John A Waller
Updated July 16th,2021.
Put your company into administration
Deciding to put your company into administration means your company has a new manager. They remain in office entitled as an administrator – who must be a licensed insolvency practitioner (IP). Once a company administration commences, the company receives protection from creditors, who may be threatening to begin legal action to recover outstanding debts.
Please read: ‘Administration – A guide for directors of a company’ and ‘Company Administration process explained’.
Is Administration Right For My Limited Company?
The administration of a Limited Company provides a rapid and effective method to preserve a company or partnership that cannot legally prevent creditor action. You may commence the company administration process without the approval of creditors or shareholders, saving valuable time and any winding-up process.
A company entering administration provides the right solution for a limited company unable to trade out its difficulties, and requires additional time and protection.
Administration vs Liquidation
Both processes are a process of insolvency. However, they vary in operation and the final product.
Administration usually applies to a viable business requiring protection, so the company can be sold, maximising assets, realisations, and protecting jobs.
Liquidation using a Creditors Voluntary Liquidation closes the business, involving all team members and directors losing their jobs and assets realised. Unlike an administration, liquidation terminates an insolvent company, while an administration rescues a company through restructuring and refinancing.
Can directors place a company in Administration?
Directors may put a company into administration if a chance exists. Their business can be rescued or determined that placing the company into administration will result in better returns for creditors than if directors put the company into a CVL.
Company Administration affords limited company’s protection when under attack by the company’s creditors using a legal process to collect a debt. Once a company enters administration, a moratorium protects the company that stops litigation and prevents any new legal action.
Then, the administrator appointed commences to restructure so that the business can continue trading.
Cost of an Administration
The administration of a limited company is more expensive than liquidation. However, the administration is not intended to protect a company in the medium to long term. Once the administration’s objective has been met, the company exits the administration. Options available upon exit are:
- Successful sale;
- Trading on;
- Entering a CVA or Liquidation.
Why should a company enter Administration?
Directors may put their limited company into administration, should it face debt it can’t manage, and therefore are vulnerable to paying the money it owes back.
An administration shields the business from any legal action, while stopping company creditors seeking to commence a winding-up petition against the company—a form of ring-fence.
Administration of a Business in the UK and Eight Week Moratorium
The entering Administration of a company administration allows a company to have an eight-week moratorium, during which it can obtain a reprieve from creditors. Concurrently, the Administration proposes a deal to the company creditors.
Directors can use the Company Administration Procedure to:
- Rescue a limited company striving to pay its debts and keep it as a going concern and saving jobs;
- Accomplish a more favourable result for the company’s creditors than if the business wound up;
- Realise assets for the benefit of secured or preferential creditors if all else fails.
Please read ‘Closing a limited company‘ for further support and ‘a guide
Administration may be the answer, should your company remain insolvent, though have assets, that will yield a more positive outcome.
Put your company into administration. Can a company still trade?
Referred to as a ‘trading administration.’
What Happens in a Company Administration?
Administration can be a daunting process for many directors, though it can provide the best chance of a company’s recovery and successful turnaround if appropriately used. Entering Administration, regarded as a penalty imposed by courts on an insolvent company if they fail to pay. Although some administrators remain appointed, many company directors choose to appoint their Administrator independently voluntarily.
What happens when a company proceeds into Administration?
When a company goes into Administration, its control then passes to the appointed Administrator (who must be a licensed insolvency administrator). The insolvency administrator’s primary objective is to use his assets to repay creditors in full as quickly and without preferential treatment as possible. The Administrator has eight weeks to send formal administrative proposals, the insolvent company’s creditors. These proposals usually include a basic action plan that the Administrator will follow to repay debts, information about the company’s current status, and the Administrator’s prospective outcome.
For further insight, please read ‘Going Into Administration’.
When does it suit a company to therefore go into Administration?
Directors need to contemplate the following points before opting for Administration;
- The business should be insolvent or contingently insolvent, and should have significant assets and value. Cash flow and profitability should be reasonably predictable.
- If the company has minimal assets and no cash flow, creditors voluntary liquidation (CVL) would be a more suitable solution. If the creditors are not yet threatening legal action, but you fear they may soon start, then perhaps you should consider a company voluntary arrangement (CVA).
- Pressure from creditors and concerns creditors could soon take the company to the Court. Many creditors have already commenced an action to enforce compulsory liquidation to recover money due.
Who can appoint an administrator?
The directors of a limited company may voluntarily enter into Administration with a licensed insolvency practitioner’s assistance. However, a floating charge holder may appoint an administrator if the debenture registered after 15th September 2003. If the charge remains held on a debenture given before that date, they will therefore put your company in administrative receivership. Remember that even if your company’s directors initiated the Administration, the bank, or any other variable fee holder, may appoint its Administrator at its discretion.
How long can a limited company remain in Administration?
