What does going into administration mean?

A company going into Administration effectively means that a licensed Insolvency Practitioner is appointed to act as an Administrator. By doing so, from the date of appointment, the overall control and management of the company will be given to the Insolvency Practitioner from the current directors.

Starting the Process

The procedure can be initiated voluntarily by the directors and/or shareholders when they feel an Administration will help to relieve the company from creditor pressure whilst the rescue options are explored.

Alternatively, the process can be started by a secured creditor if they have significant concerns regarding their lending. In addition an unsecured creditor can also apply for an administration order.

Regardless of how the administrator is appointed, the Insolvency Practitioner must act with a duty of care to all creditors.

Eligibility of the process

In order for a company to enter into Administration, one of three statutory purposes must be considered to be achievable:

Rescuing the company as a going concern, or
Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration), or
Realising property in order to make a distribution to one or more secured or preferential creditors.

The Moratorium

An interim moratorium can be established by the Directors lodging at court a notice of intention to appoint an Administrator. This protection lasts for ten days at which point a decision needs to be made as to whether an Administrator is appointed.

One of the advantages of going into Administration is the fact that a cloak of protection is placed around the Company to protect it from any enforcement action for the duration of the Administration. This is known as a moratorium.

During this time, the company could continue trading whilst the Administrator identifies the best course of action.

The Administration Process

Once appointed the Administrator needs to pursue one or more of the statutory purposes. He will need to assess whether the Company can be reconstructed and handed back to the Directors; assess whether the shares or business and assets can be sold or alternatively how best to realise the assets on a piecemeal basis.

This process can be conducted by the Administrator whilst consulting key creditors ahead of the formal approval of his proposals, which in any event must be approved within ten weeks of his appointment.

Pre-pack Administration

This is a subset of the above process whereby the marketing of the Company, business and assets is conducted prior to the appointment of the Administrator together with a sale contract being agreed which is executed shortly after appointment. The sale can be made to the directors or management acting via a new company which is appropriately funded or a third party.

Administration may need to be considered in the following scenarios

Threat or issue of a Winding Up Petition
Rent recovery action by landlords.
Arrears of PAYE and VAT.
Cashflow issues
Bank reducing facilities
Trade creditors ceasing supply and/or commencing debt recovery action
Directors at risk from wrongful trading and personal liability.
Other problems faced by the business that may need to be resolved: property leases, bad debts, unforeseen substantial liabilities, loss of markets or other adverse economic events.

The length of the process

An Administration automatically concludes after 12 months unless it is extended by the Administrator.

Summary

Company Administration is a procedure, which can only be conducted by a licensed insolvency practitioner, that offers protection to a Company allowing it a breathing space to formulate a plan to solve its financial difficulties and decide upon the best route forward.

The options may include:

successful restructure enabling the Company to be handed back to the directors
saving the business and preserving employment through a sale of the business and assets to a new company
proposing a Company Voluntary Arrangement (CVA)
liquidating the assets

Now that you have read the guide please feel free to give us a call on 0113 242 0808 or e-mail advice@chamberlain-co.co.uk.