Now many businesses are facing a January squeeze as shoppers either move their purchases online and don’t visit in person and more are pulling in their expenditure ahead of large expected bills and tax rises coming soon.
This could force many companies that are already struggling or who were relying on a positive Christmas and New Year trading period to consider their next option as Omicron restrictions continue to repress demand and desire to spend.
Some firms could find themselves in such financial difficulties that liquidation is their only real option but administration can be the best way forward for a business that might have a viable future and needs time to pull together a recovery plan to make it work.
So here’s four good reasons why an administration might be the best solution for a company to pursue in January to give them the chance of a brighter 2022.
If a business goes into an administration process then it automatically triggers a moratorium on debt repayments, creditor repayment actions including landlords looking to enforce lease forfeits or commercial rent recovery and if the situation has escalated this far, any visits from high court enforcement officers or bailiffs.
The moratorium can also be extended for a longer period if the administrator needs the additional time to work on a realistic restructuring plan or to plan the sale of the business or its assets unhindered.
If a business goes into liquidation the chances of a creditor receiving all of the money they are owed is effectively zero.
Even if they have a legal charge over property or other business assets, they would only see a proportion of the debt repaid in the best case scenario.
An administration that allows a sale of the business to new owners or that implements a realistic restructuring of the business and its obligations will be in the best interest of the creditors as it will give the company a chance to trade profitably again and repay the creditors 100% of the debts they owe them.
The administrator may find a lot of interest in taking the business on from other potential buyers or existing management might have fresh new ideas of their own to inject new energy and hopefully capital into the business and supercharge its chances of success.
A pre-pack administration allows the administrator to complete a sale to a viable purchaser in the quickest possible time and allow the business to reopen and start trading again out of administration.
The main aim of an administration is to put creditors interests first and foremost by preserving the business in the best possible shape to trade again or to make the necessary changes to allow them to recoup as much of their debt as possible.
One solution could be allowing the business to enter a company voluntary arrangement (CVA) which will see a proportion of debt written off entirely in return for a guaranteed regular monthly payment, usually for five years, which will see some return.
Sadly, some businesses are so compromised by their debts and other circumstances that there is no viable way forward for them even after a moratorium and an administrator taking charge for a period.
A creditors voluntary liquidation (CVL) is then the most likely next step which would see the business formally closed and all assets sold to realise some return to creditors.
A company can move to either of these additional processes quite efficiently and relatively quickly whilst in administration without having to go through additional stages and unnecessary bureaucracy, which would extend the amount of time before creditors can see any progress towards a positive solution.
The Insolvency Service will shortly publish its final insolvency statistics for 2021 and they will almost certainly show that creditor voluntary liquidations were by far the most common result of insolvencies in another trading year hampered by the pandemic and associated public health measures to combat it.
What is interesting is that the second most used process will probably be administrations proving that it is a useful and essential tool for business owners hoping to make real changes to their business that will give it the best chance of recovery this year.
Any decision to make big but necessary changes to a company should not be taken lightly which is why lots of directors and owners take advantage of our FREE consultation to get an unbiased expert opinion of their situation.
One of our experienced advisors will work with them to fully understand their position and will then be able to outline a series of options available depending on their unique circumstances.
Administration might be the most logical option or there might be other paths available. They will have to decide what’s best for their company but they will already have taken the first positive move towards a more certain future for them and their business.