Restructuring and Insolvency


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What is administration?

Administration, or the more commonly used phrase ‘going into administration’, occurs when a company is insolvent and cannot pay its debts as and when they fall due.

Administration procedures tend to only be appropriate for companies with a larger asset base, where there will be a tangible difference to the extent of asset realisations compared to what would be the case if the company was placed into liquidation. Alternatively, if a secured lender has concerns over the viability or asset position of the company and therefore its security, they may appoint an Administrator under the terms of their debenture.

Administration is a Court based process, however most Administration appointments are dealt with “out of Court”, meaning that whilst appointment documents need to be filed with the Court, there is no formal Court Hearing to place the company into Administration.

What happens in the administration process?

Only a licensed insolvency practitioner can be appointed as an Administrator of a company.

Using the out of Court process, a company / its directors or, alternatively, a secured lender with a qualifying floating charge can appoint an Administrator in a relatively short space of time. By filing a Notice of Intention to appoint an Administrator, this provides statutory moratorium protection of a company’s assets immediately.

There are certain preconditions which must be satisfied before the out of Court procedure can be implemented, for example, if there is an outstanding Winding Up Petition it is not possible for the company / its directors to appoint an Administrator, whereas a secured lender is not subject to this rule.

If the Court led route is preferred, then an application to Court for an Administration Order is required, which will be supported by witness statements and a hearing will be scheduled to take place – meaning that this could be some time before a company can enter into Administration.

An Administration must be able to achieve one of three statutory purposes:

  1. Rescue the company as a going concern
  2. Achieve a better result for creditors than what would be achieved through liquidation
  3. Realise assets for either Secured or Preferential creditors

Sometimes the administrator will choose to trade the business during administration if he thinks that it can be rescued as a going concern or if it is considered beneficial for creditors and a trading profit will be generated.

What is pre-pack administration?

A pre-pack administration is a useful tool available to licensed insolvency practitioners acting as administrators, it ensures that there is no disruption whatsoever to the continuation of the trading business.

By using the pre-pack administration route, a sale of the company’s business and assets is agreed before the company is placed into administration. A marketing exercise will have been carried out, potential purchasers identified and a sale agreement will have been drafted and agreed by the purchasing party and the administrator.

Only when the terms of sale have been agreed is the appointment documentation filed at Court to formally appoint the administrator, following which the sale agreement is immediately completed, and the company’s business and assets immediately transfers to the purchasing party.

Reasons for pre-pack administration

  • To protect the continuation of trade
  • There is not enough funds to allow the business to continue trading once the administrator has been appointed
  • The administrator has identified certain risks associated with allowing the business to continue trading, particularly those that could have a negative impact on a potential sale
  • To preserve jobs and employee contracts

The pre-pack pool

The pre-pack pool was introduced in November 2015 following an independent review into the whole pre-pack process that was conducted by the government. The pool’s aim is to make the pre-pack process itself more transparent, especially when cases involve the sale of a business and assets to directors and shareholders. It also provides assurance to creditors that experts have reviewed and approved any proposed transactions.

How do I find out more about administration?

If your business is experiencing financial uncertainty and you are considering whether or not administration (including pre pack administration) is the right route forwards, it is important to get professional advice as early as possible. The sooner professional advice is sought, the more options there are available and usually, more of a business to save via an administration process. Unfortunately, the more a company’s financial position deteriorates the less likely it is to implement a more rescue based procedure such as administration.

Our Restructuring & Insolvency team is here to take a closer look at the situation of your company via our business review, provide advice and, if necessary, assist with the administration process. Visit our >contact us page and fill in the form to get in touch or give our team a call on 0800 731 2466.

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