R3 recently reissued their guide to creditors on what administration means for them.
This article aims to provide a summary of that guide.
This article aims to ensure you go away with an understanding of the rights of creditors when a company is placed in administration in England and Wales. The guide highlights that administration occurs when a company is facing financial difficulties, and it provides a breathing space for a rescue package or a more advantageous realization of assets to be put in place. The affairs, business, and property of the company are managed by a licensed insolvency practitioner appointed for that purpose.
The guide discusses the administrator’s objectives, which include rescuing the company as a going concern, achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up, or realising property to make a distribution to secured or preferential creditors. The administrator must perform their functions as quickly and efficiently as reasonably practicable in the best interests of the creditors as a whole.
The administrator has broad powers that include carrying on the company’s business and realizing its assets. However, the administrator must not make substantial disposal to a connected person within the first eight weeks of administration unless they obtain approval of the transaction from the creditors or have received and considered a report obtained by the connected person from an evaluator on the reasonableness of the proposed disposal.
Debts due to unsecured creditors are frozen at the date of the administrator’s appointment. If the outcome of the administration is survival of the company, the management of the business and assets can be returned to the directors on the conclusion of the administration. If survival of the company is not possible, but sufficient sums are realized from the sale of the company’s business and/or assets to enable funds to be distributed to unsecured creditors, the administrator may be able to deal with their claims and pay them a dividend, after payment of the costs and expenses of the administration. Permission of the court is required where there is a distribution to unsecured creditors other than from a segregated pot of monies known as the prescribed part.
The administrator must notify all known creditors of his appointment as soon as reasonably practicable and must make available a statement of proposals to all creditors for achieving the purpose of administration to all creditors within eight weeks of his appointment together with a notice to creditors of the decision procedure. The initial decision date for the decision must be within ten weeks of the date the company went into administration.
The guide states that a creditors’ committee may be appointed, and it can consist of at least three and not more than five creditors. The guide highlights that a creditor cannot initiate or continue legal actions against a company in administration.
Regarding the administrator’s fee, the guide suggests that the R3 has produced a separate guide explaining insolvency officeholders’ remuneration. In case a creditor is dissatisfied with the administrator’s handling of the case, they can contact the liquidator to try to resolve the problem. If they are still not satisfied, they can submit a complaint to the IP’s regulator via the Insolvency Service complaints portal.
The guide concludes by advising that the reader should consult a licensed insolvency practitioner or solicitor if they remain in any doubt about their rights.
To get a copy of the guide, click here.