Company administration is a formal procedure in which an insolvency practitioner is appointed to act as the administrator of an insolvent company with the goal of bringing about a recovery.
Any upfront quotes for Pre Pack Administrations by Insolvency Practitioners can be unreliable as your business will need to be professionally valued to establish the accurate purchase price.
If your company is being threatened by creditors (i.e. - a landlord, HMRC, your bank, credit card companies, etc.) and you fear that you could be taken to Court and put out of business, then continue reading to find out how an administration order could protect your company from liquidation and dissolution:
If you don't feel like reading the following guide and you have a specific question that needs answering, feel free to send us an email or call us on 0800 644 6080 for free advice.
When is it Ideal for a Company to Enter into Administration?
Before we tell you more about the process you should consider the following points to make sure it is appropriate for your company to enter into administration:
- The business should be insolvent or contingently insolvent, and should have a significant amount of assets and/or value. Cash flow and profitability should be reasonably predictable.
- Creditor pressure is present and there is a concern that the company could be taken to Court in the near future. Often creditors have already made threats to force the business into compulsory liquidation in order to recover what is owed to them.
- If the company has very little assets and is also lacking in cash flow then a creditors' voluntary liquidation (CVL) would be a more suitable solution. If creditors are not yet threatening legal action but you're concerned that they may start soon then you may want to attempt a company voluntary arrangement (CVA).
To be absolutely sure that administration is the best route for your company speak with one of our insolvency practitioners today.
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What are the Advantages and Disadvantages of Administration?
The following are the pros and cons of entering into company administration in the UK:
- Any legal actions being taken by creditors are immediately stayed, which means your company would be protected from the possibility of compulsory liquidation or any other negative legal action during the administration.
- Puts the company in the hands of a licensed insolvency practitioner acting as the administrator. This ensures that all actions taken during administration are carried out with the interest of the company and its creditors in mind.
- Keeps the financial position of the creditors from worsening.
- The administrator is given time to communicate a clear picture of the company's finances to its creditors and outline the ways in which the administrator intends to conduct the administration and how the administrator intends to realise funds for creditors.
- If a pre-pack is arranged then the continuity of the business can be protected.
- During the procedure the administrator can propose a company voluntary arrangement (CVA).
- During administration your directors are no longer in control of the affairs of the company.
- The administration becomes a matter of public knowledge because correspondence with all creditors and clients must include a note that specifies the company is "in administration" next to the company name. For example, your company name printed on your invoices would have to appear as “Example Company Ltd. (In Administration).” Furthermore, the administrator is required to notify all creditors and employees that the business is under administration.
- The bank or one of your creditors may have the right to appoint their own administrator.
- Given the fact that the cost of administration can be quite excessive we usually only recommend it for companies that have decent cash flow but are being threatened by aggressive creditor action.
- If a Pre-Pack administration is carried out then TUPE regulations will apply, which means you'll have to transfer the employees and their contracts over to the “newco.” This can create a problem if the budget of the “new company” cannot afford to cover the payroll of the old company.
Who Has the Ability to Appoint an Administrator?
The directors of a company can elect to voluntarily enter into administration with the assistance of a licensed insolvency practitioner. Alternatively, the company can be put into administration by the holder of a floating charge under a debenture granted after 15th September 2003.
If the charge is held on a debenture that was granted before that date then they would be able to put your company into administrative receivership. Keep in mind that even if the directors of your company are the ones who initiate the administration it is possible for the bank, or another holder of a floating charge, to appoint their own administrator at their discretion.
If you’re concerned that a hostile creditor may try to petition your company to court, an administration could provide the protection needed to recover without being served payment demands or facing compulsory liquidation.
How Long Does Administration Take?
The administrator must submit their proposals to creditors within 8 weeks of the commencement of administration. After submitting their proposals and having them approved the administrator can take up to several months to carry out the administration as planned. Overall, an administration is supposed to last no longer than 1 year, but this time limit can be extended by the Court, or through the consent of the company's creditors. It can take 1-2 weeks to organise a pre pack administration.
Our licensed insolvency practitioners are experienced in all matters related to company administration. For free advice email us or call us today (0800 644 6080) and we’ll help you formulate a plan to get back on track. Real Business Rescue provide director advice online, over the phone, or in-person at one of our 101 UK offices or a place of your convenience.