The rules governing administration were amended under the provisions of the Enterprise Act 2002.
Administration is when an administrator, is appointed for a period of up to one year (although it can be extended by the Court or with the creditors’ consent) to manage a company’s affairs, business and property for the benefit of the creditors. The main objectives of administrations are to:
- Rescue a company as a going concern;
- Achieve a better price for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration); or
- Realise the property in order to make a distribution to one or more secured or preferential creditors.
An administrator may be appointed by either an administration order made by the court, by the holder of a qualifying floating charge, or by the company or its directors.
When does administration take effect from?
There are two types of application to the High Court.
There is the "without court order" appointment route for holders of qualifying floating charges, and companies/directors. This is quick and does not need a court application or hearing. Companies and directors can appoint an administrator quickly. This does not require a Court Order and only requires a fax to be sent to the court of the Notice of appointment.
The actual appointment can be preceded by filing a Notice of Intention to Appoint an administrator and the filing of such a notice will bring into effect an interim moratorium on insolvency proceedings and other legal processes being taken against the company.
However, sometimes it is still more appropriate to make the second type more detailed application which asks for a court hearing.
When a company enters administration (when either the Court order is made, or Notice of Appointment is filed), any pending winding-up petitions will be dismissed or suspended and there will be a moratorium on insolvency and on other legal proceedings.
The effect of administration is that the consent of the administrator or leave of the Court must be sought before any enforcement proceedings are commenced or continued with.
Without such consent or the leave of a court, Schedule B1 Section 43 of the Insolvency Act 1986 (“the Act”) bars:
- Any enforcement of security over a company’s property
- The repossession of goods held under a hire purchase agreement
- The forfeiture of a lease
- Execution against the company or its property
If consent of the administrator is withheld, the application is made pursuant to Schedule B1 Section 43(6)(b) of the Act. The appropriate Court is the Court dealing with the administration of the company – this can be the County Court or the High Court depending upon the amount of share capital. Any application to the Court must be on notice (served upon the administrator) and must be supported by a witness statement seeking consent to institute or continue with proceedings.
If you are seeking the consent of the administrator you should set out in writing the factual background to the case, the nature of the claim and the reasons you say that the purposes of the administration would not be impeded by carrying on with the execution. If a court does grant leave, it may impose conditions.
When deciding whether to grant leave, a court will conduct a balancing exercise based on the principles set out in the case of Re Atlantic Computer Systems, weighing the proprietary interests of the creditor against the body of unsecured creditors.
Where the exercise of the right would not impede the purpose of the administration then leave would normally be given. However, a creditor who has a monetary claim is unlikely to be granted permission; it is generally only claims that have a proprietary nature that are allowed to continue. Goods must however be in the actual or constructive possession of the administrator.
If you are owed money by a company that has gone into administration, often the best option is to submit details of your claim to the administrator (your proof of debt) and wait for the administrator to assess it. Time continues to run on claims during administration, so older-dated claims may need to be protected by obtaining the administrator's acknowledgement of the company's liability. This restarts the limitation period.
Can enforcement continue post administration?
The reality is that all of the company’s assets will have been disposed of by the Administrators before they leave office and therefore it will only be in the rare event that an “out of court” administration is set aside because it was invalidly made that assets may once again become available to creditors.
However, even in this scenario the company is likely to place the company into liquidation or administration again in order to protect the interests of creditors as a whole.
If execution is only partly-completed before administration occurs then the creditor cannot retain the benefit of such enforcement and must return any goods seized but not sold.