Table of Contents
As a business owner, you may receive notice from a court informing you that an administrator will take over the affairs of an insolvent company which owes you money. As a trade creditor, it means you have supplied goods or services to a company which it has not repaid. The court notice means the company is in administration, a type of insolvency proceeding. Therefore, as part of the administration process, the administrator has broad powers to manage the company’s affairs. So, this can include selling off the company’s assets to repay the company’s creditors, selling the company or its business to a buyer, or negotiating a restructuring plan.
This article will explain an administrator’s powers, so you understand what it means for you as a director or shareholder in a small to medium-sized trading business and one of their trade creditors.
Purpose Of the Powers
Administration is a type of insolvency proceeding. If a company is insolvent, a court will appoint an administrator with broad powers to manage the company’s business, including:
- selling off its assets to repay its creditors;
- selling the company or its business to a buyer; or
- negotiating a restructuring.
Notably, the administrator does not rescue the company’s business for the benefit of the shareholders. Usually, when an administrator places a company in administration, the shareholders will lose any interest in the company and its business.
However, the business may continue, often benefiting creditors, employees, and customers.
If the administrator does not think it can rescue the business, it can wind up the company. So, this means that the administrator sells off the company’s assets and uses the proceeds to pay back the creditors: secured creditors first, followed by unsecured. But, there are specific powers an administrator has over a creditor’s interests.
When the powers of an administrator over creditor’s interests are exercised, it must:
- prioritise the interests of the creditors over the shareholders; and
- not show any preference for one creditor or class of creditors over the others.
LegalVision’s Startup Manual is essential reading material for any startup founder looking to launch and grow a successful startup.
The Powers
The table below explores the powers administrators have over creditors’ interests.
|
Management | When a company goes into administration, the directors lose most of their powers to act on the company’s behalf. In their place, the administrator assumes these powers. In practice, the directors may still be called upon to answer the administrator’s specific queries. |
|
Selling company property | The administrator can enter transactions to sell the company’s assets. |
|
Crystalise a floating charge | Certain secured lenders (usually bank lenders) have a particular security interest called a floating charge over the company’s assets. The floating charge holder has the right to appoint an administrator under the terms of the security arrangement. As a trade creditor, you are unlikely to benefit from this directly. |
|
Authorising Dividends | The administrator can use the proceeds of any asset sale to pay off secured and unsecured creditors through a dividend. However, there are laws restricting this right. For instance, for secured creditors, the administrator can only pay out the value of the security interest. Unsecured creditors may only be entitled to a portion of their debt; the dividend payment cannot exceed this amount. |
|
Clawback company property | An administrator can apply to the court and ask it to claw back any assets the company’s directors sold 12 months before the administration where the transaction was made at an undervalue. This is where the directors sell the property for less than its market value. |
|
Question director decisions | In some instances, the administrator can refer the director’s conduct to the courts if they have acted unlawfully. Likewise, a court can order directors to contribute their personal assets to the company. |
|
Arrange a pre-pack administration | This is where the court appoints the administrator with the specific intention of selling the company soon after the appointment. The administrator handles the transaction on behalf of the business. |
Call 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
Appointing an Administrator
A court can appoint an administrator by issuing an administration order. The following people can apply for an administration order:
- the company’s shareholders, provided they pass a resolution;
- the company’s directors through a board resolution;
- any creditor such as you; and
- other insolvency officials like a liquidator.
Secured creditors with a floating charge over the company’s assets can appoint an administrator automatically without the court’s approval, but other creditors can challenge this.
Key Takeaways
A court-appointed administrator will exercise certain powers on behalf of the trade creditors, including you, where a company is placed in administration. They must first try to rescue the company’s business so that it can keep running. If the administrator does not think the business has any chance of being rescued or that it would make the creditors’ position worse, the administrator can wind the company up. The law gives administrators broad powers where they assume the powers the directors exercise. For example, the power to sell company property, pay dividends and apply to the court to claw back property sold in the previous 12 months at an undervalue.
If you need help with your business, LegalVision’s experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.
Frequently Asked Questions
An administrator effectively assumes the powers that the directors exercise, such as the power to sell company property, pay dividends in limited circumstances and manage the company’s affairs. It also has additional powers, like applying to the court to claw back property sold in the previous 12 months at an undervalue.
The administrator acts in the interests of all the creditors, and where possible, the administrator should try and rescue the company’s business. If this is impossible or does not produce a favourable outcome for the creditors, they can wind up the company and sell its assets to repay the creditors, such as you.
We appreciate your feedback – your submission has been successfully received.
