Company Administration

What is Company Administration?

Company administration is an insolvency process that gives an indebted company valuable time and legal protection to help steady the business, keeping it safe from creditor pressure and threats of winding-up action. Administration provides the company with breathing space.

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    What are the benefits of Company Administration?

    There are a number of benefits that can be achieved through company administration:

    -It provides a moratorium on creditor action, giving the company time to restructure without fear of being wound up.

    -It allows the company to continue trading, which can maximise the value of the business and its assets.

    -It provides greater control over the company’s destiny than a creditors’ voluntary liquidation (CVL).

    -It may result in a better return for creditors than would be achieved in a CVL.

    What are the drawbacks of Company Administration?

    Although company administration can be an effective tool for rescuing a struggling business, there are some potential drawbacks that should be considered:

    -It is a more expensive process than a CVL.

    -There is no guarantee that the company will be successfully restructured and resurrected.

    -It can be a complex and time-consuming process.

    -It may have a negative effect on the company’s reputation.

    -Creditors may object to the appointment of an administrator.

    If you are considering company administration as a way to rescue your struggling business, it is important to seek professional advice to ensure that it is the best option for your particular situation.

    Who can put a company in administration?

    There are a number of ways in which a company can be put into administration:

    -The directors of the company can appoint an administrator.

    -A qualifying floating charge holder (usually a bank) can appoint an administrator. 

    -A creditor of the company can apply to the court for an administration order.

    How does company administration work?

    Once a company is in administration, the administrator will take over the running of the business. The administrator’s primary objective is to try to rescue the company as a going concern. If this is not possible, the administrator will aim to achieve a better result for creditors than would be achieved if the company was wound up.

    To achieve these objectives, the administrator will have a number of options available to them, including:

    -Selling the business as a going concern.

    -Selling the assets of the business.

    -Reaching a compromise with creditors.

    -Entering into a company voluntary arrangement (CVA).

    -Wind the company up.

    The administrator will prepare a report setting out their proposals and send this to the creditors. The creditors will then vote on the proposals at a meeting. If the proposals are approved, they will be implemented. If the proposals are not approved, the administrator may still be able to implement them if they are considered to be in the best interests of the creditors.

    What is the role of the administrator? (repetition of above)

    The administrator is a licensed insolvency practitioner who is appointed to take over the running of a company in administration. The administrator’s primary objective is to try to rescue the company as a going concern. If this is not possible, the administrator will aim to achieve a better result for creditors than would be achieved if the company was wound up.

    To achieve these objectives, the administrator will have a number of options available to them, including:

    -Selling the business as a going concern.

    -Selling the assets of the business.

    -Reaching a compromise with creditors.

    -Entering into a company voluntary arrangement (CVA).

    -Wind the company up.

    The administrator will prepare a report setting out their proposals and send this to the creditors. The creditors will then vote on the proposals at a meeting. If the proposals are approved, they will be implemented. If the proposals are not approved, the administrator may still be able to implement them if they are considered to be in the best interests of the creditors.

    What is a pre-pack administration?

    A pre-pack administration is a type of administration in which the sale of the business is agreed upon in advance before the administrator is appointed. The sale is usually to a preselected buyer, who may be the directors of the company or a connected party.

    Pre-pack administrations have become increasingly controversial in recent years, as there have been a number of cases in which the administrators have sold the business to a connected party at a reduced price, without giving other interested parties and creditors the opportunity to bid for the business.

    Call to Action: If you are considering company administration as a way to rescue your struggling business, it is important to seek professional advice to ensure that it is the best option for your particular situation.

    Administration vs Liquidation

    Administration and liquidation are two of the most common insolvency processes used in the UK. Both processes involve the appointment of an insolvency practitioner (IP) to take over the running of a company, but there are some key differences between the two.

    Administration is typically used as a way to rescue a company that is struggling but has the potential to be viable in the long term. The administrator will aim to stabilise the company and then sell the company and or the business as a going concern or reach a compromise with creditors.

    Liquidation, on the other hand, is typically used as a way to wind up a company that is no longer viable. The liquidator will sell the assets of the company and distribute the proceeds to creditors.

    It is important to note that administration is a more complex and expensive process than liquidation, as it involves the administrator taking on the role of running the company. Liquidation, on the other hand, is a simpler process as the liquidator does not take on the running of the company.

    Call to Action: If you are considering either administration or liquidation for your company, it is important to seek professional advice to ensure that it is the best option for your particular situation.

    What happens to employees in administration?

    The administrator is required to notify the employees of the company within 14 days of their appointment. If the employees are retained by the administrator, the administrator will be responsible for the payment of wages as a cost and expense of the administration.

    If the employees are made redundant they will have the right to claim redundancy from the Redundancy Payments Office. 

    What happens to directors in administration?

    The directors of the company will usually have significant input during the administration process. However, they will be subject to the supervision of the administrator and will not be able to make decisions about the running of the company without the administrator’s approval.