Administration is a court driven procedure which, since the introduction of the corporate provisions of the Enterprise Act 2002 on 15th December 2003, has become a cost effective way to preserve even small businesses. Interested parties, including directors and creditors, can petition the Court for a company to proceed into Administration. The petition will include reports from the petitioner and an Insolvency Practitioner indicating the purposes for which the Administration is required. This could involve the survival of the company as a going concern but could also be simply to maximise the realisation of assets.

Once an Administration Order is in place it freezes creditors’ rights and means that they cannot pursue old debts. In the right circumstances the company will continue to trade although the Administration rather than the directors controls it.

It is important to realise that in these circumstances the Administration controls the direction of the company. Until the Administration Order is discharged the directors only have the powers that have been delegated to them. However, in practice the Administrator and the directors will work together to preserve the business. Most often, an Administration Order is issued to protect the company in the short term whilst a Company Voluntary Arrangement (CVA) is discussed and proposed to creditors.

Administrative Receivership

An Administrative Receiver is appointed to the company by a debenture holder, who holds a fixed and floating charge over the company’s assets. On appointment, the directors no longer control the company and it is run by the Administrative Receiver. He has the ability to continue to trade although he may decide not to do so depending on the circumstances. If trading takes place, it will only be to preserve the business with a view to sale. The objective of the Administrative Receiver is generally to realise the assets for the best possible price with a view to repaying the debenture holder in particular. The priority of payments to creditors though is the same as in a Creditors’ Voluntary Liquidation.

Since the decision in Brumark Investments Limited, which has been upheld in a recent test case, the classification of book debts fixed charge assets has been thrown into doubt. The enterprise Act 2002 has also made administrative receivership less attractive. It promotes Administration as a more acceptable recovery route.

Brumak Investments Ltd suggests that realisations from book debts will no longer be paid to the debenture holder and at the moment Insolvency Practitioners are retaining funds from this source pending a likely appeal of the test case on this subject. This is of particular relevance where directors/shareholders have given personal guarantees to the debenture holder.

For further information for company directors see Directors Responsibilies

Take advice, call our advisers on 0800 881 8879 (FREEPHONE) or email us at: debtadvice@24-7finance.com . This is a confidential and free service.

24-7 Finance endeavour to bring your the widest choice of financial resources. We recommend the following debt help links below for more information: