Action for Administration by Darren Goodey Gross & Co Solicitors
This may be due to any number of external factors that combine to create a potentially untenable trading position. One option that may become available at such a difficult time, is to enter the company into administration. This differs in one key aspect from general insolvency proceedings insofar as one objective of administration is to seek to rescue the company as a going concern.
Part of this process would be to file a notice to appoint an administrator in accordance with paragraphs 26 and 27 of Schedule B1 to the Insolvency Act 1986, which can then trigger an interim moratorium and a time frame for action. Interestingly, over recent years, companies have sought (via their directors) to prolong this procedure by filing back-to-back notices over a period of time, whilst holding a conditional rather than fixed intention to make an out of court appointment of an administrator.
This has enabled directors to keep their options open whilst considering other possible rescue methods. However, in a very recent decision by the Court of Appeal, it has now been held that such a process will be considered as a technical abuse and deemed as invalid, forcing a company or its directors to have a fixed intention to appoint an administrator before being obliged or indeed entitled to file such a notice.
This is a serious point for any business in this situation to consider since whilst this authority exists, companies and their directors will no longer be able to keep their options open in this way. This perhaps sits rightly alongside the director’s duties to act in the best interests of the company and may have been an undertone to the court’s decision; but what is certainly clear is that if the company is facing serious difficulties and the writing is on the wall, decisions need to be made and acted upon properly.