What Is Company Administration?
If your company is insolvent (unable to pay its debts) but has the potential to be a viable business again in the future, then administration could offer a real life line to your company.
Administration is a business rescue procedure that hands control of your company to an appointed insolvency practitioner, who works to save the company and ensure that creditors’ interests are maximised.
Importantly, administration instantly halts all legal proceedings against your company. So whilst your company is under administration, it is protected from all legal action from creditors, including winding up orders.
Often administration is used as a way of facilitating an orderly sale of a business whilst allowing its contracts to be preserved.
The Objectives of Administration
The statutory objectives of administration are:
• To rescue a company as a going concern
This involves the administrator taking control of the company and its assets, and offering legal protection until the business is viable again and ready to be handed back to the directors or sold on.
• To achieve a better result than the company being wound up
This means that the administrator aims to achieve a better price for the company’s assets or otherwise realise their value more favourably for the creditors than would be likely if the company were just simply liquidated.
• To realise the value of property in order to make a distribution to one or more preferential creditors
This means that in certain circumstances, administrators may sell off business property in order to raise funds, if it were to make the company viable again.
How Company Administration Works
Firstly, the director or directors of the company will decide to put the insolvent company into administration, or it can be ordered by a court. This decision can be made if the company is insolvent but it is believed that the business has the cash flow and the potential to become a viable business again in the future.
An insolvency practitioner will be appointed as an administrator to take control of the company and its assets during the period of administration.
During administration, the administrator will work to pay creditors however they deem most effective. This could include:
• A continuation of trading so that any incomplete work can be finished and money can be raised.
• An organisational restructure to reduce staffing levels and close any unprofitable branches or divisions.
• A sale of assets and stock to release funds to pay debts to creditors.
• A sale of all or part of the business to a new owner, allowing the business to carry on, keep its staff and clients, and fulfil orders.
Although administration can be an effective company rescue solution for some insolvent businesses, it isn’t the best solution for everyone. In some cases, the administrator may decide that the business is not recoverable through administration and that the best course of action may be for the company to enter into voluntary liquidation.
When Does Company Administration End?
The administration process ends when either:
• The administrator decides that the purpose of administration has been achieved and the business is viable again.
• The administrator’s contract ends - this happens automatically after a year, but it can be renewed.
More Information and Company Administration Advice
Whilst the prospect of administration can be daunting and stressful, if your company has become insolvent it is important to act quickly to achieve the best possible result. We can review your individual case and provide the advice you need to make an informed decision. We have helped many businesses through the administration process, acting as administrator to take control of the business and rescue it from insolvency. If administration is the right decision for your business, we can manage the process to remove the stress from you and protect your company against action from creditors.
If you would like to know more about the administration process and whether it is right for your company, our insolvency practitioners are available to answer any questions that you may have. We can offer free advice over the phone, via email or live chat. We can visit you at your office with absolute confidentiality to discuss your situation and advise you on your options.