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Voluntary Company Administration: Why Directors Would Choose to Enter into Administration?

Although most directors fear the possibility of administration because all company control is lost during the procedure, it may actually be the only way to save your business if enough cash flow and assets remain. Never is there a more important time to “face the music” than when you’re dealing with creditor threats and pressures on the verge of receivership or liquidation. When compared to those alternatives, administration certainly can appear to be the option that offers the most hope.

The Reasoning behind Voluntary Administration

One of the biggest advantages of administration is that it gives you a period of at least 8 weeks during which all legal actions are stayed and creditors cannot force you into compulsory liquidation via a Court order. 

Voluntary vs. Compulsory: Should You Wait to Be Wound Up?

You may think to yourself: “If I simply wait for my creditors to petition, my company will eventually go into liquidation and I won’t have to deal with as much hassle.” Even if you don’t intend on saving the company and have lost hope for any future success with the business, being forced into compulsory liquidation is never an ideal outcome.

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I understand that the last people you would ever want to speak to would be a business rescue firm, but I also know that trying to understand your options can be equally challenging. I have seen every eventuality in business and can help clarify what your options are.

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By being proactive and voluntarily entering into liquidation when there is still a chance for recovery you can minimise the risk of being accused of wrongful trading and receive guidance from a competent insolvency practitioner throughout the process. If you wait to be wound up, the creditor/bank or Court will undoubtedly appoint a liquidator of their choice. While every liquidator is legally bound to act in the interest of the creditors, those appointed by the insolvent company are more likely to be at least secondarily concerned with the recovery of the business.

It should be noted that a bank or creditor who holds a floating charge on a debenture newer than September 2003 could legally step in and replace the appointed administrator with their own if they feel that it is in their best interest.

How to Enter Into a Voluntary Administration

You do not need a Court order to appoint an administrator; a relatively simple filing will initiate the process, but it will only be granted if all of the company’s creditors who have floating charges are given a 5-day notice.

The first step in entering a voluntary administration is participating in a free consultation with an experienced insolvency practitioner. Call us today on 0800 644 6080 to find out how we can help you avoid receivership and compulsory liquidation. With 75 offices across the UK, you’re never far away from expert and confidential advice.

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