What do you need to know?
In an administration the administrator must provide copies of their proposals to all creditors within 8 weeks of the administration commencing. The proposals must then be considered within 10 weeks of the start of the administration. The main content of the administrator’s proposals are as follows:
- A copy of the statement of affairs.
- Details of how the company ended up in financial difficulties.
- How approval is to be sought for the proposals.
- The administrator’s proposed fees.
- The proposed exit route for the administration.
- The work the administrator has carried out since the date of administration.
- The anticipated return to the different classes of creditors.
Alongside the proposals, the administrator may also seek approval for the payment of pre-appointment fees and expenses. However, if these have already been paid, they will simply provide disclosure of this.
The administrator’s proposals must also detail which purpose of administration is to be met. These purposes must be considered in the following order:
- To rescue the company as a going concern.
- To achieve a better result for creditors than would be achieved in winding up.
- Realising property in order to make a distribution to secured or preferential creditors.
The administrator must cover each purpose in turn as to how they believe it cannot be met, until they determine the purpose which can be met. This is due to the purposes being listed in the order most advantageous to least to creditors and must therefore also be attempted in turn.
What if there is a prepack asset sale?
The information and timings relating to the administrator’s proposals will be more detailed and much shorter if there is a prepack asset sale. Where a prepack has taken place, the administrator should deliver the proposals to creditors within 14 days of appointment.
However, they must also provide a statement on the prepack within the first week of the administration. As a result, it is common for the two documents to be combined and the proposals to be sent out within a week.
The statement or administrator’s proposals must detail all of the above content as well as:
- The extent of the pre-appointment work carried out by the administrator.
- Whether an approach was made by the purchaser to the pre-pack pool.
- Viability forecasts for the new business or reasons they have not been provided.
- The extent of the marketing carried out for the business.
- The alternative strategies considered to a pre-pack sale.
- The reasons the pre-pack asset sale route was undertaken.
The additional information is required to provide reassurance to creditors that the pre-pack route will provide them with the best outcome from the administration. 50% of voting creditors must approve the administrator’s proposals in order for them to be passed.
Therefore, if creditors feel the pre-pack asset sale was not justified, they may vote down the administrators proposals. Alternatively, they may modify them to appoint their own liquidator in investigate the circumstances of the sale. It is, therefore, a good idea if you are considering the pre-pack administration route to engage fully in the process and seek an opinion from the pre-pack pool.
What are the exit routes from administration?
The administration process is only designed to last one year and will automatically come to an end after this time period as elapsed. The administrator may seek to extend the administration with consent from creditors or the court where the matter is complex.
However, the administrator’s proposals must detail how the administration will ultimately come to an end. The possible exit routes for administration are as follows:
- The automatic end after 12 months – resulting in the company being handed back to the directors.
- By the court – where the purposes of administration cannot be achieved.
- By notice – where the company is rescued as a going concern or a company voluntary arrangement is approved.
- By moving to creditors voluntary liquidation – where there is to be a distribution to unsecured creditors.
- By dissolution of the company – where all matters have been resolved and no distribution is available to unsecured creditors.
- By way of a winding up petition – where there is a detailed investigation into the director’s conduct to carry out.
The administrator’s proposals do not need to specify a single exit route, but may specify multiple options to exit the administration. The multiple options may depend on the overall level of realisations within the administration, after the proposals, as well as the outcome of the administrator’s investigations.
If your business is in early stage financial difficulties, administration may be an appropriate option to help rescue your business as a going concern. Early contact with our BusinessRescueExperts for advice can make the difference between keeping your business trading or a complete shut down.