Part 5 – Effects of administration

March 2013  

56.1.47 Effect of an application to court for an administration order

An application to court for an administration order, (see paragraph 56.1.17), triggers an interim moratorium unless an administrative receiver has been appointed (see paragraph 56.1.49) [Note 1]. Once a company enters administration a permanent moratorium applies [Note 2].

56.1.48 Effect of a notice of intention to appoint an administrator

The filing of a notice of intention to appoint an administrator (see paragraphs 56.1.31 and 56.1.40), triggers an interim moratorium unless an administrative receiver has been appointed (see paragraph 56.1.49) [Note 3]. Once the company enters administration a permanent moratorium applies [Note 4].

56.1.49 Interim moratorium

An interim moratorium has the general effect of freezing the rights of creditors to institute insolvency proceedings and other legal processes (see paragraph 56.1.51) but does not destroy them. A creditor may apply to the court for permission to enforce these rights [Note 5]. The interim moratorium remains in place until: 

• the application for the appointment of an administrator is granted or dismissed; or
• the appointment of the administrator takes effect after notice to appoint has been served; or
• the period of five business days expires after the filing of a notice of intention without an administrator being appointed [Note 6].

56.1.50 Where an administrative receiver is in office

Where an administrative receiver (see Part 2) has been appointed, prior to the application for administration the debenture holder must give his consent before an interim moratorium commences [Note 7].  

56.1.51 The effect of administration

When the appointment of an administrator takes effect the following apply: 

• any petition for the winding up of the company shall be dismissed on the making of an administration order [Note 8];
• any petition for the winding up of the company, with the exception of those presented by the Secretary of State or the Financial Services Authority (for further details see paragraph 56.1.52) shall be suspended while the company is in administration following a notice of appointment by a qualifying floating charge holder (see paragraphs 56.1.31 and 56.1.27) [Note 9]; 
• any administrative receiver of the company shall vacate office [Note 10];
• any receiver of part of the company's property shall vacate office on being asked to do so by the administrator [Note 11];
• no resolution may be passed for the winding up of the company [Note 12];
• no order for the winding up of the company, with the exception of those presented by the Secretary of State or the Financial Services Authority (for further details see paragraph 56.1.52) may be made [Note 13]; 
• no steps may be taken to enforce any security over the company's property, or to repossess goods in the company's possession under any hire purchase agreement, except with the consent of the administrator or the court's permission [Note 14];
• a landlord, or any other person to whom rent is payable, cannot obtain peaceful re-entry to premises let to the company who has not complied with any term or condition of the tenancy without the agreement of the administrator or the court's permission [Note 15];
• no other legal process (including legal proceedings, execution, distress and diligence) may be commenced against the company or its property except with the agreement of the administrator or the court's permission [Note 16].

56.1.52 Administration and winding-up petitions

Where the administrator is appointed by a floating charge holder (rather than the court see paragraph 56.1.31) any winding-up petition will be suspended unless it was presented; 

• by the Secretary of State in the public interest [Note 17]; or
• by the Secretary of State against a “Societas Europaea” (a European public limited liability company, abbreviated to SE) where its head office is not in the member state where its registered office is situated [Note 18]; or
• by the Financial Services Authority [Note 19].

Where an administrator becomes aware that a petition has been presented by the persons mentioned above prior to his/her appointment, he/she shall apply to the court for directions [Note 20].

56.1.53 Administration - when a winding-up order may be made

In cases where the winding-up petition is presented in accordance with paragraph 56.1.52 the court may make the order sought. If a winding-up order is made the court will make an order with regard to the administrator's appointment. The court may order that the appointment shall cease to have effect or to continue [Note 21]. Where the court orders that the administrator will remain in office it may also specify which powers will continue to be exercised by him/her [Note 22].

56.1.54 The effect of administration on the rights of creditors

There is a significant amount of case law dealing with the effect of administration on the rights of creditors. Whilst each case will be decided on its own merits a general principle was laid down in Atlantic Computer Systems plc [1992] Ch 505. The moratorium (see paragraphs 56.1.47 and 56.1.49) is intended to assist the company achieve the purpose of the administration. Any decision by the court to allow an individual creditor to take action against the company, for example for a hire purchase creditor to repossess their goods, must strike a balance between his/her interest and the interests of the general body of creditors.

56.1.55 Administration and administrative receivership

An administrator may not be appointed on the application of the holder of a qualifying floating charge, or the directors or the company if an administrative receiver is in office [Note 23]. Where an administrative receiver is in office when an application for an administration order is made to court it will be dismissed unless the person who appointed the receiver has consented to the administration order or the court is satisfied that the security was void or otherwise open to challenge [Note 24].

56.1.56 Administration and receivers 

Where the court makes an administration order any administrative receiver in office must vacate his/her office and surrender all assets to the administrator. In all administrations a receiver of part of the company's property must vacate office if required to do so by the administrator. An administrative receiver or receiver has a charge on the assets that were under his/her control in respect of his/her remuneration (including any indemnity to which he/she is entitled to). An administrative receiver or receiver is discharged from his/her duty to pay preferential creditors when a company enters administration [Note 25].

56.1.57 Administration and employment contracts

If an employee continues in the company's employment for more than 14 days after it enters administration the administrator is taken to have adopted his/her contract of employment. Any liabilities incurred under these employment contracts rank ahead of the administrator's claim for remuneration and expenses. Any such liabilities are restricted to wages and salary, including, amongst other things, holiday pay and pension contributions, in respect of services provided during the period of the administration [Note 26].

56.1.58 Publicising the administration

Adequate publicity must be provided of the administration. As a result every business document issued by, or on behalf of the company or administrator, and all the company websites, must state the administrator’s name and that the company’s affairs, business and property are being managed by him/her [Note 27].

[Back to Part 4 Appointment of an administrator by the company or directors] [On to Part 6 Powers of an administrator]