Company Administration of a Business
A limited company experiencing financial difficulties (Uncontrolled company debt) and under threat of a winding-up petition may lead to a company entering a company administration (A form of company rescue). In Administration, the Company has its affairs and assets managed by an administrator, a licensed insolvency practitioner. All legal actions cease upon appointment. However, depending on the situation, they may sell all or part of the business as a going concern. They, therefore, may sell the assets or close the business.
A trading administration may be plausible if unofficial discussions with the company’s creditors enable the company to trade while in administration. Maybe allowing the sale of assets to fund or raising funding ensures cash flow to commence reducing and possibly paying the outstanding debts. The company then can trade out of difficulty once the office-holder has restored confidence.
When to consider Administration
If you identify any of the issues highlighted below? Consider contacting HBG Advisory for help Going into Administration:-
- Landlords threatening to take possession;
- HMRC pressing hard for arrears of PAYE, VAT & Corporation tax;
- The bank threatening account closure;
- Creditors chasing hard threats of legal action;
- Wrongful trading concerns and personal liabilities;
- Your company has excessive obligations, property, employees and dropping down the ranks in the market;
- Customers migrating elsewhere
What does business recovery mean?
A company going into Administration?
A company going into administration refers to an insolvent company that has been placed under the control of Licensed Insolvency Practitioners. Often appointed bt the company directors themselves, though lenders who are secured may appoint to ensure their monies lent are secure and even maybe repaid once sanctioned by the courts to appoint.
Once the company going into administration has a Licensed Insolvency Practitioner appointed. The company then is ring-fenced from creditors threatening to commence or in the process of any legal action to recover outstanding monies.
Who may then opt to place a limited company into Administration?
Normally. The directors initiate a voluntary process. The business may be experiencing financial difficulties? However, an Administration may also be prompted by a Qualifying Floating Charge Holder, ( Banks, Secured lenders), if they feel their monies are at risk. This is referred to as an Administrative Receivers the appointed Administrator.
Notice of Intention to appoint an Administrator?
A notice of intention to appoint administrators then commences when the Company files a document Form 2.8B to the court, to register its intention to enter into Administration. Therefore, this signifies the Company trying to resolve its financial issues. Usually used when a company attempts a pre-pack administration process. The notice is then registered at companies house.
Responsibility for its filing
- Appointed company directors;
- Any floating charge holder.
What’s the Administration of a company? (Considered a Company Rescue)
Companies enter Administration, (an insolvency rescue procedure,) that a company may enter if insolvent (Often when facing Compulsory Liquidation). The prospective administrator, however, must demonstrate that they may achieve one or more of the following:-
- The rescue of the Company as a trading concern;
- Achieving a better result for the company creditors as a whole, than would be likely if the Company were wound up (without first being in Administration);
- Realising property to make a dividend to one or more of the “secured” or “preferential creditors;”
- Placing a company into Administration can be complicated. The procedure remains reliant on the circumstances of the Company when considering your options.
Please contact HBG Advisory for more information and advice concerning the process.
The first objective of an administration, however, to ensure the Company remains then allowing it to continue trading as a “going concern” (paragraph 3(1)(a), Schedule B1, Insolvency Act 1986
Why enter into a Company Administration?
Company administration protects a company experiencing insolvency from creditors. Therefore, frequently used to rescue the Company from entering Liquidation and closing down.
A business may enter Administration for other equally important reasons, such as enabling the Company to plan and implement a restructure and recovery plan.
Therefore, they demonstrate to creditors the best practice to protect their position and have extra time to sell assets to pay creditors. However, as directors, they cannot perform, indeed though, an administrator can.
Thus, company administrations, therefore, have then, many advantages and disadvantages. Hence, those companies hindered by extreme debt or significant litigation may be the most beneficial decision for buying time to restructure and recover.
Disadvantages of a Company Administration?
If your company has a stable cash flow as well as assets? Then a company administration accordingly may be best suited for recovery.
However, a business that has unstable cash flow and few assets may not suit an administration. Therefore, a Company Voluntary Arrangement may be better suited?
Therefore, a company administration demonstrates you agree to surrender the day-to-day control of your Company to a licensed insolvency practitioner.
The administration process is known to the public domain. Therefore, your company creditors, staff and customers will possibly have knowledge companies financial predicament. However, you remain legally obliged to notify them of the circumstances of your Company. Usual for many owner-managed companies not to yield control of the business provisionally. The Administration again as with a liquidation, requires advertising in the public domain.
