Once the process has started no legal action can be taken against the business or any assets removed without the Courts approval or that of the insolvency practitioner appointed as Administrator to oversee the business.
In more detail
Objectives of Administration
Administration must achieve one of three statutory objectives below:
- To rescue the company as a going concern (which means placing the business in short term protection until it can be handed back to the directors) or,
- To achieve a better result than the company being wound up (better than the business just going into liquidation first) or,
- To realise security to pay off a preferential or secured creditor (the reason banks use to appoint an administrator)
Useful Aspects of Administration
One of the most useful aspects of Administration is that it is very fast and can be put in place without notifying creditors or shareholders first. Once the formal process has begun, the business is protected. It is then up to the appointed insolvency practitioner (usually with the help and input from the directors) to decide what to do next. In no particular order, this may be one or more of the following:
- Reduce the staff head count and close any unprofitable branches or divisions.
- Keep trading to finish any incomplete work to maximise value.
- Try to sell all or part of the business to a new owner.
- Sell assets and stock to realise funds to pay creditors.
What Happens After The Company Has Gone Into Administration?
Within eight weeks or less of the date of the Administration order, the Administrator will write to all creditors and set out his proposals (in a written report). They may then call a meeting of creditors within two weeks of that report to discuss the proposals and vote on the outcome. The administrator has to call a meeting if more than 10% of creditors (by value) request one. The outcome of the meeting may be; carry on realising assets, move to liquidation or a company voluntary arrangement, dissolution or even a return to the directors if the business is now solvent.
A word of advice on administrations
Administration is a very quick way of protecting a business in trouble. The application to appoint an administrator can be made by:
- The directors.
- The company itself.
- A creditor or group of creditors.
- Shareholders.
- A bank or lender with a floating charge (also known as a debenture).
If you would like to know more about administration and whether it is right for you please contact me today.
