Due to rising inflation rates, interest rates and considerable uncertainty within the construction industry, insolvency rates have increased. Specifically within the construction industry there has been an increase in the appointment of Administrators and an increasing number of Notices of Intent to appoint Administrators.
The number of administrations for September 2023 in comparison to September 2022 rose by 47% (Click here to read more about September 2023 Statistics).
Administration may allow the company to trade out of insolvency opposed to the alternative option, liquidation. What does this have to do with a Notice of Intention? This is explained below.
What is a Notice of Intention?
A Notice of Intention (NOI) is filed either by a company, its directors or a floating charge holder (usually a bank) outlining that they wish to enter the company into Administration if an immediate solution to the company's financial problems cannot be found. The notice which is filed at court contains details of the intended insolvency practitioners should the company enter into administration.
How does this affect the company's creditors?
Once the notice has been filed, a protective dome (Moratorium) is placed over the company. This safeguards the company from any creditors wishing to take legal action, including issuing a Winding-up Petition, against the company in order to recover their overdue balance without express permission from the court. This can be a powerful tool for a company in financial distress as it provides a breathing space to allow them time to resolve the company's financial situation, for example selling part of or all of the company to raise funds or to find a licensed insolvency practitioner to handle the Administration proceedings.
How long does the Notice of Intention last?
This moratorium lasts for 10 business days. It is possible for the company to apply for an extension and gain an additional 10 business days, as long as the court deems the extension in favour of the creditors and that the moratorium is not being abused for the companies benefit, for example, avoiding legal action taken by creditors.
Once the Notice of Intention expires and provided that no additional notice of intention or appointment has been filed, a creditor can continue to take legal action. It is worth noting however, that the company may not have the funds to pay the full balance owed and this should be taken into consideration.
When can't a notice of intention be filed?
A Notice of Intention cannot be filed if the company has entered into Administration within the last 12 months or a Winding-up Petition has already been filed against the company.
Are there any disadvantages for the company?
The Notice of Intention is a very public event and can damage the company's reputation and its ability to continue trading with suppliers and clients who are aware of the notice and therefore the company's financial difficulties.