Either the company or its creditors can appoint an administrator
An administrator may be appointed by, among others, the company, if the board is of the view that the company is or may be insolvent, or a person holding security over all or substantially all of the assets of the company, if that charge has become enforceable. Any creditor may apply to the court for the court to appoint an administrator. The company cannot appoint an administrator if a liquidator has already been appointed.
While a company is in administration:
• a secured creditor may not enforce a charge over the company’s property (subject to a substantial secured creditor’s right to block the administration);
• proceedings against a company or its property are stayed;
• enforcement processes against property are halted; and
• personal guarantees given in respect of the relevant company cannot be enforced. This gives the company breathing space to continue operations while the parties take stock of the situation.
The administrator will hold within 8 working days a first creditors meeting, at which creditors will be informed of the initial views, and may appoint a “creditors’ committee”. Creditors may also resolve to replace the administrator if they are not satisfied with the existing one. A second creditors meeting must then be held within 20 working days. At this meeting, creditors are tasked to decide the future of the company. The administrator will report on the business and then creditors must then determine if the company should execute a deed of arrangement, the administration should end, or that a liquidator be appointed. Decisions are passed by a 75% majority based on the value of creditors’ claims. However, a secured creditor (eg the holder of a perfected “retention of title” security) is only bound if they vote in favour. Any person who holds security over all or substantially all of the property of the company, may, within 10 working days of the appointment of the administrator, decide to enforce their security. Overseas experience is that financiers generally support the administration process.
The advantage of administration is that it allows the company to continue trading with a view to maximising returns to creditors. Also, directors powers are suspended, generally requiring the approval of the administrator, which introduces an additional element of independent governance.
