Reviewed: 2nd December 2016
Administration is a formal path into insolvency designed to help companies overcome severe financial difficulties. Eligible businesses benefit from a moratorium period during which restructuring plans can be formulated without the threat of legal action from creditors.
Various exit routes from administration are available, and the process itself can be instigated by the company, its directors, or creditors. In essence, it offers a respite in which to reorganise effectively for the future.
In general, to be eligible for administration:
This emphasis on asset value and reliability of cash flows indicates whether you might be eligible for trading administration. Without predictable cash in-flows the company will be at risk of failing the agreement, and being forced into immediate liquidation.
So what is the timescale for this process, and what does it involve?
When a company goes into administration, a licensed insolvency practitioner (IP) takes control of the business on a temporary basis. With regard to trading administration, their objective is to reorganise the company’s affairs to offer it the best chance of trading out of financial difficulty.
Although the IP will generally seek assistance from directors during this process, they have the authority to negotiate or end existing contracts, and can make staff redundant if it’s considered necessary to save the company.
After eight weeks, the administrator must produce a formal statement detailing what will happen. Copies are issued to creditors, members of staff, and Companies House, and a meeting of creditors is arranged to discuss all issues surrounding the company’s situation.
It often takes several months for plans to become effective once they’re approved by creditors, but the administration process as a whole can last for up to one year, with the potential for a further extension if needed.
The ‘vehicle’ that may be used in a successful trading administration is called a Company Voluntary Arrangement. Debts are paid off at an affordable rate, and as long as the terms continue to be met, it offers an effective exit from insolvency back on the path to profitability.
Company Voluntary Arrangements must be agreed by creditors, but it is often the case that creditors as a whole receive more in this way than if the company had been forcibly liquidated.
Real Business Rescue can help if your company is experiencing financial distress. Real Business Rescue provide director advice online, over the phone, or in-person at one of our 72 UK offices or a place of your convenience.
14th February 2019
The bakery chain business Patisserie Valerie has been acquired out of administration by an Irish private equity firm called Causeway Capital Partners.Read More
13th February 2019
The department store operator Debenhams has secured access to a £40 million credit facility that should help it cope with the pressures of its ongoing funding crisis.Read More