A company in administration gets court protection from possible creditor claims, aiding the exploration of the possible sale of the business, restructuring, or negotiation with creditors. All of these rescue options have the same aim – to save the business – and therefore company administration can be a valuable lifeline for a struggling company.
However, before a company even begins to explore a rescue plan free from creditor pressure, it must be officially placed into administration. To kick off this process, it must be proved that one of the following purposes of administration is possible:
- Rescue the company;
- Provide a better outcome for creditors than liquidation;
- Provide a return to secured or preferential creditors.
Should any of these three options be viable, the following groups or individuals can put a company into administration by appointing an Administrator:
Directors
In many circumstances, company directors voluntarily put their company into administration. They may be aware that the company is insolvent or facing financial difficulties and believe it is in the best interest of the company and its stakeholders to explore the possibility of rescue rather than liquidation.
For directors to put a company into administration, they must first serve a Notice of Intention to Appoint an Administrator to shareholders and creditors. This gives these groups/individuals at least five days’ notice of the administration, after which the appointed Administrator will take control of company affairs and the directors’ powers will cease. However, directors will still play an important role in the administration as their cooperation with the Administrator can aid a smooth sale or recovery.
Shareholders
Shareholders can also put a company into administration if they believe it is the best course of action for the business. To do this, they must follow the same process as company directors and serve a Notice of Intention to Appoint an Administrator.
Depending on the company’s articles of association, shareholders may also be required to vote to approve an administration proposed by directors.
Creditors
Though less common, creditors holding a qualifying floating charge can put a company into administration. This can happen when a company is unable to meet its financial obligations and creditors believe that the company’s financial situation requires formal intervention.
Qualifying floating charge holders will also have to serve a Notice of Intention to Appoint an Administrator but the rules are slightly different and this only has to be served with 2 business days’ notice upon any other holder with security that pre-dates their own.
The Courts
A company can also be put into administration via a formal appeal to the courts. In these cases, it is the court rather than directors, shareholders or creditors that will appoint the Administrator and this tends to be a more drawn-out process than going into administration out of court.
If you are considering putting your company into administration, you should always get advice first. There are a number of measures you should take and rules you must follow if you wish to enter administration, and it’s best to speak to a professional to make sure you understand these. With this in mind, don’t hesitate to get in touch with the team of business rescue experts at Ballard Business Recovery. We are on hand to offer confidential advice, whether you are not sure who can put your company into administration, wish to begin the process, or would like a wider understanding of your rescue options.
