What are the Different Forms of Administration for Insolvent Companies?
While there is often the conception that there are various types of company administrations, in reality, there is only one process that can be used in different ways depending on the circumstances.
How Does Company Administration Work?
Administration is a formal process that aims to turn around an insolvent company. An administrator will be appointed to manage the affairs of the company, mostly with a goal to put the company back into a solvent position and restore it to profitability. It is best-suited to companies that are currently insolvent but have a good prospect of being restored to solvency if managed in the correct manner.
It can be a very effective way of rescuing an insolvent company because a moratorium is placed on the company for a period. This effectively means that the company’s creditors are not able to take legal action against the company or file a winding up petition with the courts (which would lead to the company being wound up) for the period.
The Company Will be Temporarily Run by an Administrator
An administrator will be appointed to the company. This marks a significant shift within the company as they effectively take over the running of the business from the company’s directors. They will be a licensed insolvency practitioner and will have experience in turning failing companies around.
After their appointment, they will spend up to eight weeks investigating the current position of the company and formulate a plan for the future of the company. While the main purpose is to promote the recovery of the company, it may be that they do not think that this is possible and decides that it will be more appropriate to wind the company up. Whatever their decision, thy need to make a written statement within eight weeks of their appointment stating what their intentions towards the company are.
Pre-packaged (“Pre-pack”) Administrations
These use the same process, but it is structured differently to allow the quick sale of a company’s business after the appointment.
During this process, the negotiations for the sale of the business take place before the appointment of the administrator, with the sale occurring almost immediately after the administrator’s appointment.
While the sale of the company’s business will be to a third party, this third party may be a new company formed specifically as a purchased vehicle by the existing company’s directors. It can be an effective way of saving the profitable parts of that company before the whole business has to be wound up.
Need Guidance?
Taking steps to place a company into Administration is a serious and complex procedure. We’re always happy to help, simply give us a call on 0800 074 6757 for a no-obligation, free consultation. Or chat using the Live Chat box on the bottom right of the screen.
