We continue our series of blogs about options available to insolvent limited companies this week by looking into Administration. If your business health check reveals that a solution to its financial difficulties may be required; then administration is another route that can be looked into. You can catch up with the series so far with, Is My Company Insolvent?, Business Health Check, Turnaround Advice; Company Voluntary Arrangements and the CVA Process.
So, what is administration?
The idea of administration is to act as an alternative to winding up the company so that where possible the company or at least its business can be rescued. If a company falls into financial difficulties the directors or a third-party will sometimes appoint an administrator to run the company. Administration is a key insolvency tool to implement the rescue and survival of the business and provides the company with immediate protection from its creditors. This is to determine whether the company can trade out of its problems or be sold on to enable the company to be turned around. If the company is not a viable concern then these assets will be sold and distributed to its creditors.
There are three routes into administration
- The company and its directors can file a notice at court
- Or a court order can be made to place the company into administration.
Before accepting an appointment an administrator must be satisfied that one of the following outcomes can be achieved.
– Rescue – The company would still continue to exist in its original form and eventually be returned to the directors with some sort of debt restructuring or Company Voluntary Arrangement in place. The company must continue business as a trading viable concern.
– Better result for creditors – This would allow for a better return to creditors than if the company were to be wound up. The main core of the business may be sold on and survive as a going concern with any unnecessary parts being stripped away and sold. This is the most usual outcome of administration.
– To allow distribution to secured and preferential creditors – This allows for a better outcome for this class of creditor but other unsecured creditors would receive nothing. This may be a useful option if trading needs to continue for a limited period, for example to complete a contract. The business would not normally survive in this case but is the least likely occurrence out of the three outcomes.
Advantages of Administration
- Administration offers full legal protection from all creditors whilst a strategy is formulated in respect of the future of the company
- Gives directors or third parties an opportunity to buy back the business as a going concern
- Offers vital breathing space whilst a business recovery or restructuring package is implemented
- An administrator can be appointed very easily merely by filing the necessary documentation in court.
- Costs are taken from the available assets in the company
The Administrator
The administrator will be a licensed insolvency practitioner and has the power to trade, manage and sell the business as a going concern in order to maximise the return the creditors. They will take full control of the company finances, affairs, business and property while an outcome is negotiated and achieved.
Administration Process
Once an administrator is appointed he or she has 8 weeks to produce formal proposals to the outcome of the administration, copies of these would be sent to the Registrar of Companies and all know creditors. Within 10 weeks the administrator must hold a meeting of creditors at which the proposals will be agreed upon. Once these proposals are agreed the administrator must manage the company in accordance with them to achieve the agreed outcome of the administration.
Administration will last for one year and will end automatically after this time. Creditors can agree an extension of 6 months but any longer than this must be with court consent.
Pre-Pack Administration
Pre-packaged administration is a lot like normal administration but; as the name suggests, the process is a lot faster. In pre-packaged administration, a company is placed into administration and the business is sold immediately or shortly after the appointment of the administrator. The insolvency practitioner (the administrator), the directors and/or other interested purchasers will have obtained valuations, agreed a sales price and drafted contracts to enable the business to be sold immediately after appointment. Again, costs are met from the assets available.
Advantages of pre-packages administration
- Pre-pack administration can result in a quick and relatively smooth transfer of a business
- Pre-packs can protect the goodwill of the company as they have minimal impact on customer confidence that any insolvency proceedings inevitably cause.
- Pre-packs can save more jobs than in normal administration
- Because the process is relatively quick compared to a normal administration, the costs of the administration process may be reduced, which may result in a better return for creditors.
What Next?
If you think that administration could be the rescue option your company is looking for then give Focus Insolvency Group a call, we can talk you through the options available and go into more detail about your company’s specific circumstances. All our advice is free and impartial.
We will conclude our series of Insolvency Options for Limited companies next week with a look at Company Voluntary Liquidation. If you have any questions or comments please leave them below or send us an email, we’d really like to have your feedback.
Related Blogs
Is My Company Insolvent?
Business Health Check
Turnaround Advice
About Company Voluntary Arrangements
CVA Process
About Creditor’s Voluntary Liquidation
The CVL Process
Options Available to Struggling Limited Companies – Round Up
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Last week we brought you part one of our information on 
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