RESTRUCTURING AND INSOLVENCY

Rising insolvencies; clarity on hostile administration appointment by lenders

Navigating the complexities of appointing administrators out of Court hours.

The summer insolvency statistics saw UK insolvency appointments 20% higher than the same time last year, and 69% higher than the pre-pandemic figure. This has included a rise in administration appointments. The figures suggest an increase in the number and size of companies experiencing financial distress, coupled with reports of a shrinking economy and high inflation (admittedly slowly falling).

Lenders will undoubtedly be monitoring borrowers carefully and taking action work with them to try and resolve potential problems as soon as the early symptoms of financial distress appear. Administrations and, where appropriate, timely appointment of administrators by the lender (if the borrower will not co-operate) is a key tool in the lender’s armoury to help protect its position and limit losses.

In an urgent case a lender who holds a qualifying floating charge (i.e. floating charges over all assets) can appoint administrators over a borrower out of Court hours. However, the procedure (prescribed under the 2016 insolvency rules) has been muddied by the subsequent introduction of 24-hour electronic Court filing.  Recent Court guidance (Practice Note: Qualifying Floating Charge Holder – out of Court appointments) has provided welcome clarity.

The Court has confirmed that a floating charge holder that wants to appointment administrators over a borrower when the Court is closed can do so but must follow the procedure prescribed by the insolvency rules. That procedure requires the appointment documents to be sent by fax or email to the Court, with the hard copies to be taken to Court when it opens for business.

This is where the conflict with 24-hour online filing arises – what does ‘take the documents to Court’ mean? The problem is that, if a lender gets it wrong, the appointment of administrators will cease to take effect if the above requirements are not completed.

The recent practice note confirms that the requirement to ‘take the documents to Court’ will be satisfied by filing them electronically using the Courts online filing system (provided they are faxed or emailed to the Court out of hours) and immediately thereafter filed on the online filing system. So long as this occurs the appointment will be verified when the Court is next open, and the appointment will not cease.

Administration appointments may appear simple, but the framework of rules and procedures beneath them is complex. Contrary to popular myth it’s not just a case of filing a couple of forms.  The risks, and costs, of getting it wrong can be catastrophic for stakeholders.

If you’re thinking about appointing administrators over a borrower (with or without their co-operation) you need expert corporate restructuring & insolvency lawyers on your team – and we can provide that expertise.

Contact us if you need help.

About the authors


about the author img

Frank Bouette

Partner

Restructuring and Insolvency expert with considerable experience handling complex transactions and claims for lenders, investors and office holders.

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