Cost of Administration

The cost of Administration is relatively high compared to other company debt solutions. The process can involve the Administrator running the company for up to a year. The fees and expenses charged are relative to the size and nature of the company. They will also reflect the type and complexity of the work required.

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What does Administration cost

It is impossible to give an actual Administration cost figure. This is because each situation is different. The Administrator will have to assess the company and draw up a proposal for how it can be best turned around. Only can then they assess the associated costs of this work.

The Administrator’s fee and expenses structure must be agreed by the creditors before any work can start.

Because it is likely to be a relatively lengthy process Administration can be costly. As such it is normally only used by companies where turnover is sufficient to support the ongoing costs and fees. For smaller companies it may be more appropriate to consider alternative rescue solutions.

How are the Cost of Administration controlled?

Before the Administrator can start work they must get approval from the creditors for the costs and fees they intend to charge. The fees must be made clear in the Administrator’s proposal for the company. The creditors can review these and request modifications before agreeing to them.

If the funds that are likely to be realised will only be sufficient to repay secured creditors the Administrator must be paid from these. In this case it is the secured creditors who will have to agree the fee structure. This is because ultimately they will be paying the fees out of money that would otherwise have gone to them.

How the Administrator can fix their fees

The basis for fixing the administrator’s fees is set out in Rule 2.106 of the Insolvency Rules 1986. There are three options.

Fees can be fixed as a percentage of the value of the property which the Administrator has to deal with. Alternatively by reference to the time given by the administrator and his staff in attending to the Administration. Thirdly as a set amount.

Any combination of these may be used to fix the fees. Also different scales may be used for different things done by the administrator. It is for the creditors to agree whether the structure proposed by the Administrator is agreeable to them.

If the creditors and Administrator are unable to come to agreement on fee structure the Administrator can ask the Court to intervene. However the Administrator must first show that he has tried to get the creditor’s agreement.

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