There are a number of steps to be undertaken if the directors of a company are considering administration as an option for resolving the problems of an insolvent company:

Step 1: Review the Company Position

The directors of the company must review the company’s position and decide on the most appropriate course of action.

This review will involve an evaluation of the company’s financial position and require cash flow and trading forecasts to be produced and reviewed.

It is best to undertake this review with the help of a corporate insolvency expert who will be able to help the directors consider the different insolvency options. Administration may be appropriate if it is felt that the business may be saved after significant restructuring.

Step 2: The Administrator is appointed and Administration advertised

The directors or shareholders of the company first appoint an insolvency practitioner. If in agreement that this is the best course of action, the insolvency practitioner will apply to the court for an administration order.

Once the administration order is granted, the company is known as being in Administration and the insolvency practitioner is appointed as the administrator. 

Notice that the company has entered into administration is given to all of its creditors and advertised in the London gazette.

Note: If a creditor (normally a bank) holds a floating charge or order debenture over its debt, it also can overrule the directors appointment and appoint its administrator. However, it must recognize that the administrator has a duty to act in the interests of all creditors, not only on behalf of the floating charge holders.

Step 3: Review of the Company’s Affairs Conducted

The appointed Administrator will work closely with directors, accountants and relevant staff of the company to understand the business and the company’s affairs.

Within next eight weeks the Administrator must make a statement setting out proposals for the company. These may include either the restructuring of the business or an arrangement with creditors such as a Company Voluntary Arrangement.

During this time, the company will continue to trade.

Step 4: Creditor Meeting Held

The administrator’s proposals are presented to all of the company’s creditors at a creditor meeting. The creditors will have the opportunity to agree the proposals or amend them. 

Step 5: Agreed proposals are implemented

The administrator is then responsible for implementing the agreed proposals. The company’s original directors will retain little or no control of the business and may only act under the instruction of the administrator.

Further creditor meetings may be held and/or a creditor committee may be set up to keep creditors informed of progress.

How and when does the Administration end?

An Administration process normally lasts for up to one year unless extended by consent of creditors or by court. During this time, the company will be restructured, sold, put into a CVA or closed (or a combination of these).

If the administrator requires more time to complete the administration process they will have to apply to the court to extend the administration period.