What is Company Administration?
Administration is a process aimed at rescuing and turning around insolvent companies. During administration, the company is managed by an administrator whose goal is to restore the company to profitability. When companies are in administration, a moratorium is placed around the company, meaning that the company’s creditors can’t start insolvency proceedings or take legal action against the company whilst the administration lasts.
What does Going into Administration Mean?
Going into administration means that the company will have a period of time where it is managed by an appointed administrator (who will also be a licensed insolvency practitioner). The administrator’s aim is to promote the recovery of the company during the administration process. The administrator effectively replaces the directors’ roles in managing the company, although the directors will remain with a duty to cooperate with and assist the administrator.
While the administrator’s main role is to promote the recovery of the company, it may be that he feels it is more suitable to come to arrangement with the company’s creditors, sell the business as a going concern or realise assets to pay the company’s creditors. The administrator will provide a written statement within eight weeks of his appointment stating what he intends to do with the company.
When is Putting a Company into Administration a Good Idea?
Administration is most suited to companies that are facing serious financial difficulties but have a significant prospect of recovering given the chance to restructure without increasing pressure from creditors. For most companies going into administration, there will already have been threats from creditors that have a very small prospect of being able to be resolved in the near future.
Who is Able to put a Company into Administration?
The directors of a company can voluntarily elect to put a company into administration. Alternatively, holders of qualifying floating charges or the shareholders of a company can also put a company into administration, providing certain requirements are met.
Advantages and Disadvantages
Administration can be a good option where it is not possible to negotiate a creditor’s voluntary arrangement with an insolvent company’s creditors. The fact that control of the company is handed over to the administrator can be a benefit too as they will be experienced in helping turn around struggling companies. The moratorium in administrations is also beneficial as it allows the company time to recover without the possibility of being wound up.
In terms of disadvantages, administrators are often expensive and the process can be a costly one. It’s a very public process and this can have an effect on the business. The question of what will happen to employees is also important when looking at administration as the rules are complex.
What is a Pre-Pack Administration?
Pre-packaged (pre-pack) administrations are when the negotiations for the sale of a company’s business to a third party takes place before an administrator is appointed and the sale takes place on or shortly after the appointment of the administrator.
They are increasingly being used by companies for a number of reasons, not least because they are quick and often maintain the continuity and value of the business sold. The third party buying the business may be an unconnected buyer, or may be a new company formed by the existing company’s directors for this specific purpose.
If you are considering putting your business into administration, you should always speak to someone who will be able to talk you through the relative merits for your business against other options. We’re always happy to help, simply give us a call on 08000 746 757 or chat using the Live Chat box on the bottom right of the screen.