Administration can be an intimidating process for many company directors, even so it can provide recovery if used properly. Entering into administration is often seen as a punishment that insolvent companies are given by the Courts when they’re unable to pay. Although some administrators are appointed in this way, company directors/owners also have the right to voluntarily appoint their own administrator independently.
When a company enters administration all company control is passed to an appointed administrator (who must be a licensed insolvency practitioner). The administrator’s primary goal is to leverage the company’s assets and business to repay creditors as quickly and as fully as possible without preference. The administrator is given a period of 8 weeks to send out formal administrative proposals to all of the insolvent company’s creditors. These proposals will typically contain a basic plan of action that the administrator will follow to repay debts, information about the current status of the company, and the administrator’s anticipated outcome.
We explain what business rescue options are available to you as the business owner, and it is you as the director who stays in control and decides what route to take. It makes no sense for our client directors to feel pressured into something that they believe to be prejudicial.
If the company has consistently predictable cash flow, a healthy amount of assets, and/or a good volume of sales transactions, then there is a possibility that the administrator will be able to raise enough money to pay a significant portion of the debt and/or come to a formal agreement with creditors without having to liquidate/dissolve the business. The administrator may decide to recommend a pre-pack administration sale, in which the assets and business of the old company are sold to a new company. This type of procedure is often referred to as a “pre pack”. However, before a pre-pack sale can be executed the administrator must be able to show that this option is the most beneficial for creditors.
In the unfortunate situation that the company is unable to recover from its' liabilities it will be put into compulsory liquidation by the Court, during which all of its assets are sold and the company itself is dissolved. The insolvency practitioner should ensure that directors are protected from accusations of wrongful trading by handling the company’s final transactions and closing duties.
If you are concerned about what happens during company administration, or you’d simply like to know whether administration is a suitable option for your insolvent company, call us today on 0800 644 6080 for a free consultation. Our extensive office network comprises 55 offices across the UK with a partner-led service offering immediate director advice.
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