan. Understandably, this can raise fears about the company’s future. However, companies can derive benefit from the appointment of an administrator, hence some companies choose to enter voluntary administration.
Initially, entering administration will halt all legal proceedings against the company by way of a moratorium, thus relieving pressure and allowing time to formulate a plan. Another benefit that happens when an administrator is appointed is that they will consider possibilities to salvage the company. While they’re employed to help creditors recover their money, administrators will examine the company’s financial circumstances as a whole to find solutions. As a result, debt repayment may see the company restructuring yet continuing its operations, which saves it from liquidation and dissolution.
What Happens When a Company Appoints an Administrator?
Depending on your company’s circumstances, you may be considering voluntary administration and looking to appoint an administrator. Likewise, if a lender has sought a court order for the administration of a company, the court will order the appointment of an administrator. In either situation, one of your first questions may be what happens when administrators are appointed?
First and foremost, the administrator will take control of the company’s operations. This means they have the power to make changes to the company, including terminating employees’ contracts, selling assets, negotiating contracts, or ending operations altogether. A crucial aspect of this is gaining access to the company’s assets and financial records, as this allows them to carry out their primary role as administrator.
Over the course of eight weeks, the administrator will assess these records with the help of accountants and other finance professionals, and observe the operations of the company. This is done for the purpose of drafting a report with proposals to solve the company’s financial issues and pay back its debt. The report will be submitted to creditors for their approval or revision. Proposals ranging from restructuring the company, repayment through a company voluntary arrangement (CVA), sale of the company or liquidation are likely outcomes from the report.
As mentioned, upon the appointment of an administrator, a moratorium will protect the company from ongoing and upcoming legal action being brought against it. During administration, whether the company will continue trading is dependent on the findings of the administrator. Although a company can benefit from the expertise of the administrator, there’s no guarantee that it can recover from its debts. The administrator will consider several factors to determine the company’s capacity to recover, thus determining whether it should remain in operation.
Administrators’ contracts normally end after twelve months; however, the court can grant an extension.
How to Appoint an Administrator
Only certain classes of people are able to put a company into administration, and thus appoint an administrator. The company’s directors can do so voluntarily by majority vote, without the permission of the shareholders or creditors. Likewise, shareholders can do the same at a general meeting. Creditors and qualifying floating charge holders have the same right. Therefore, the appointment of administrators rests squarely on who is putting the company into administration.
Where the directors or shareholders vote for administration, they decide who to appoint. Conversely, a creditor would seek a court order to put the company into administration. If approved, the court will appoint an administrator, who is often the creditor’s suggested practitioner, whereas a qualifying floating charge holder can put the company into administration without a court’s intervention and can appoint an administrator themselves.
Appointment of an Administrator can either be an in-court procedure or an out-of-court procedure. Both procedures are identical in that notices must be filed in court and served on relevant parties. However, the in-court procedure involves a court hearing, where a judge decides whether an administrator should be appointed. The out-of-court procedure allows for qualifying floating charge holders to exercise their right of appointment of administrator, or for the party who is filing the documents to proceed with appointment without a court hearing. However, this procedure is only available to companies that have not previously started the administration process or have a winding-up order against it.
It must be noted that in order to be appointed, the administrator must be a licensed insolvency practitioner. Their appointment will be published in the Gazette, and relevant parties such as the directors, creditors and Companies House must be given notice.
At Irwin Insolvency, our team of licensed insolvency practitioners is equipped with over 25 years’ experience helping companies and creditors secure the best outcome from administration. To speak to one of our experts, call us today on 0800 254 5122.