Introduction
What is administration
This article will discuss what is administration in the UK. Going into administration is essentially when a company becomes insolvent and they are put under the management of a LIP, or Licensed Insolvency Practitioner. The directors or the secured lenders can easily appoint administrators through the court process, and this protects the company and the position that they have where possible.
What Happens When a Company Goes into Administration?
Administration can be a very powerful process, to say the least. It gives someone else the chance to take control of a company if the business in question is experiencing serious cash flow problems. The administration must have some kind of purpose, not to mention that the government also encourage the use of a rescue mechanism after the administrative process has reached completion. Under the administration option, it’s entirely possible for the company and the directors to apply to the court so that the administration can be streamlined.
The law does require that any finance provider with the right security is contacted and the overall aims of the administration need to be discussed as well. The finance provider has to have a floating and fixed charge and the charge holder needs to give permission for the whole process to go ahead. A typical notice period of 5 days is normally required.
How Long does Administration Last?
This really does depend on the circumstances at hand. The administrators will usually take on the contracts of the company after a period of 14 days has elapsed. It’s very desirable that the business is sold before this date is reached. Insolvency practitioners cannot run the business at a loss, as it will affect the creditors. If there is a large amount of money to collect, then trading for a longer period may be required. During this time, regular reports to the creditors will need to be carried out.
In the UK, between the months of April and June 2020, reports have shown that over 386 companies in England and Wales filed for administration.
What Happens if a Company Can Recover?
Even if a company is experiencing a severe amount of financial distress, there might well be a good business at the heart of it all. Debts can easily build up for a number of reasons and this includes poor decisions that were made at the start or even significant amounts of bad debt. It may be that you over-commit financially or that you enter a high-interest business loan.
If you were to strip all of this away however then you may find that the core business model is able to generate more than enough money to sustain the current enterprise. If your business model is sound, then you have two options.
CVA – what is an administration
If you have a predictable amount of cash flow and you have a good amount of assets, then there’s a high chance that the administrator can then raise enough money to pay a large portion of the debt. It may be that a formal arrangement can be reached without having to liquidate the business at all. This would normally come in the form of a CVA.
A CVA gives the company in question a chance to restructure its liabilities, or even exit any unprofitable parts of the business. In some instances, a lease agreement can be rescheduled. Some businesses have had debts written off in the past as well and this can come with considerable benefits.
Pre-pack Administration
The administrator may well decide to recommend a pre-pack administration. If this is the case, then the assets and the business of the older company will then be sold to a new company. They may or may not be owned by the directors of the existing company. The debts will remain with the existing company, but the new company can then start a clean slate.
This is often called a pre-pack. Before this kind of sale can be executed, the administrator needs to do their bit to try and demonstrate that the option is in fact beneficial for the creditors and that it would also result in a much higher return when compared to another procedure.
What Happens if a Company is Unable to Recover?
If you come to the point where you cannot recover from the situation that you are in right now or if it is deemed that your business model is just not a good fit, then you may well be placed into voluntary liquidation. During this time, your assets will be sold, and your company will be dissolved. The insolvency practitioner will help to make sure that the directors are protected, and they will also handle any final transactions.
The insolvency practitioner will also handle closing duties as well. Although a director conduct report will be filed afterward, you don’t need to worry about too much. The director conduct report will show the transaction that led up to the years, for your insolvency but at the end of the day, this is very normal and in fact, a simple process.
Of course, going into administration can be a difficult process, to say the least. At the end of the day though, there are many things that you can do to try and make your life easier. The first thing that you need to do is seek out some professional advice.
When you do, you can then feel confident knowing that you are going to get the help and support you need to navigate the process properly without having to worry about stumbling or panicking along the way.
No company owner wants their business to go into administration, but it happens far more often than you might realize. If you want to find out more about your business transactions or what might be brought to light when you do go into administration, then there really are so many resources out there that are fully designed to help you with any questions that you might have.
When you begin to explore these options, you will soon find that it is easier than ever for you to come out the other side, confident and assured.
