While not the most appropriate solution for every business, there are certain circumstances where a company administration is the ideal approach to keeping the limited company running while bringing the best return for creditors.

 In some cases, a business will eventually come out of administration and succeed in the future, often with new owners. In other situations, there is little or no prospect of an administration because a company has no or very few assets of value and where a period of continued trading has little or no prospect of making the business viable and/or will not help realising assets.

From a company director’s viewpoint, administration may seem attractive, especially where the directors have given personal guarantees or are concerned that their decisions leading up to insolvency may be questionable. However, administration may well not be possible or practical and as with all insolvency situations, getting experienced advice at the earliest stage is key both to protect creditors and demonstrate the directors commitment to doing the right thing.

We are highly experienced advising company directors about going into administration. Please do call or email.

Below we cover the definition, process and consequences of going into administration.

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Going into Administration: Definition

Going into administration is a formal insolvency process aimed at rescuing insolvent businesses as a going concern.

When a firm is going into administration, the procedure and the business are managed by an administrator, (an insolvency practitioner), whose goal is to rescue the company and restore it to profitability.

Despite this, the administrators have a primary duty to the creditors, so their actions will all be to ensure the best possible return for those owed money.

Moratorium on Legal Action

A moratorium is a court order designed to offer breathing space, meaning that the creditors cannot start insolvency proceedings, or take legal action against the firm once the administration procedure has been implemented.

Company going Into Administration – suitable or possible?

When a company goes into liquidation it’s because the end of the road has been reached, and all that remains is to liquidate any assets which remain and distribute the proceeds to creditors.

Liquidation is an insolvency procedure that means the demise of a company, the loss of all jobs, and it’s eventual striking off the register at Companies House.

The administration of a business, on the other hand, is potentially an option, typically for larger companies, which may yet return to profitability.

Administrations often hit the newspapers when related to football clubs, for example. In these examples, the football club is highly unlikely to be closed completely but instead needs to restructured and run in a very different way moving forward, so the creditors have the best chance of recouping what they are owed.

When a company continues to trade during the process it is known as a ‘trading administration.’

The company will have a period of time where it is managed by an appointed administrator (who will also be a licensed insolvency practitioner).

Why Would a Company Go into Administration?

Administration is an option for larger companies that are in debt and unable to pay the money they owe and where one of these conditions applies:

  • a better return can be offered to creditors via keeping the business open
  • the business remains viable and with the potential to return to profitability
  • when it’s a nationally recognised brand (i.e. a football club) which needs time to restructure while a sale can be agreed
  • where secured or preferential creditors are seeking to realise property

The Company Administration Process

  1. Appointment of administrator
  2. After appointment, the IP has 8 weeks to send out the formal proposals for the administration to all of the creditors
  3. Proposal must be voted on and passed by creditors for the process to continue
  4. Creditors meeting (usually virtual)
  5. IP must send out statement of affairs ever 6 months
  6. At a certain point the administrator exits the administration, either through a areturn to profitability, Company Voluntary Arrangement, pre-pack sale or liquidation.
  7. Administration automatically ends after a 12-month period, unless it is formally extended

Can a Company Still Trade When in Administration?

It is commonplace for companies to continue trading while in administration. This is known as a ‘trading administration.’

Trading administrations are usually opted for in the case of a big brand, perhaps a well known retail store or a football club. In these instances, there would be negative PR should the business close its doors which would damage the brand as a whole, hence the decision is made to keep things running while the administrator works behind the scenes.

Role of the Administrator

The administration is managed by an insolvency practitioner, who essentially becomes the new chief executive of the company and takes the responsibility of managing the company away from the directors.

The administrator has eight weeks to write a statement setting out what he/she intends to do. This will be one of the following:

  • Restore the company’s viability
  • Come to an arrangement with creditors
  • Sell the business as a going concern
  • Realise assets to pay a preferential or secured creditor

A copy of the statement must be sent to the company’s creditors, the employees and Companies House. The creditors and employees will then be invited to a meeting to amend or approve the plans.

The key objective for an administrator is to rescue the insolvent company by restructuring its financial affairs. This can include anything from negotiating new terms with landlords and creditors, to initiating contracts on behalf of the company.

What is a Pre-pack Administration?

Since the administrators job is to find the best return for creditors, one possible conclusion may be to sell the company.

In some cases this is done via a procedure known as a pre-pack before the company is in administration. Where it happens afterwards, the insolvency practitioner will usually restructure the company to improve its general situation before putting it on the open market.

How Long does Company Administration last?

An administration will automatically finish after one year; however, the administrator can apply to the court to have this period extended for a specified amount of time.

Some complex administrations can last for up to three years.

Who Gets Paid First

Debts are paid in an administration, as with all insolvency events, in order of priority.

Priority of Creditors in Insolvency
Fixed Charge Holders
Insolvency Practitioners, including expenses
Floating Charge Holders
Unsecured Creditors
Interest incurred on all unsecured debts post insolvency
Shareholders

How can we help

If you’re considering an administration, or would like to know whether an administration is a good fit for your business, please get in touch with our specialist team of company rescue experts today.

Call 08000 746 757 or email: info@companydebt.com to discuss your situation in complete confidence.