Administration is a formal insolvency process that puts a company under the control of an external administrator to see if the company can be rescued and if the owners can turn things around. Alternatively a pre-pack sale can often be arranged if it is the best outcome for all parties.
Administrators can be appointed by directors, shareholders or even floating charge holders and other creditors. The administrator’s job is to protect their interests and if the business can’t be saved, will close it and look to sell company assets to obtain the best value for creditors.
The purpose of administration is to rescue a company if the owners can turn possibly things around.
Ed, the Business Rescue Expert, explains what happens when a company looks to go into Administration
No. Administration provides an automatic moratorium preventing creditors from taking further enforcement action so it provides a necessary breathing space.
Generally, yes. Administration will usually provide a better return for creditors than liquidation because the business will either make profit from continuing to trade or if it is sold as part of a pre-packaged administration then the value of assets will be protected.
Costs can vary regarding the complexity of the process but a pre-packaged administration is highly regulated, as a sale should represent the best value for creditors.
No. Once a notice of appointment is filed in court, control of the company passes to the administrator even if the longer term aim is to enter a CVA.
Possibly. If the business emerges from a CVA then it will. If the administrator eventually has to sell the business, the previous management will have an opportunity to buy it, although they will have no input into the sale process.
As part of the administration process, the insolvency practitioner is obliged to examine and report on the actions of directors leading up to the administration.
This is usually a straightforward process to determine that all affairs have been handled properly. It is possible, but rare, that if a director is found to have acted improperly then they could be disqualified from being the director of a limited company for a period of time and/or face a fine too.