A Company Director’s Guide to Company Administration

For companies that are struggling under the weight of financial pressure and unable to pay their bills when they fall due, the risk of insolvency is very real. There are a number of options for businesses that are struggling to pay their debts to protect them from winding up petitions and compulsory liquidation, and advice from an experienced team of company rescue experts can help to determine the right solution for you.

One of the options available to the directors and owners of a limited company is to put the business into administration. While administration is not the most appropriate solution for every company, there are certain circumstances where an administration could represent the most favourable approach.

When could an administration be used?

You can put your limited company or limited liability partnership into administration if it’s in debt and unable to pay the money it owes. The administration protects the business from legal action and prevents creditors from applying for a winding-up petition to force the closure of your business.

The company administration procedure can be used to:

  • Rescue a company that’s struggling to pay its debts and keep it as a going concern;
  • Achieve a better result for the company’s creditors than if the business was immediately wound up;
  • Realise property for the benefit of secured or preferential creditors if neither of the above resolutions are possible.

So, if your company is insolvent now but may have assets, property or a contract that will provide a more positive outcome then administration may be the answer.

How is an administrator appointed?

An administrator can be appointed in one of three ways:

  • By court order on the application of the company or its directors, or by one or more of the company’s creditors;
  • By the holder of a floating charge who files a notice at court;
  • By the company or its directors filing a notice at court.

Filing a notice of court is a quick and simple process that can be completed without a court application or hearing. In most cases, the directors apply to the court and a formal hearing is heard to place the company into administration. A court order is the only way a creditor can initiate the administration process. However, a court order is also necessary if:

  • The company is already in liquidation;
  • There is an administrative receiver in office;
  • A provisional liquidator has been appointed;
  • There is an outstanding winding-up petition against the company.

Who is responsible for the administration and what do they do?

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.

How long does an 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.

How does an administration impact on the company directors?

As already described, during the process of administration, the directors’ ability to control the company comes to an end. They still have a duty to cooperate and assist with the administration, but they cannot make decisions relating to the management of the company without the say-so of the administrator. In some cases, to improve the outcome of the administration, the directors are given some decision making powers. However, this is completely at the discretion of the administrator.

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.

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