Going into Administration 

Going into Administration. Written by John A Waller, Consultant. Reviewed July 18th, 2024.

What are the implications for a limited company going into a Company Administration?

Administrations help companies recover from financial issues, which may lead to insolvency.

They are associated with medium to larger companies due to cost and scale.

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Purpose of the Administrator

The purpose of appointing an Administrator to a company remains to achieve one of three objectives:-

  1. Rescue the company as a going concern;
  2. Obtain a better realisation for companies’ creditors for distribution when compared to a company voluntary liquidation;
  3. Realise property belonging to a company and distribute monies to its preferential and secured creditors.

Company Administration process?

A company entering Administration, therefore, indicates that the operation of the business transfers legally to an appointed Administrator.

In the UK, an Administrator must be a licensed insolvency practitioner. The courts, your company’s creditors, or the company’s directors initiate the appointment.

Administration insolvency law requires approval before any such procedure is agreed upon. The company’s secured creditors require being informed and their approval to continue with the Administration.

Floating charge holders require five days’ notice before an Administration Order is approved.

For further in-depth reading on the company administration process, please readCompanyny administration process explained.d

Moratorium

Moratoriums commence once the Court receives a ‘Notice of Intention to appoint an Administrator’, which is filed and approved. Once filed and approved, all creditor actions cease legally without the expressed consent of a court ruling or the appointed company administrator in office.

Why Should a Company Go into Administration?

Reasons to appoint an Administrator:

  • Qualifying Floating Charge holders have the power to appoint an Administrator. Associated with a material breach of the terms agreed within either a loan agreement or a covenant.
  • Company directors concerned company creditors may move legally to secure company assets, exposing the company while trading. Directors who appoint an Administrator mean that a Moratorium protects Company assets until the business sale is completed.
  • Company shareholders may have conflicting opinions about individual directors and, with no option to resolve the dispute, may contemplate appointing an Administrator.
  • Pre-pack administrations allow the sale of a business while securing seamless execution and continuity of the trade. The main result is the preservation of the company’s perceived value associated with the purchase of another company.

How may you avoid Administration?

When your company remains under financial pressure, creditors or others may require the company to have an Administrator appointed. Directors who are then under pressure to proceed with an appointment need to act sooner rather than later. Early action may allow the opportunity of a pre-pack Administration, allowing a new entity, operated by the former directors, to purchase assets of the former company, enabling continuity.

The appointment of the Administrator then means it is impossible to prevent the process. Stopping Administration entirely through knowledge of the initial warning signs of insolvency remains the best recommendation. Therefore, seeking professional insolvency advice remains paramount, and options are kept open.

Administration Process in Simple Steps

1 The process of placing a Company into Administration;

2 Prepare to sell the business;

3 Administrator’s Plan;

4 What happens during the Administration?

5. Exit Tactics.

Going into Administration and Implications on Employees?

The Administration often leads to redundancy implications for the company’s employees and directors. Appointed administrators remain responsible for achieving the best financial outcome for the company’s creditors. However, this objective for the Administrator requires a cost reduction strategy to achieve the purpose, meaning redundancies and other non-essential operating expenses.

Company employees appointed redundant within fourteen days of an administrator appointment remain ordinary creditors of the company. Employees retained in the past fourteen days are deemed preferential creditors if made redundant later. The status of ‘Preferential’ ranks before ‘Ordinary! ‘ when being paid out.

However, exiting an Administration into a liquidation procedure allows an opportunity to claim redundancy using the redundancy pay scheme.

Distinction Between an Administration and Liquidation?

Both Insolvency procedures involve a licensed Insolvency Practitioner and strive to ensure the best financial outcome for the company’s creditors.

However,;

  • Administration remains part of the “Rescue” family, allowing companies to be businesses rather than face closure.
    • Administrations are typically linked to larger companies and avoid the stigma of liquidation for high-profile brands.
    • Administration requires restructuring and a distinct ‘exit strategy’ for the company to move back to normal trading status out of Administration.
  • Liquidation entails issuing redundancy notices to former employees and the company’s directors. Then, the limited company is closed for its own good, and its assets are sold to pay its creditors. The final act is to strike the company off the register at Companies House. 

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