An Overview of Limited Company Administration

There has been much in the news recently about companies going into Administration, but what does this mean and how does it help the troubled company?

Administration is used when a company is in difficulty, as it can be an effective way to put a pause on any action that is being threatened by it’s creditors, such as banks or HMRC, due to non-payment of debts.

What is administration?

Company administration is an official insolvency process that offers the company protection from creditor legal action, and allows for a rescue plan to be developed and implemented by the appointed insolvency practitioner (IP).

An important aspect of administration is the eight-week moratorium period that starts on entering, which stops any current or planned legal action by creditors.

As well as Administration there are other options for handling company debts include Administrative Dissolution, Company Voluntary Liquidations and Company Voluntary Arrangements. If you’re unsure which way to turn, just give us a call today for an informal chat with one of our knowledgeable advisors on 0800 975 0380 to talk through your options.

Appointment of insolvency practitioner

To enter a company into Administration, an insolvency practitioner must be appointed – they will be responsible for the company within this period, and this is the reason that negotiations are much more likely to be successful.

The practitioner will be respected with a higher level of authority, as they are bound to act on behalf of creditors (that are owed money) as well as companies.

The practitioner will first file a court notice of appointment along with supporting documents that are relevant – these documents will evidence the company’s insolvent position.

Control of the company and its assets (everything it owns) is handed over to the administrator, and their fees are paid by the company.

The aim of administration

When your company enters administration it will benefit from an eight-week moratorium with no creditor pressure.

Control of the company is handed over to the appointed IP, who must achieve at least one of three statutory purposes:

• Rescue the business as a going concern
• Get a better result for the company’s creditors than would be possible if the business had been liquidated without going in to administration
• Release property and/or business assets to distribute to one or more secured or preferential creditors

The administration process

The administrator will first write to all creditors, as well as Companies House, to inform them of their appointment.

The notice will also be published online in the London Gazette, so this will be public knowledge for those that wish to look for the company status.

They will then have 8 weeks in which to write a statement explaining their plan to move forward, which must be sent to creditors, employees and Companies House.

These parties are then invited to a meeting (this can now be virtual using a video conferencing platform), where each representative approves the plan, or if they would like it to be amended they can argue this. The deemed consent route is now often taken by practitioners; a meeting will not necessarily be essential.

The plan may involve any of the below suggestions;

• Negotiation of a Company Voluntary Arrangement (CVA), where the debts are paid back in part or full, over an extended period, while the company continues to trade
• The whole business is sold as a ‘going concern’ – the business can then continue, keeping its employees, customers and orders are honoured
• Assets could be sold as part of a CVL (Creditors Voluntary Liquidation). The money collected would then be used to pay creditors, and to close the company
• A Creditor’s Voluntary Liquidation could still be achieved if there are no company assets to sell

Note: The administrator’s control over the business means that during administration, they can renegotiate or cancel any contracts, or make employees redundant if necessary.

How can a business exit company administration?

The administration of a company must serve a purpose, it shouldn’t be used to delay the decline and eventual failure of a company.

To achieve its purpose, the administration must end in one of three ways:

• The company returns to solvency and continues to trade;
• The company is viable and enters into a Company Voluntary Arrangement (CVA) to repay its creditors;
• The company is no longer viable and is closed down via a Creditors’ Voluntary Liquidation (CVL) so its assets can be sold and the proceeds distributed to its creditors.

Ending the administration period

Administration only comes to an end when the insolvency practitioner’s contract ends (usually after a year), or they have decided that the purpose has been achieved.

Once the period of administration has come to an end, legal action from creditors can then recommence.

Of course, the practitioner is likely to have negotiated a plan forward with them, so unless these are not upheld by your company, action will not be submitted.

In an ideal world the administrator uses the time they have to successfully return the company to solvency.

The company can then exit administration and resume normal trading without having to enter another insolvency procedure, such as a CVA.

Administrators can use various methods to return the company to solvency, such as sourcing funding, selling assets and reaching informal repayment agreements with creditors.

Once they’re satisfied the company is stable, the administration period will end and the directors will regain control of the company.

Need some advice?

If you think that Administration is for you and your company give me a quick call on 0800 975 0380 for some free, confidential advice before making any decisions.