A company administration remains an expensive process for a company to go through. Therefore, those companies with severe cash flow issues, tend to shy away from this insolvency process.
Qualified Insolvency Practitioners act as Administrators. Usually, beside the initial person appointed. Usually, two or more administrators are appointed, therefore, acting as “Joint and Several Administrators”.
An administrator acts as an agent of the Company. (paragraph 69, Schedule B1, IA 1986) and as officers of the court (paragraph 5, Schedule B1). Moreover, they have to ensure they act in good faith. They must also be independent and impartial in the management of the Company and any property it has.
Who can appoint an Administrator?
Three distinct ways a licensed insolvency practitioner may act as an administrator of a company.
Only one need apply:
One or more board director;
As an Administrative Receiver:
A registered charge-holder;
A creditor via a court application.
Will Creditors receive any money?
However, whether creditors receive any payments for debts outstanding depends upon the amount realised within the Administration. Therefore, when paying out funds to creditors, an order of preference exists. Unsecured creditors rank last behind preferential creditors (e.g. employees) and those who hold the security. Therefore, once appointed, the administrator sends their proposals to creditors within eight weeks of appointment. The report will contain information about the prospects of payment to creditors. Unsecured creditors will often not receive funds in full for outstanding balances to them from the Company.
What is the difference between Secured and Unsecured Creditors?
An “unsecured creditor” is a creditor who has no security protecting the outstanding amount.
A “secured creditor” retains a charge over asset if defaulted.
Can the new Company then have the same Directors and Shareholders?
Yes, they can. Typically, the best offer for an insolvent company’s business or assets may be from the existing directors or management team. No law prevents a director of a company that has gone into insolvency from forming a new company. However, directors disqualified may no longer act as a director whilst banned. Bankrupts or those subject to a bankruptcy restriction order or undertaking may also not act.
What are the Timescales?
Putting a company into Administration can take anything from a couple of hours to 2 weeks or more. The size of the business and the complexities surrounding it may be complicated. Once the Company enters Administration, a company remains in Administration for 12 months. However, this could be shortened down to 6 weeks or extended into multiple years, depending on the Company’s circumstance.
Does an Administration differ to Liquidation?
An administration rescues a viable business, whereas Liquidation closes the Company permanently. Assets and brands may still end up-sold to interested parties.
Will the Administration be Advertised?
A Notice of a company entering Administration requires advertising in the Gazette. Further advertising remains at the discretion of the administrator.
Let HBG Advisory help you, we can help your company administration with our no obligation and expert advice from our experienced partners. Speak with someone TODAY!
Can I Change a Company Name while in Administration
Common for a company to consider changing the name of the company before insolvency proceedings.
Voluntarily entering administration requires a licensed insolvency practitioner (IP). The IP forms a plan moving forward. You must discuss a name change with the Administrator though normally this should not present any legal problems.
Exit from Company Administration
No time limit exists on a company in Administration. However, an administrator remains obliged to carry out their duties as quick as practicable, so that the Company may cease in Administration.
The exit may be by:-
Continuing to trade out of Administration
However, the moratorium may offer the company time to resolve its financial issues by the sale of assets, additional funding, or an informal agreement with its creditors on repaying its debt outstanding.
When convinced the Company remains in a viable position, the administrator can then release control of the Company allowing the directors to resume their day-to-day activities.
However, if not the case, then:
Company Voluntary Arrangement (CVA)
However, if the Company struggles to service historic creditors, but the business remains trading well, then a company voluntary arrangement (CVA) remains possible.
Therefore,m, a CVA allows a struggling business to trade while using current profits to stay afloat and pay off past debt.
A CVA – a formal payment plan for the Company to settle outstanding creditors.
Licensed insolvency practitioner, draught a proposal for consideration by the Company’s creditors. 75% (by value) of the company creditors need to agree with the CVA proposal to start. Once approved, this then remains legally binding on all parties involved.
The Company must make payments on time and in full, as per the agreement and creditors need to adhere to the payment plan.
In most CVAs, a percentage of the outstanding debt is written off along with reductions in operating costs to ensure the agreement’s viability.
Creditors’ Voluntary Liquidation (CVL)
A creditors’ voluntary liquidation (CVL) used post-administration if the Company is no longer financially viable and will not be a profitable entity in the future.
If a creditor of a company in Administration, view the guide issued by R3: ‘ADMINISTRATION GUIDE TO CREDITORS’
If a shareholder of a company in Administration, view this guide:- UKSA
Between January 2020 and March 2020 403 administration had been filed. a drop from 474 in the previous. (Source: Insolvency Service)