We woke up this morning to the news that at 4am KPMG were appointed as administrators to Monarch Airlines Limited and Monarch Travel Group Ltd.

The collapse of Britain’s longest-surviving airline brand, has caused travel chaos and has started the largest peacetime repatriation in the UK's history, but what has caused it and what does administration mean?

Ultimately we won't fully know what 'caused' the administration per se, but Blair Nimmo, Partner at KPMG and Joint Administrator to the companies, said: “Mounting cost pressures and increasingly competitive market conditions in the European short-haul market have contributed to the Monarch Group experiencing a sustained period of trading losses. This has resulted in Management appointing us as administrators in the early hours of this morning.

“While this timing is unusual in insolvency situations, it was necessary for the appointment to be made once all Monarch aircraft were on the ground. This only occurs in the early hours of each morning. Once the company entered insolvency, the Air Operating Certificate it needs to be able to fly was effectively suspended, which is why all outbound flights were cancelled with immediate effect."

So what is an Administration?

Administration is a legal procedure which gives a company time to reorganise itself and its assets under the protection of what is called a statutory moratorium.  A statutory moratorium is a period of time, during which, anyone who is owed money is prevented from taking action against the Company (in this case Monarch) to get their money back.  The idea behind the administration is to give the Company and its administrators time to work out either how to rescue the Company; achieve a better result for the company's creditors as a whole than would be likely if the company were wound up; or to realise (sell) some or all of the company's property to make a distribution (give out money or assets) to one or more secured or preferential creditors (often the bank!).

When a company enters administration, an insolvency practitioner (here KMPG) is appointed and called an administrator. The administrator takes over the control of the company's business and assets from the company's directors.  So during the administration KPMG, not Monarch will run the Company.

What will happen now?

In some cases, a pre-pack sale occurs.  The administrator may decide that the best way to get the best value for the business and assets of the Company is to sell the best assets and the parts of the business that perform well to another company straight away.  It is called a pre-pack sale because it is a transaction that is negotiated before the company's administration and the sale takes place shortly after the administrator's appointment.

If there isn't going to be a pre-pack KPMG will need to prepare a statement of how they intend to conduct the business within 8 weeks including how the money that is left (if there is any) will be distributed or not. This statement then needs to be sent to, amongst others, the creditors.  The creditors are then entitled to vote on those proposals.   Customers should however note that there will be creditors with significantly more debt (and consequently more voting power) than themselves who may vote differently in the administration.

Unless extended KPMG's appointment will cease 12 months from today.