Live Session 1 - Purpose and Routes into Administration

Question 1

What is the purpose of Administration

Answer 1

Administrator if a company must perform his functions with the objective of:

1. Rescuing the company as a going concern
2. Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up without first being in administration.
3. Realising property in order to make a distribution to one or more secured or preferential creditors

Question 2

How for who must an administrator act

Answer 2

As quickly and as efficiently as reasonably possible. Administrator must perform his functions in the interests of the company’s creditors as a whole

Question 3

Qualifications to act as an administrator

Answer 3

(IABDSM)

I - Individual
A - Authorised by an RPB
B - Bankrupt - An administrator cannot be an undischarged bankrupt or subject to bankruptcy restrictions or debt relief restrictions order
D - Disqualified - An administrator cannot be subject to disqualification order or undertaking under Company Director Disqualification Act
S - Security - Administrator must hold relevant security
M - Mental Capacity - Administrator cannot lack capacity to Act as IP within the meaning of the Mental Capacity Act

Question 4

What kind of security is an Administrator required to hold and what is it for

Answer 4

General penalty bond in sum of £250,000.
Specific penalty bond at least equal in value to the value of the estate estimated by administrator on date of appointment, less assets charged to third parties or held in trust.

Bonding is required to to insure against losses in relation to the insolvent caused by the fraud or dishonesty of IP or fraud and dishonesty committed in connivance of the IP

Question 5

What are the 3 routes into administration

Answer 5

1. Court Appointment
2. By QFCH out of Court
3. By Company/ director out of Court

Question 6

Who may apply for Court order for administration

Answer 6

1. The Company
2. The Directors
3. One or more creditors
4. CVA Supervisor
5. Liquidator
6. QFCH
7. Justice Chief Executive for Magistrates Court in relation to enforcement of fines against a company
8. Financial Services Authority

Question 7

When will Court grant an administration order

Answer 7

When the company is or is likely to become unable to pay its debts as they fall due and when granting the administration order is reasonably likely to achieve the purpose of the administration.

The Court will take into account whether the applicant would be able to use out of court procedure if it declined to grant administration order.

Question 8

What are the preconditions to seek an order from court to appoint an administrator

Answer 8

1. Company is not in administration
2. Company is not in CVL (unless liquidator is applying)
3. Company is not in Compulsory Liquidation
4. Company must be insolvent
5. Applicant must provide a witness statement

Question 9

What must be included with application to Court for an administration order

Answer 9

1. Application
2. Witness Statement
3. Administrators Statement

Question 10

What is the content of a witness statement

Answer 10

1. Statement of financial position of the company
2. Details of any known security granted by the company and any rights to enforce given to security holders
3. Details of any known insolvency proceedings that may have been commenced against company
4. Para 100(2) statement where there is to be a joint administrator regarding joint and several execution of powers
5. Whether EC Regulations apply if so whether administration will be main proceedings (COMI is in UK) or whether they are secondary proceedings (COMI not in the UK)
6. Anything else that will assist the court to decide whether to grant administration order

Question 11

What is the content of the Administrators statement

Answer 11

1. Consent to Act
2. Details of any prior relationship with the appointer
3. Statement that believe that the purposes of the administration are likely to be achieved.

Question 12

What is filed in Court and how many copies are required to be filed

Answer 12

1. Application
2. Witness Statement
3. Administrators statement

Sufficient copies for service.

Question 13

What happens when application is filed in Court

Answer 13

1. Court seals application
2. endorses it with time and date application filed.
3. Fixes time and venue for application hearing.

Court keeps a copy on file and returns others for service.

Question 14

Who is application served on?

Answer 14

1. The Company
2. Proposed Administrator
3. High Court Enforcement Officers
4. Any AR and appointer
5. Any petitioner for winding up and provisional liquidator
6. If secondary proceeding, appointee appointed in main proceedings.
7. CVA supervisor
8. Any person who has distrained against the company

Question 15

What happens once all necessary notices have been served

Answer 15

Applicant must file a certificate of service in Court ASARP after confirming that notices have been served. This must be filed at least one business day prior to the hearing.

Question 16

What options does the Court have at the hearing

Answer 16

1. Grant administration order
2. Grant interim order
3. Dismiss application
4. Adjourn hearing conditionally or unconditionally
5. Grant a winding up order if it does not think the purpose of the administration can be achieved.
6. Any other order the Court thinks fit.

Question 17

What are the pre-conditions for the out of court appointment by a QFCH?

Answer 17

1. Floating charge is valid and enforceable against company - suggests default in terms of security agreement
2. Have sought consent from higher ranking charge holders
3. Company not in administration
4. Administrative Receiver has not been appointed
5. A liquidator has not been appointed
6. A provisional liquidator has not been appointed

Note: Company does not have to be insolvent to proceed with application by QFCH

Question 18

What notice does a QFCH need to give prior QFCH and why?

Answer 18

2 Business Days. Reason is so that prior ranking charge holder has opportunity to appoint their own choice of administrator

Question 19

If pre-conditions are met, what steps does the QFCH need to take

Answer 19

QFCH required to file a Notice of Intention to Appoint an Administrator. This is given to prior ranking QFCH and gives opportunity to appoint own choice of liquidator.