A strategy. The period between the appointment of the insolvency administrator and taking office. This usually takes one to two weeks. However, the answer to how long a company can stay in Administration remains unclear.
There remain many advantages for any company director considering an administration process, but you should be aware that:
- The Administration of a limited company remains a procedure taken by an Administrator under UK insolvency laws and isn’t a quick fix for a company.
However, the Administration can take up to 12 months, with possible extensions of up to 12 months further with the creditors’ consent. Yet, if the Administrator had completed their duties before the auto-expiry and satisfied a specific Administration purpose, the Administrator can finish the Company Administration earlier.
Ways to end an Administration of a limited company
There are several ways to end an administration. If a court appointment? Then a final court hearing is required. Primary routes for both court dates and out-of-court appointments remain automatically ceased. The Administration ends automatically after one year or even earlier, if the Administration’s purpose was achieved or not, or if the creditor meets demands it. Creditors or the company’s Court may agree to an extension of this period (the first of these parties may only extend the period by a maximum of twelve months). The Administrator may submit papers to say the Administration is over and the company’s dissolution is most appropriate. The company remains dissolved three months after the filing of the documents. This exit route exists when no funds are available for distribution to unsecured creditors, and there are no outstanding matters that a liquidator may have to consider.
What Happens to Company Directors in an Administration?
During the administration of a company, the director’s capacity to control the company ends. Directors remain required to assist and cooperate with the Administration. However, they cannot make decisions relating to the company’s management without the Administrator’s approval.
In some cases, to improve the Administration’s outcome, the directors are therefore given some decision-making powers. However, entirely at the discretion of the Administrator.
Who gets paid first in an Administration?
As with any insolvency, corporate debt remains paid in Administration. The priority:
- Fixed Charged Holders;
- The Administrator in office;
- Floating charge holders;
- Unsecured creditors of the company;
Administration of a Business in the UK & Restructuring
Administration of a company remains part of a business rescue procedure in the UK. Once an Administrator appoints, they begin exploring opportunities to pay creditors without negatively impacting the business or endangering liquidation.
Restructuring often involves realising the assets of the company, along with team member redundancies.
Therefore, the purpose remains to release working capital, decrease operating costs, and leave the company stronger and viable.
Put your company into administration, What are the Statutory matters?
Under Insolvency law, administrators must deal with several matters after their appointment. Notice to creditors. It is a statutory requirement under the Insolvency Act that a notice is published in the London Gazette. The notification requires sending to the company’s members and creditors within 28 days of the issued administrative order.
Statement of affairs
The directors are obligated to prepare the Administrators with a Statement of Affairs within eleven days of receiving the notice. However, typically issued with one week of the date the Administration Order granted. The Statement of Affairs summarises its assets, their expected realisable value, and the company’s liabilities. It also contains:
- List of company creditors;
- Company shareholders.
Administrators report on the conduct of the company directors.
The Administrators are obliged to present a report on the company’s conduct to the Department for Business, Innovation and Skills (“BIS”). This report includes the period before and after insolvency. However, the information remains confidential between the Administrators and BIS. BIS determines whether further action is required under the Company Directors Disqualification Act 1986.
Proposals of the Administrator
The Administrator remains required within eight weeks of their appointment, set out and circulate proposals for achieving the purpose of Administration, including an explanation, where applicable, of why the Administration cannot accomplish objectives and the proposed basis for their remuneration.
The creditors must be asked with any notifications whether they wish to appoint a Creditors’ Committee. The committee must have at least three members and not more than five. Any creditor of the company that remains entitled to become a committee member, providing their voting authority remains. The committee is to support the Administrator in fulfilling his duties. The committee often acts as a source of ideas and monitors the way forward towards the Administration’s closure.
PLEASE NOTE: Your company remains no longer protected against any legal action your creditors take once the Administration has ceased.
About HBG Advisory & Administration of a Business in the UK
At HBG Advisory:
- We believe any business may turn itself. Many factors affect failing companies, but the emotional strain of keeping your business alive drains and affects directors’ judgement,
- Offers failed, but viable businesses an opportunity. Money is not the only remedy for a business. Many borrow money and find themselves in trouble again soon;
- Provides a transformative argument for your business, so it cannot only survive, but also earn a profit. Like you, we own and operate a limited company.
We’ve 40 years experience assisting and supporting owner-managed businesses in the UK and those living overseas while still owning a UK registered company. HBG Advisory teams remain highly experienced commercially, keeping limited companies afloat.
However, our fresh approach does not only incorporate specialist management consulting.
Our team is highly experienced professionals who think outside the box, exploring every avenue to protect your business.
Our team remain approachable and straight talkers. Each client has a different situation, and therefore it is impossible to offer set packages.
We remain transparent about the fees. No surprises.
If you are in trouble, we provide ROBUST-HONEST-SUPPORT.