The special administration process explained
Special administration is a proper insolvency process for businesses offering a legal or public service or dealing with client funds, like those overseen by the Financial Conduct Authority (FCA). These businesses must undergo special administration because their failure could impact the market and the broader economy significantly.
What is the special administration insolvency process?
Special administration is a procedure designed to assist companies offering a legal or public service, or handling client funds. Entities like energy companies, pension operators, and other organisations regulated by the Financial Conduct Authority (FCA) may be placed under special administration in case of failure.
There is usually greater public concern when these organisations face failure, as opposed to other companies. Additionally, the goals of the specially appointed administrator and the authority granted to them differ from those in a typical company administration.
Exploring the differences between a ‘standard’ administration and a special admin?
The normal administration process is outlined in the Insolvency Act, of 1986. In essence, the administrator must aim to accomplish one of these three statutory objectives:
- Save the company as an ongoing business.
- Sell company assets to provide a distribution to secured or preferential creditors.
- Attain a better outcome for the company’s creditors collectively compared to liquidation.
However in the case of special administration, the overall objectives undergo modification, and the powers vested in a special administrator differ slightly from those in a ‘standard’ administration.
1. Special Administration Regimes (SARs)
In the UK, various special administration regimes are in place for organisations delivering vital services. These include pension firms, further education institutions, electronic money institutions, investment banks, and utility companies.
Considering the instance of an investment bank, special administration would aid in preventing uncontrolled harm to the financial markets due to the bank’s collapse.
A special administrator would intervene to minimise the adverse effects.
2. Special administrations in the energy industry
Special administration is a comparatively uncommon procedure, but it has gained attention recently amid the UK’s energy crisis. Energy companies entering special administration include Bulb, deemed too substantial to appoint a Supplier of Last Resort (SoLR) to take over its customer base—a typical approach for smaller energy companies facing failure.
For energy firms, special administration ensures continuous energy provision to customers, even if their supplier fails. The administrator must weigh the need to sustain crucial supplies, or services in other sectors, against the regular obligation to act in the overall best interests of creditors.
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What happens to a company in special administration?
The company undergoing special administration continues its operations but under the management of the special administrator. The office-holder must progress until the business is sold, rescued through restructuring or additional funding, or, in the case of an energy company, until its customers have been transferred to another supplier.
In certain instances, the government might provide financial assistance in the form of loans, bonds, or guarantees. The objective is to resolve the situation swiftly; however, special administration is not designed to be a prolonged solution.
In favourable situations, it could be feasible to sell the company placed in special administration or to sell a portion of the business. Other larger and financially robust companies in the same sector may express interest in acquiring all or specific elements of the distressed business.
If you seek further details on special administration or any other facet of insolvency, Vanguard Insolvency can assist. Kindly contact our partner-led team to schedule a free, same-day consultation.
I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.