Appointer files Notice of Intention to Appoint in Court and is valid until an administrator is appointed or 5 business days.

Question 20

What options does prior QFCH have on receipt of Notice of Intention to Appoint

Answer 20

1. Consent to appointment - return form
2. Do nothing - appointing QFCH will be able to appoint administrator after 2 business days notice expires
3. Reject and take steps to appoint own choice of administrator

Question 21

What steps does appointer take after 2 days notice expired or prior QFCH consents to appointment

Answer 21

Appointing QFCH files a Notice of Appointment in Court. Notice of Appointment is supported by:

• Statutory Declaration
• Administrator Statement

Question 22

What is content of Statutory Declaration

Answer 22

1. Confirms that appointer is a QFCH
2. Confirms that QFCH each QFCH relied on for appointment is valid and enforceable on date of appointment
3. That the appointment is compliant with Schedule B1.

Question 23

What is content of Administrators statement

Answer 23

1. Consent to Act.
2. Details any prior relationship with appointer
3. Statement that believe purpose of administration can be achieved.

Question 24

How is appointment by QFCH confirmed

Answer 24

Appointing QFCH files Notice of Appointment, Witness Statement and Administrators Statement in Court. Also file evidence that prior QFCH’s have consented to appointment and Para 100(2) statement regarding powers and functions of joint administrators.

3 copies are filed in Court & Court seals and endorses with time and date of filing. This becomes administration order.

Question 25

What happens to 3 copies of court sealed notice of appointment

Answer 25

1. Court keeps one for Court file

2. 2 are returned to appointer, who keeps one and gives on to administrator.

Question 26

Can appointment be made outside of Court hours?

Answer 26

Yes. Courts have dedicated out of hours e-mail and fax line. Need to keep copy of transmittal sheet to verify when sent.

Appointer should attend Court the next available day with hard copies and transmittal report and explanation as to why out of court appointment required.

Appointment takes effect from date and time on which fax/ e-mail was sent.

Question 27

What are the pre-conditions for out of court appointment by company/ directors

Answer 27

1. Not currently in administration
2. Not currently in liquidation
3. No Admin Receiver
4. No CVA small company moratorium within 12 months where CVA did not go ahead or ended prematurely
5. No administrator appointed within 12 months
6. No outstanding winding up petitions filed prior to company/ directors NOI
7. Need to be able to prove insolvency

Question 28

What is the first step for company/ directors to appoint??

Answer 28

The directors must hold a board meeting to discuss and approve decision to appoint an administrator

Question 29

What are the practical considerations for a board meeting

Answer 29

1. Check the availability of the directors to attend
2. Check the mem & arts to ensure board meeting is correctly convened
3. Ensure that the meeting is quorate
4. Nominate chairman/ authorised signatory to sign notices
5. Pass board resolution to approve decision to appoint administrator

Question 30

What happens after board passes resolution

Answer 30

Notice of Intention to Appoint, Statutory Declaration of Directors/ company and board resolution are filed in Court and served on all QFCH giving 5 days notice of intention. QFCH have 3 options; consent, do nothing or reject and take steps to appoint own choice of administrator.

Notice should also be given to any distraining creditors, high court enforcement officers, the company itself, CVA Supervisor and Commercial Rent Arrears Recovery Creditors who have commenced action.

Question 31

After 5 days notice has expired, how long does company have to appoint administrator

Answer 31

Company has 10 days from date of filing NOI to appoint an administrator

Question 32

What is the content of the Statutory Declaration which accompanies Notice of Intention to Appoint

Answer 32

1. Statement that company is or is likely to become unable to pay its debts
2. Company is not in liquidation, administration or administrative receivership
3. Company hasn’t been in administration in prior 12 months
4. Company has not benefitted from CVA moratorium in past 12 months and CVA did not ho ahead or ended prematurely
5. There are no outstanding winding up petitions against the company filed before the Notice of Intention to Appoint was filed.

Question 33

What happens after 5 day Notice of Intention to Appoint period lapses

Answer 33

Company/ Directors file a Notice of Appointment in Court, supported by a second Statutory Declaration and Administrators Statement. 3 copies are filed in Court. Court seals them, endorses time and date of filing. Court keeps one copy, 2 returned to company/ director who give 1 copy to administrator

Question 34

What is the content of the second statutory declaration

Answer 34

1. That the contents of the previous statutory declaration remain correct.
2. That the appointer is entitled to make the appointment
3. That the appointment is compliant with schedule B1.

Question 35

What is the content of the administrators statement

Answer 35

1. Consent to Act
2. Details of prior relationship with appointer
3. Statement of belief that the purpose of the administration can be achieved.

Question 36

What else is filed with Notice of Appointment

Answer 36

1. Evidence that QFCH have consented to appointment

2. Para 100(2) statement regarding powers and functions of joint administrators

Question 37

Definition of administrator

Answer 37

Administrator is appointed to manage the:

Affairs
Business
Property

of the compant