The Administration process provides an insolvent, yet viable, company with a level of protection from legal action being taken against it by its creditors.
This breathing space allows the administrator and the director(s) to take stock of the company’s position and formulate a strategy to deal with the company’s issues.
There are three objectives of an Administration that the Administrator has to look to achieve (in order of appearance):
- Rescuing the company as a going concern; or
- Achieving a better result for the company’s creditors than if the company were wound up; or
- Realising assets in order to make a distribution to the company’s secured creditors
Once a company enters Administration, the management of the company is placed under the control of the Administrator, although we, as Administrators, always use the expertise and experiences of the existing director(s) in formulating an exit strategy.
The most usual outcomes for a company in Administration are either a return to solvency by way of a Company Voluntary Arrangement, or a sale of the company’s business and assets as a going concern. This can either be to the current owners/directors or an independent 3rd party.
The Administration itself can last up to 12 months, however, depending on what the exit plan is it can be substantially shorter than this. For example, if the exit strategy is to sell the business as a going concern, and the buyer is already lined up, the company will only need to be in Administration for a short time.
If the outcome of the Administration has not been achieved within 12 months there is the opportunity to apply to Court to extend the time limit beyond 12 months.
Advantages of Administration
- Stops any further legal action being taken against the company by the creditors
- The business can continue to trade
- Employees jobs can be saved
- Stops the financial position of the company becoming worse, which in turn reduces the risk to directors of wrongful trading claims
Disadvantages of Administration
- Control of the company reverts to the Administrator
- Can result in the company being sold to a 3rd party
- Existing suppliers may no longer be willing to provide lines of credit for the company going forward
- The fact that the company is in Administration is in the public domain and is advertised in the London Gazette
- As the process requires a licenced Insolvency Practitioner to be appointed there are cost implications to consider
If you think an Administration could provide the solutions you are looking for it may also be worth considering a Pre-Pack Administration