Companies in Administration - As a Creditor what can I expect?
Already in 2018 we have seen a number of major companies with the construction industry enter administration – Williams Industrial Services and four companies within the Lagan Construction group.
The Insolvency legislation prescribes that a company should only enter administration if at least one of the following three purposes can be achieved:
- Rescuing the company as a going concern;
- Achieving a better result for the company's creditors as a whole than would be likely if the company were wound up (without first being in administration);
- Realising property to make a distribution to one or more secured or preferential creditors.
Payment of Creditors
A secured creditor is, in general terms, entitled to be repaid from the proceeds of the secured assets of the company. They may claim as an unsecured creditor for any balance. Once the company has repaid its secured liabilities, any remaining asset realisations are paid to unsecured creditors, who receive a share of the assets proportionate to the size of the company’s debt owed to them. In most cases the return to unsecured creditors may be very little, if anything.
Preferential creditors, which include certain employee claims and contributions to occupational pension schemes, will have priority over the claims of secured creditors in respect of any security which was created as a floating charge.
A small portion of the recoveries from realisations of assets which are secured by charges created as floating charges are used to pay unsecured claims: this element of priority is called the prescribed part. If the company’s net property does not exceed £10,000.00 the prescribed part is 50% of the company’s net property. In other cases the prescribed part is 50% of the company’s first £10,000.00 of net property and 20% of the balance of the company’s net property subject to a proviso that the value of the prescribed part shall not exceed £600,000.00.
If you require advice on these matters or any aspects of Restructuring and Insolvency, speak to Richard Craig, Senior Associate, Mills Selig. www.millsselig.com