Blessings in disguise?

The latest series covered what happened last month and while we can analyse the headlines quickly, we also like to dig a little deeper under the surface to see if there are any underlying trends. 

One such occurrence we’ve noticed is that for the fifth consecutive month, the number of businesses going into administration has risen.  

There were a total of 95 administrations in England and Wales last month (98 for the whole UK), which although below the comparable total for the same month last year (down 8%), this is still the highest total of administrations in a month recorded this year. 

Chris Horner, Insolvency Director with BusinssRescueExpert thinks there are a couple of valid reasons why this is happening.

“The most frequently used insolvency procedure right now is a creditors voluntary liquidation or a CVL.  

“This is where the shareholders or directors of a business place it into liquidation because it has no clear or obvious way to repay its creditors. 

“The fact that administrations are continuing to rise month on month shows that some businesses have a more reasonable chance of survival than they previously would and are doing everything they can to keep trading. 

“Not every business that enters administration can emerge as a profitable going concern but it does give those that do several benefits in their battles.

“The first of which is that any company that goes into this arrangement automatically triggers an automatic freeze on any creditor recovery actions such as winding up petitions or visits from bailiffs

“This valuable breathing space is designed to give the directors and owners time to arrange their response and allow an insolvency practitioner to fully appraise themselves of the situation and work on their restructure and rescue plans.

“If the business can be saved, then they can dedicate their focus into these efforts. Alternatively, they could look to sell the business to new owners under a transaction known as a pre-pack administration

“This is where the hard work of marketing a business for sale and agreeing the actual terms of the sale are done and settled before the business goes into insolvency. 

“If there is no realistic way a business can be turned around and there’s no interest from prospective new owners then the company would probably enter liquidation but this is very much a last case scenario – administration gives them every chance to reverse their fortunes before this happens with the expert help of a licensed insolvency practitioner.”

If you’ve got a chance – take it

Any business that enters administration needs to understand that it is a legal process that shouldn’t be taken lightly – especially by the directors. 

Even if they fully plan on resuming control of their business if possible, there is no guarantee that the business will emerge from administration in better shape.

The administrator – a licensed professional insolvency practitioner – will do their best to cut unnecessary expenses and other proven techniques or the existing management may bring down the debt burden by exiting administration via a company voluntary arrangement (CVA), which would see a proportion of these debts written off by the creditors in return for a guaranteed, regular monthly payment. 

If the business completes this arrangement and emerges from it, control of the business will revert to the previous management.  

They will also have the opportunity to buy the business if it is put up for sale although they will have no actual input into any sale process. 

Entering into an administration can be a vital pause button for a business that is in decline or even more desperate straits. 

It’s not a certainty that it will allow a business to restructure and emerge in better shape but it is a reasonable opportunity, and offers a better outcome for creditors than if the business closes down and goes straight into liquidation.

We offer a free initial consultation for any owner or director who wants to discuss administration for their company or any other process that might help them help their business.

An experienced member of our team will work closely with the director/s to get a clearer picture of the full liabilities and any other exposure as well as what the assets are and if there are any other circumstances in their favour.

They will then be able to provide a full slate of options, probably more than they originally thought they had, to help steer their business in a better direction. 

But all of this will only be possible if they make that first decision to get in touch.