An administration order could be a way to deal with debt if you have a county court or High Court judgment against you and you cannot pay in full. But who qualifies for an administration order and which debts are included?
An administration order is a court order which stops further action by creditors whilst you make payments to court. You will make a single payment every month into the court. The court staff will then divide the money amongst your creditors on a pro-rata basis.
What is an administration order?
An administration order is an order made by the court at the request of an individual who has debts not exceeding £5,000 and is unable to pay those debts in full, but can over time. An administration order offers protection and allows for payment of those debts by monthly instalments, whilst placing a ‘moratorium’ (postponement of payment) on the enforcement of the debts by the individual’s creditors.
The benefit of such an order is while the order remains in force, and the debtor maintains the required monthly payments, no creditor may issue proceedings for, or exercise any other remedy in respect of, any of the debts covered by the order.
Who qualifies for an administration order?
To qualify for an Administration Order, you must meet all of the following criteria:
- the individual’s debts must not exceed £5,000
- there must be at least one outstanding and unsatisfied county court judgment
- the court will not approve the making of an order if the debts cannot be paid within a reasonable period of time, usually 3 years
What debts are included in an administration order?
All the individual’s debts will be considered in an administration order, including secured debts which are not expressly excluded from section 112 of the County Courts Act 1984, which provides that the debtors ‘whole indebtedness’ must not exceed £5,000.
This means that a debtor with a mortgage debt will rarely be able to obtain an administration order as their whole indebtedness is highly likely to exceed the £5,000 limit.
How much does an administration order cost?
An administration order will provide for the debtor to pay a fixed sum each month into court. The court administers the payments and divides the payment equally amongst the creditors. The court retains 10 per cent of the monthly payment to cover its management costs.
There is no additional cost or court fee for the debtor to pay; the total the debtor will pay is the whole of its liability to his creditors plus a further 10 per cent. Once all creditors and the courts 10 per cent costs have been paid in full the administration order is discharged.
How do you apply for an administration order?
The application for an administration order is made by the debtor completing the prescribed form N92 and lodging it with the court for determination. The application form requires the debtor to give full details of financial circumstances, including:
- outgoings and liabilities, including full details of every debt and the obligatory judgment debt
- full details of employment
The debtor may make an offer of payment but can leave it to the court to determine the level of monthly payments.
The application form must be sworn or affirmed before an officer of the court. The debtor should complete the form and then take it to their local county court together with a copy of the outstanding judgment(s). The declaration in the application form is then sworn and the court will then retain the application for determination.
From there, the process can proceed as follows:
- If the court decides to make an administration order it will determine the amount of each monthly payment and then send notice of its intention to make this order to all the creditors, who then have 16 days to object to the making of the order or to the value of the monthly payments.
- If no objections are made, the administration order will be made, served on all interested parties and registered in the Registry of Judgments, Fines and Orders.
- The debtor then makes the monthly payments until the full debts are paid together with the court’s costs. In some cases, the court may order that the monthly payments are deducted at source from the debtor’s salary. A debtor has the right to object to this and may agree to that element of the order being suspended provided the debtor makes the monthly payments voluntarily.
However, if a creditor does object within the 16 days, or if the court cannot determine the amount of monthly payments or is not satisfied with the information contained in the application notice, it will list the matter for a hearing.
A creditor may seek to be excluded from the administration order. If they do, the matter will be considered by the court who may agree to exclude the creditor from the arrangement but will prevent the creditor from taking legal or enforcement action to recover its debt without prior permission of the court.
If the debtor defaults on payments the debts the court can instruct the bailiff to levy execution against goods; make an attachment of earnings order or can revoke the administration order, entitling creditors to take their own action to recover the debts.
How long does an Administration Order last?
An Administration Order lasts for as long as it takes to repay the debt in full. This depends on the size of the debt and how much the court has decided you can afford to pay towards your credit debts each month.
For example, if you owed £900 and the court decided you had £100 available after your living costs each month to pay towards your debts (10% or £10 of which would be taken by the court as a fee), then it would take you 10 months to repay your debt (£900 divided by £90 is ten payments).
If the judge believes your payments are not substantial enough for the debt to be paid off in a reasonable timeframe then the judge can make a Composition Order which is where you will only be asked to repay part of your debt.
At the end of the administration order, the debtor can ask the court for a ‘certificate of satisfaction’ which costs £15.
What is a Composition Order?
A Composition Order will usually be considered by the judge overseeing your Administration Order application if your proposed payments are so small that it will take many years to pay back your debt in full. In these circumstances, you will be asked to pay what you can afford each month, typically for a period of three years. If a Composition Order is granted then you will only end up paying back a proportion of the debt that you owe.
How will an Administration Order affect my credit rating?
An Administration Order is listed on the Register of Judgments, Orders and Fines, which is publicly available at Trustonline (a fee of £4 is charged to search this section of the register). It can affect your credit rating. If you repay you debts in full through this debt solution then you can request the court mark your entry on the register as “satisfied”
You can get an official record showing that the order has finished by asking the court for a ‘certificate of satisfaction’. This costs £15. The details of your Administration Order will be visible on your credit history file, with the credit reference agencies, for six years. This could make it harder for you to open a current account or acquire further credit facilities after the order has finished.
Should I get an administration order?
Administration orders are an effective method of protecting a debtor with a relatively low level of overall debt from enforcement by creditors whilst ensuring all debts are paid off, albeit over time.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.