When a company can no longer pay its bills or the directors believe the bills may not get paid going forward for whatever reason a limited company can enter into voluntary administration.
As the company cannot pay its bills or is in threat of not paying its bills the company is insolvent or will become insolvent. The administration is managed by an insolvency practitioner who in effect becomes the new chief executive of the company and takes over the reins of control away from the directors.
The key objective of the administrator is to rescue the insolvent company (or likely to be insolvent) by restructuring the company’s financial affairs so it can continue as a going concern, or if not then selling off the company assets for the benefit of the company creditors. The administrator must aim to provide a better return for creditors as a whole than would have been available had the company been simply ended in liquidation. If the administrator cannot achieve this objective the purpose changes to achieving a better return for the preferential and or secured creditors.
How much does it cost?
The costs and fees for going into administration are paid from the company’s bank account and assets. Please note the fees and expenses of the administrator are paid ahead of secured creditors.
Can administration help with potential creditor legal action?
Yes. There is an immediate moratorium that will stop any legal action being instigated or continued where the action is against the company or to seize the company’s assets.
How long does the administration last?
Unless an extension is asked for at court then the administration will end after twelve months and it is not unusual for really complex administrations to last three years or more.
What happens if the company is rescued?
Bearing in mind the key objective is to rescue the company then if this is achieved the company is handed back to the director’s control following the end of the administration period.
What happens if the company administration fails?
If the administration fails then the after deducting all costs and fees the proceeds of the assets disposal will be distributed to the creditors. The disposal of the company assets is undertaken by the administrator or an appointed liquidator who is usually the administrator.
How do I put my company into voluntary administration?
The directors would normally apply to court where a formal hearing is heard to place the company into voluntary administration.
Can a creditor place my company into voluntary administration?
Yes. Creditors can make an application too, usually a bank holding a floating charge via a debenture are responsible for most administrations. In some cases, the supervisor of a company voluntary arrangement can make the application.
Who can be an administrator?
The administrator must be a qualified insolvency practitioner. All the insolvency practitioners we use are all fully qualified.
What does the administrator do?
The administrator’s powers are wide and far reaching as they are in control of the company so they can negotiate with creditors; initiate contracts on behalf of the company; negotiate new terms with landlords basically anything that is necessary to rescue the company for the creditors as a whole.
What happens if I am not happy with the administrator after appointing them?
If you believe the administrator is not doing his/her job correctly you should raise the issues with the administrator or with any creditor committee in the first instance. If you cannot get a resolution to the problem you can take matters further but it can get messy and expensive so be aware. Under schedule B1 of the Insolvency Act 1986, you can apply for an order to possibly replace the administrator but you must prove there is a good reason such as:
- A creditor’s interests have been “unfairly harmed” by the administrator’s actions;
- The administrator is not acting “quickly or efficiently“ enough.
Be aware any court will assess the order to be sure the creditor applying is not using this as a ruse to leapfrog other creditors.
How does voluntary administration affect my employees?
Employees who work for a company placed into administration may not necessarily be dismissed. The administrators may want to keep some, or all employees so may keep them on (”adopt” them) and they will continue working as prescribed by the administrator. Usually, these employees are seen as beneficial to creditors as a whole and this decision must be made within 14 days of the administrator appointment.
The associated salaries from these employment contracts become “qualifying liabilities” and are paid as a priority even before the administrator’s fees and expenses and those creditors holding a floating charge.
How does voluntary administration affect me as a director?
Effectively the director’s powers and control cease once the administrator has been appointed but the director still has a duty to cooperate and assist where required. A director must not interfere with the administrator’s management decisions but can be given some management decision making powers with the administrator’s authority.
If you are considering voluntary administration please contact us on 08000 746 757, or email us at [email protected]; alternatively, you can use the Live Support feature at the bottom of the page. You can also speak with our senior consultant Sue Collins, directly on 07949 969 006.