Updated: 9th March 2021
With the business world in turmoil due to the coronavirus pandemic, the inability to operate unrestricted in lockdown and the need to apply social distancing measures, has caused a widespread cash flow crisis.
Businesses that only a few weeks ago were trading profitably and held healthy cash reserves, are having to take drastic action simply to survive these unique and testing circumstances.
Company administration is just one formal insolvency measure that can protect your ailing business at this time, so if you need to go into administration, what should you be aware of?
Company administration is an official insolvency procedure that offers protection from creditor legal action, and allows for a rescue plan to be developed and implemented by the appointed insolvency practitioner (IP).
A crucial aspect of administration is the eight-week moratorium period that commences on entering, which prevents any current or planned legal action by creditors.
When you enter company administration you benefit from an eight-week moratorium with no creditor pressure. Control of the company is handed over to the appointed IP, who must achieve one of three statutory purposes:
Business rescue may be possible by selling assets or otherwise restructuring the company’s affairs, which in some cases could include making staff redundancies. Formal renegotiation of debt within a legally binding agreement called a Company Voluntary Arrangement (CVA) might also be an appropriate exit route out of administration for some businesses.
Administration provides a transition period for your business so that plans can be put in place to help it survive. The eight-week moratorium allows a vital ‘breathing space’ so you can take stock and act without the pressure of having to deal with creditors.
If your business is fundamentally viable – perhaps like many others, it’s only experiencing financial problems because of COVID-19 – you may be eligible for a Company Voluntary Arrangement.
In brief, this is a newly negotiated repayment plan that incorporates multiple debts, but only requires a single affordable repayment to be made each month. This payment is then distributed in the agreed proportions to creditors included in the legally binding arrangement.
You may find that one or more restructuring measures enable your company to trade on exit from administration. These could include selling non-essential assets to generate working capital, renegotiating contracts informally, or more severe actions such as making staff redundant.
If the situation is inescapable and the only option is to close your business down, Creditors’ Voluntary Liquidation could enable you to claim director redundancy if you’re eligible. This statutory procedure also offers some protection from allegations of misconduct/wrongful trading as a director.
We can provide professional help if your business needs to go into administration due to coronavirus. Real Business Rescue is the UK’s leading business rescue and recovery firm, and offers free same-day consultations – please contact one of the team for more information.
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