We will have all read in the news recently about the large department store chains going into administration. Then more recently, about the collapse of Jamie Oliver’s restaurant empire. 22 restaurants have closed, and 1,000 people are expected to lose their jobs as the company goes into administration. But what is administration and what does an administrator do?
What is administration?
If a company is insolvent (essentially, unable to pay its debts), there are a number of options, of which administration is one.
The company is given some “breathing space” to allow it to be rescued or reorganised, or its assets realised. This is by way of a ‘moratorium’: a period where creditors may not bring court proceedings against the company.
In administration, an insolvency practitioner, known as an administrator, takes control of the company. The administrator’s appointment will either be by:
- a court order (applied for by the company itself, its directors, a liquidator or a supervisor of a company voluntary arrangement), or
- by filing documents at court. This is where the appointment is by the directors, the company itself, or the holder of a qualifying floating charge. This second route is more common.
Administration may only be started for one of a number of reasons:
- To rescue the company so that it may continue trading.
- If the company cannot be rescued, to get a better deal for the company’s creditors than if the company were wound up.
- If the administrator cannot achieve this, he will aim to realise the company’s property to distribute it to the company’s secured or preferential creditors.
What does the administrator do?
The administrator will take over the running of the company and its business. He has the power to do anything “necessary… for the management of the affairs, business and property of the company”.
Often, the administrator will sell the company’s business and assets and the company will be liquidated or dissolved. Occasionally, however, a company will be rescued by the administration.
How long does administration last?
Administration will automatically end after one year, unless its term is extended in advance.
If the administrator manages to rescue the company as a going concern, he will hand the company back to the directors at the end of the administration. This is fairly rare in practice, however. The administration may also end by putting the company into liquidation or dissolving it. The implementation of a Company Voluntary Arrangement would also lead to the end of an administration.
What other options are there for insolvent companies?
There are a few different options, which have different pros and cons. Let’s look at two of the most common mechanisms.
Company Voluntary Arrangement (CVA)
Here, the company and its creditors come to an agreement. An insolvency practitioner then puts it into place and supervises it.
CVAs are used in conjunction with, or to avoid, other insolvency mechanisms. For example, it may be used together with administration, to take advantage of the moratorium.
Winding up / liquidation
Companies use liquidation as a last resort. However, it is often used by creditors to force the company to deal with the debt.
An insolvency practitioner is appointed to act as a liquidator. The liquidator will collect in and sell the company’s assets, then distribute the cash to the creditors. At the end of the process, the liquidator will dissolve the company.
Liquidation can either be started by the company, or by order of the court. The court process is often started by a creditor who is owed money by the company.