Company Administration

Administration is a process which affords a company protection from its creditors while allowing either:

• The reorganisation of the company as a going concern, or
• The disposal of the company and its assets.

Administration is a temporary measure and not designed to be a long-term solution for the company.

A licensed Insolvency Practitioner:

• Is appointed as the Administrator to control and manage the company’s affairs and assets
• Will assess whether to restructure the company as a going concern or whether to sell the company and its assets
• Will aim to achieve a better result for the creditors than if the company had been placed into liquidation

The usual reason for a company to enter into Administration is pressure from creditors chasing payment of outstanding debt and threatening a Winding Up Petition.

Administration allows the company vital ‘breathing space’ preventing creditors from pursuing court action to recover any debts as it creates an automatic moratorium on pursuing or commencing legal proceedings.

The Insolvency Practitioner can be appointed by:

• Company members/shareholders,
• Company directors,
• A floating charge holder (usually a Bank), or
• The court

Any floating charge holder has the final say in the appointment of the Administrator and has the power to replace any Administrator already appointed by the company or directors

• A licensed Insolvency Practitioner is appointed as Administrator
• The Administrator assesses the financial viability of the company and must communicate proposals to the creditors within eight weeks
• There is a requirement for one or more of the company’s current or former directors to provide the Administrator with a Statement of Affairs detailing the assets and liabilities of the company
• The Administrator must send the Statement of Affairs to all creditors
• Within eight weeks, the Administrator provides the creditors with a Proposal and a copy is lodged at Companies House
• The creditors are then required to decide whether or not the Proposal is acceptable and at which time variations to the Proposal may be suggested
• The Administrator must keep all creditors apprised of the position via six monthly written reports until the Administration is concluded

• The company is allowed to continue to trade
• A moratorium from creditors pursuing legal action which can prevent the immediate service of a Winding Up Petition/Compulsory Liquidation
• Generally, it may lead to a better return for creditors compared to that which would arise under an immediate liquidation
• Valuable ‘breathing space’ to work out a viable business plan for the future without creditor pressure to contend with
• Allows potential restructuring of the company including the retention of profitable areas of the business and the disposal of other loss-making parts

• Negative publicity. All suppliers, customers and any party dealing with the company will be aware of the Administration and potential insolvent nature of the company
• The business is no longer run on a day to day basis by the directors, who must cede all control and management to the Administrator. This can cause potential issues with existing relationships with customers/suppliers

Two Alternatives to Administration:

1. Company Voluntary Arrangement (CVA) 

A CVA is effectively a formal payment plan to pay creditors while allowing the company to continue to trade.

Usual features include:

• A monthly payment plan to pay creditors
• Creditors are prevented from taking legal action against the company
• A fixed term of repayments (usually a number of years) after which any remaining debt is written off

The main benefit is the company is able to continue to trade after the CVA has come to an end free of its previous financial liabilities.

For more information on a CVA, read more here.

2. Creditors Voluntary Liquidation (CVL)

The level of debt may be such that the long-term future of the company as a going concern is not viable, even following a period of Administration and the moratorium which it provides preventing creditors from continuing or commencing any legal action.

In such circumstances, the directors may consider it prudent to enter into a CVL to prevent any creditor presenting a Winding Up Petition which could lead to compulsory liquidation.

For more information on a CVL, read more here.