Company administration is the process of trying to save an insolvent company that cannot pay its debts by appointing an insolvency practitioner as an administrator.
If you find that your company cannot meet its outgoings and is being threatened by creditors, then administration could be a way of protecting your company from being liquidated to pay its debts.
Having to consider such action is a difficult and challenging time but our trusted experts at Future Strategy can help you understand whether this is the best option that will secure the most desirable outcome. We can help:
- Appoint an Insolvency Practitioner to guide your business professionally through the administration process to find available routes to recovery.
- Avoid potential legal action during administration, giving you peace of mind.
- Communicate clearly with creditors and help negotiate a more favourable position.
If you would like to discuss whether company administration is an option for your business, get in touch with our team today.
Why choose company administration?
If your company is being threatened by creditors such as a landlord, HMRC, your bank, credit card companies or utility companies, company administration could be a viable option.
There are some clear benefits over other rescue options, including:
- Any legal action being taken by creditors are paused, which means your company would be protected from the possibility of compulsory liquidation.
- Puts the company in the hands of a licensed Insolvency Practitioner acting as the administrator. This makes everything is carried out in the company’s and creditors’ interests.
- Keeps the financial position of the creditors from worsening.
- The administrator is given time to communicate a clear picture of the company’s finances to its creditors and outline the ways in which the administrator intends to conduct the administration and how the administrator intends to realise funds for creditors.
- If a pre-pack is arranged then the continuity of the business can be protected.
- During the procedure, the administrator can propose a Company Voluntary Arrangement (CVA).
There are some disadvantages, principally that during administration, directors are no longer in control of the affairs of the company. The administration will also become a matter of public knowledge because correspondence with all creditors and clients must include a note that specifies the company is “in administration” next to the company name.
Company administration can also be quite costly and it is usually recommended to companies with greater cash flow who are being aggressively targeted by creditors.
When should you opt for company administration?
To be placed in administration, the business should be insolvent, for example, it cannot meet its outgoings – but should have a significant amount of assets or value. If there is regular cash flow and profitability that is a great help.
It should be a consideration if you are experiencing creditor pressure with threats to force the business into compulsory liquidation in order to recover what is owed to them. You may be concerned that the company could be taken to Court.
If the company has very few assets and is also lacking in cash flow then a Creditors’ Voluntary Liquidation (CVL) would be a more suitable solution. If creditors are not yet threatening legal action but you’re concerned that they may start soon then you may want to attempt a Company Voluntary Arrangement (CVA).
Choosing the best option for your business is vital to its future success and that decision should be taken only with well-informed, impartial advice from professionals. Contact the Future Strategy team to understand what the best route to recovery is for your business.
How long does company administration take?
Overall, an administration is supposed to last no longer than 1 year, but this time limit can be extended by the Court, or through the consent of the company’s creditors. It can take 1-2 weeks to organise a pre-pack administration.
The administrator must submit their proposals to creditors within eight weeks of the commencement of administration. After submitting their proposals and having them approved the administrator can take up to several months to carry out the administration as planned.
The timeline for a company administration is broadly as follows:
- Company directors will choose to appoint an administrator on behalf of the company.
- An assessment of the company is made where the administrator has an eight-week period to send out formal proposals to creditors.
- As part of the above, the administrator will request a detailed statement of company affairs that shows all assets and liabilities of the company.
- The administrator must then send the statement of affairs and their proposal in the eight weeks to creditors. A copy will be stored with Companies House.
- A decision is then made by creditors.
- The administrator will then send a report at least every six months to all creditors until the process is complete.
The Future Strategy team can help explain every step of the process so you can best understand whether company administration is a good fit for your situation and explain the alternatives.
Possible outcomes of company administration
Administration provides a company with the time vital for exploring it’s future direction and possible options. It could mark the beginning of the end of your business if it is not deemed to be a viable entity going forwards, it could also result in a positive outcome that sees the company thriving after restructuring.
Examples of recent administration cases
The Covid-19 pandemic has sparked a wave of company administrations as companies fought to stave off creditor pressure at a time when revenue pressure, especially retail, was at its highest. They include:
- Arcadia –Arcadia Group went into administration at the end of November. Online retailer ASOS has secured many of its digital brands.
- Bon Marché – For the second time in 2020, Bon Marché entered administration on December 2.
- Edinburgh Woollen Mill – while a rescue deal is hoped to materialise, store closures and staff redundancies are said to be inevitable following the retailer’s fall into administration in November 2020.
- DW Sports – In August 2020, 1,700 jobs were put at risk as sports retailer and gym operator DW Sports filed for administration.
- Bensons for Beds – Bensons for Beds was bought out of administration by its existing owner through a pre-pack process in June.
- Debenhams – Department store Debenhams officially entered administration last year and was eventually bought by Boohoo, who decided to close all its stores but maintain its digital presence.
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