Company administration is a formal insolvency procedure designed to rescue a company. The Insolvency Act 1986 (“the Act”) provides that an administration period will automatically come to an end after one year unless the administrator obtains an extension. In many cases, this one-year period does not provide sufficient time and the administrator will need to apply for an extension.
The Act provides two methods for extending the term:
- Obtain the consent of the company’s creditors; or
- By court order
The first method is commonly used; however, creditor consent can only be used to extend the term of administration once (and cannot be used to extend by more than a year) so applications to court are also quite common.
This article examines the requirements for extending the administration period by court order.
Procedure for making an application
The rules for making an application to court are set out in the Act and the supporting practice direction. An application must be made before the current administration period has expired (and not less than one month before it does so). Late applications may be refused.
Historically, the courts have required a hearing to consider extension applications (and been unwilling to deal with them on paper); however, this approach has changed since the start of the pandemic. In recent months we have had a number of successful applications on paper without the need for a hearing (whether in person or remotely). That said, paper applications will only be allowed if the application notice and supporting witness statement (i) contain sufficient information about the progress of the administration to date and (ii) explain why the administration needs to be extended and how, if it is granted, the extension will benefit creditors.
Company officeholders should not take it for granted that the court will automatically approve these applications in the current climate. Although COVID-19 may be a relevant factor in terms of explaining why the administration has not progressed as quickly as anticipated, it does not guarantee an extension. The court expects officeholders to make progress and make reasonable efforts to overcome any practical difficulties created by the pandemic. Applications are closely scrutinised and extensions of time will only be allowed where the court is satisfied that extending time is desirable in all the circumstances.
What should an extension application include?
It is extremely important that an application is well prepared and is accompanied by a detailed witness statement. This will need to set out:
- Why more time is required;
- How an extension will benefit creditors;
- Progress of the administration to date;
- What remains to be done;
- How the administration will be conducted if the extension is granted and,
- The statutory purpose of the administration (and how this will continue to be met).
Where COVID-19 is cited as a reason for extending the administration. the application should also explain why the pandemic has delayed progress and why the administrators have not been able to overcome any practical challenges they cite.
It is important that applications for extensions are made promptly. We expect an increase in insolvency cases later in the year and recommend that all officeholders proactively review their files, identify cases that are likely to require an extension in the next six months and instruct their solicitors to start preparations in good time.
How can Druces assist officeholders?
Druces LLP’s Insolvency Team is experienced in dealing with these applications and has successfully obtained a number of extensions on paper since the pandemic started.
If you require any assistance in preparing an application, or have any queries about extending an administration period, please contact: