Administration is preferable over liquidation because it doesn’t necessarily mean the end of the company.
An administration order leads the way for an administration, a formal insolvency procedure in which a licensed insolvency practitioner is appointed as the administrator of the company. The order mandates that the administrator must act in the best interest of the creditors as a whole and cannot show favour to any particular creditors. The administrator sends formal proposals to each of the company’s secured creditors, and then a creditors’ meeting is held during which the creditors decide whether they approve of the administrator's proposals.
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Administration orders protect companies from creditor pressures while they focus on devising a restructuring plan. If an agreement cannot be reached between creditors and the administrator, then other options must be considered. All legal actions against the company are stayed for at least 8 weeks, during which time the administrators can try to sell all or some of the company’s assets to repay debts. Another option that is sometimes considered is a pre-pack administration sale, in which the directors of the insolvent company could incorporate a new limited company, purchase the assets of the old company, and then continue trading uninterrupted. Although this technique has received a lot of criticism in the past couple of years, when done properly this is a completely legitimate way to mitigate the effects of a failed business endeavour.
If the company is already facing a compulsory liquidation or has already entered into a company voluntary arrangement (CVA) then a Court Order will be needed. When submitting the application to obtain an administration order the administrator how the statutory purpose is to be achieved which may be by way of (for example) a CVA, a creditor’s voluntary liquidation, or sale of the business and all of its assets to raise the funds needed to repay creditors. Even after an administrator has been appointed by the directors of the insolvent company there is still a possibility that a bank could step in and replace the administrator with their own, but only if they hold a defaulted debenture that was created after September 2003.
If you’ve been dealing with creditor pressures and would like to know how to obtain an administration order for your company, call us today on 0800 644 6080 for a free consultation. With 75 offices across the UK, you’re never far away from expert and confidential advice.