How Does a Trading Administration Work?
In general terms, administration is designed to offer a temporary shield against creditor pressure. During a trading administration, it is deemed that the business should keep operating during the restructuring process, often to provide business continuity.
Whats the Role of the Insolvency Practioner During a Trading Administration?
Protected by the moratorium, administrators have no liability to pay debts, including rent in arrears, unless compelled by the court.
Debts or expenses which arise during the process itself, however, are a different matter. When the administrators have opted to use a company premises for their benefit, then this rent is payable as an expense.
Using Part of the Premises
In a situation, whereby the administrator only requires a portion of the business premises, something of a legal grey area emerges. In the case, Goldacre (Offices) Ltd v Nortel Networks UK (2009) EWHC the court ruled that if the administrators are using any part of the property the rent should be fully settled on the due dates specified in the lease.
It is an administrator’s responsibility to assess, then the first few days of his/her appointment what properties are rented by the company. He can then make a clear decision which properties may be useful and which can be handed back to the relevant landlords, along with a surrender of the lease.
Trading While in Administration
During a trading administration, directors have a legal responsibility to work with the insolvency practitioner until such time as control can be handed back.
One of chief things the administrator will be looking for is an exit strategy. This is commonly a Company Voluntary Arrangement, a formal repayment plan with creditors, at a rate the company can afford.
Advantages of a Trading Administration
- Business continuity is maintained
- The brand is protected, and the company’s reputation maintained
- There is protection from legal action
- Once the administration ends, directors will resume their roles
- Additional Interest on corporate debt is frozen
- If a CVA is the exit strategy, it may be possible to include HMRC debts in this, leaving the company with a clean slate
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