A notice of intent is a document filed at court, stating a company’s intention to appoint administrators in an attempt to save the business from liquidation. The document can be filed by the company, its directors, or a floating charge holder, which is usually the bank.
The Notice of Intention to Appoint helps businesses by temporarily halting existing or pending creditor action – it sets up a moratorium that protects them, and provides a breathing space in which to take positive action.
Once the notice has been filed at court, any action by creditors has to receive court agreement. Although the moratorium period is only 10 business days initially, this often provides the space needed to manoeuvre a company away from the immediate threat of liquidation.
Sometimes it is possible to obtain agreement from the court for a further moratorium period of 10 days - for example, if an appropriate solution to the company’s troubles has been identified and a deal is approaching completion.
It is unlikely that the courts would agree to numerous application extensions in this vein, however, and attempting tactical applications in order to secure more time to find a solution could be seen as an abuse of court process.
Company directors are required to provide a minimum of five business days’ written notice of their intention to appoint administrators to any qualifying floating charge holder (QFCH), and also file a copy of the document at court.
The QFCH is generally the main financier for the company (usually the bank), and is entitled to object to the choice of administrator if they wish. They can appoint their own, but this rarely happens in practice if a clear plan is in place, and the appointed administrator is recognised by the bank.
Once the notice has been filed, any further action against the company has to be sanctioned by the court. This is also an unlikely scenario when the notice has already been accepted.
Administration is often used as part of a company restructure, and if the business is deemed viable, a pre-pack administration process is a possibility. This usually involves directors of the struggling company purchasing some or all of the assets, and setting up a ‘newco’ to move forward.
Of course, this process must be sanctioned by the administrator as being a suitable option after other alternatives and the issue of creditor dividends have been taken into account. Although there is scope for misuse, a pre pack administration process using fair market values to sell the assets, can result in higher returns for creditors when compared with liquidation.
Entering administration provides an eight-week period in which to save the company, with sale as a going concern being the most preferable option.
Begbies Traynor is available to act as administrator in these instances. We are the leading corporate rescue and recovery practice in the UK, and offer a same-day consultation free of charge.