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Administration – A Guide for Directors

Administration – A Guide for Directors  suffering severe business debt and financial pressure, and unable to pay their bills when they fall due, run the risk of insolvency.

Several options exist for companies either unable or grappling to pay creditors. Once a company struggles with cash flow, creditors will up their game chasing money. They may issue winding-up petitions, potentially leading to compulsory liquidation.

Options, therefore, help directors protect company creditors. One such option is a company administration. This process is not the same as a liquidation, as it does not engage in closing a company.

Directors find administrations desirable, as they then allow companies to trade on or even pre-pack to a newco.

For further reading, view going into administration.

Why would a Limited Company consider Administration?

However, an administration ring-fences protecting the business from potential legal action, along with creditors applying for a winding-up petition to the compulsory liquidate the company for unpaid debt.

Eight Week Moratorium Protection

Therefore, administration grants a business an eight-week moratorium that provides protection from its creditors, allowing the Administrator to present their proposals for creditors to agree or amend moving forward.

Company Administration Process remains used too:

  • Rescue a company either unable or grappling to pay its creditors, and then remain a going concern;
  • Reach a more favourable result for the company’s creditors than if the business remains instantly wound up;
  • Sell property for the advantage of secured or preferential creditors, if the first two options collapse or are not then deliverable.

However, if your company remains insolvent, though has assets, property or a sustainable contract, then perhaps an Administration may be best suited. For further explanation, please read the company administration process explained.

Can a Company in Administration Continue to Trade?

Yes.

It is therefore usual for companies to continue trading while in Administration. Referred to as a ‘trading administration’.’

How may a company have an Administrator appointed?

Three methods:

  • Floating charge holder;
  • Court order;
  • Directors or the company.

Filing a notice of court is a fast and straightforward procedure, and does not require a hearing or court application.

Usually, directors of the ailing company apply to the court for a hearing to place their company into Administration. Court order remains the only method a company creditor may apply for an administrator to be appointed. Court orders also apply to:

  • When the company is already in liquidation;
  • administrative receiver already in situ;
  • a provisional liquidator in situ;
  • an outstanding winding-up petition on the company.

Upon appointment, they are then required to submit a report detailing the plan for the Administration.

Either:

  • Rebuild the company’s viability
  • Arrange settlement deal with creditors
  • Sell the business as a going concern.
  • Realise assets to discharge secured or preferential creditors.

The Administrator’s report is then presented to the company’s creditors, its employees, and a copy filed at companies’ houses. The administrator arranges creditors and employees to attend a meeting to either approve or comment on so agree.

Administrations aim to therefore rescue a company deemed insolvent through a restructuring process. Many areas may require attention to achieve a successful outcome.

Administration – A Guide for Directors and Going Concern Sales

Since the Administrator’s job is to find the best return for creditors, one possible conclusion may be to sell the company through a pre-pack administration.

Waiting for the administrator’s appointment means the IP will restructure, improving its potential sales attraction.

Administration – A Guide for Directors of a Company & Restructuring

Company administration remains a rescue process. The appointed Administrator will use best efforts to maintain as much integrity as possible, while steering clear closure, ensuring creditors may receive monies.

The process often involves selling company assets and staff redundancies to reduce operating costs and improve efficiency, while generating additional working capital to encourage stability and growth.

How Long does an Administration Last?

Administrations run for one year, though may last longer with the request of the appointed Administrator. Courts approve a specified time. But they have been known in exceptional cases to remain for two to three years.

What Happens to Company Directors in an Administration?

During the process of Company Administration, directors’ control ceases. They are, though, required to assist the Administrator.

To potentially enhance the consequence of the Administration. Directors may then retain partial roles in managing the company, though that remains the administrators call.

Difference Between a Limited Company in Administration and Liquidation?

If under such pressure, a potentially viable company requiring support should consider a company administration. The Administration does not apply to all, but is fast and secure for companies wishing to either trade on or sell.

Companies in a Creditors liquidation liquidation, however, remain closed for good, assets sold and all staff dismissed. 

Guide to a Creditors Voluntary Liquidation (CVL).

For further help and support with company administrations.

Please contact HBG Advisory on:

FREEPHONE 0330 056 3120 8 am to 8 pm, seven days a week.

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