Formal insolvency processes

Administration is the process whereby a company LTD, an LLP or a partnership, is placed under the control of an administrator in one of a number of ways. The method of appointment may be crucial to the sale of the company or its business, as the procedure can be instantaneous or involve an interval of five business days or more between initiation of the appointment process and the appointment of the administrator. Administration commences when the appointment of the administrator takes effect, and that can be by way of an order of the court made on an administration application, or on appointment made out of court by:

  1. the holder of a qualifying floating charge (‘QFC’); or
  2. the company or the directors

Anything done by the directors in the administration process may be done by a majority of them. However directors’ meeting must still be called, and decisions made, in accordance with the company’s articles of association or their decisions may be found to be invalid. An administration application may be made by the company, the directors, one or more creditors or the designated officer of a magistrates court in the exercise of certain powers. An administration application is most often used by the company or the directors when a creditor has presented a winding-up petition to the court against the company and the petition has not yet been disposed of. A creditor may in some circumstances make a successful administration application, even when its debt is disputed by the company, if there are good reasons for the court to make an administration order. The court may make an administration order if it is satisfied that the company is unable to pay its debts and that the administration order is reasonably likely to achieve the purpose of administration. There is an exception to this where a creditor who holds a QFC makes an administration application; then the court may make an administration order without being satisfied that the company is unable to pay its debts, but it must be satisfied that the creditor could appoint an administrator by the out-of-court procedure. An administration application must be served on the company (unless it is making the application itself) at least five days before the hearing. It must be similarly served on:

  1. the proposed administrator;
  2. the holder of a QFC;
  3. any creditor who presented a winding up petition to wind up the company
  4. other prescribed persons

When a company goes into administration directors remain in office unless and until they are removed or resign. However they are not entitled to exercise a management power in relation to the company without the consent of the administrator. In practice an administrator will rely on the directors after his or her appointment, particularly if the company continues to trade, and will consent to and authorize the directors to carry out certain functions under his or her control. An administrator may remove and appoint directors to the company.