Updated: 23rd November 2020
When a business is experiencing significant financial distress, it may be recommended that the company is placed into administration. Company administration is a powerful form of corporate insolvency procedure which gives a struggling business both space and time to turn its fortunes around.
Administration is not a solution in itself, nor is it a permanent state for a company to be in; rather it functions more like a ‘holding’ stage while a more concrete way forward is planned. Once a company enters administration it is afforded legal protection in the form of a moratorium. This prevents creditors initiating legal proceedings against the company to recover money owed.
Safe from the threat of litigation, the company is able to formulate a workable plan and make informed decisions regarding its future direction.
The role of the administrator
Upon a company entering administration, control of the business is handed over to the appointed administrator, who must be a licensed insolvency practitioner. The administrator will work with both the company’s shareholders and also its creditors, to determine what the future holds for the company and whether it is likely to have a viable future as a trading entity.
In the short-term, the company may be allowed to continue trading while it is in administration; in other instances, it may be decided that ceasing trade is the more appropriate option in order to protect creditors from further losses. This will be assessed on a case by case basis by the appointed administrator.
How long can a company remain in administration?
There is no upper- or lower-time limit that dictates how long a company can remain in administration. When it comes to company insolvency, each case is different and depending on the scale of the problems, as well the desire and future viability of the company, differing levels of professional input will be required.
Administrations don’t typically last beyond 12 months, although in cases where more time is required, this will often be allowed so long as the administrator can show that this is required in order to obtain the best result for the company and its creditors.
While the length of time a company spends in administration may not be particularly significant, what is important, however, is that the administration achieves one of the three statutory purposes as set out in the Insolvency Act 1986. These are:
- 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.
When one of these is achieved, the company will leave administration via an appropriate exit route.
This could mean the company continues to trade, continues to trade while under an alternative insolvency procedure such as a CVA, or ceases trade completely before entering a formal liquidation procedure.
Considering administration?
If your company is experiencing financial pressure and you are considering the possibility of placing it into voluntary administration, ensure you take professional advice at the earliest possible opportunity.
With over 70 offices nationwide, Real Business Rescue are perfectly placed to help. You can arrange a free consultation with a licensed insolvency practitioner and discover the most appropriate next step for your business, which may be company administration.
Call today on 0800 644 6080 to speak to a member of our expert team.
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