Updated: 29th January 2020
Entering administration may seem like an intimidating last resort, but in reality it could turn out to be your company’s saving grace. Here are the three questions we get asked most about putting a company into an administration:
It is true that there are a number of potential disadvantages associated with administration, including the total loss of all company control and the possibility of having all of the company assets sold. However, when the alternative is receivership and liquidation, administration can provide the most suitable road to recovery. Entering into administration with the guidance of a knowledgeable insolvency practitioner is a reliable way to postpone legal actions, reduce the burden of unsecured debt, and relieve creditor pressures while restructuring and/or negotiating.
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All legal actions against the company are stayed and creditors cannot petition the court for a period of at least 8 weeks. During this time, the administrator (who must be a licensed insolvency practitioner) will outline the ways in which he intends to deal with the insolvent company for the benefit of creditors.
If the business has enough cash flow and assets, or if an agreement is made with creditors, then the company will not need to enter compulsory liquidation
On the other hand, if the administrator feels that the business is unable to recover then the sale of assets and/or the company as a whole may be executed. To conduct the administration sale the administrator directs the business for 1-2 weeks while also marketing the company and its assets in accordance to the insolvency guidelines contained within Statement of Insolvent Practice (SIP) 13. In order to market the business the administrator must obtain accurate valuations for all assets from a professional appraiser; otherwise accusations of undervaluing may arise.
If a pre-pack administration is arranged, another interested party would purchase the assets of the old company, effectively transferring operations to a new company without losing clients, contracts, or equipment. This is a perfectly legitimate option for connected directors as long as the directors can afford to purchase the assets through their new company at a price that is consistent with the professional valuation, while also providing the best outcome for the creditors.
If you’re facing creditor pressures and feel as though a little extra time and some negotiating could help, contact us on 0800 644 6080 for a free consultation regarding company administrations. We’ll thoroughly assess your case and provide our honest expert opinion on whether you should pursue this type of insolvency procedure. With 78 offices stretching from Inverness down to Exeter, Real Business Rescue can offer unparalleled director advice across the UK.