What is an Administration?

An Administration is a formal insolvency process. When a limited company is experiencing financial difficulties and under threat of a winding-up petition, one potential option for a business is to go into Administration. In effect this allows an administrator to be appointed who in turn will manage the company and its affairs and assets. This person must be a licensed insolvency practitioner. Upon the appointment all legal actions cease.

It must be stressed that depending on the situation, there is an option to sell all or part of the business as a going concern or close the business if its operating costs prove too difficult to maintain within its current market position.

An administration can only exist if the creditors of the company allow it to.  Maybe allowing the sale of assets to fund or raising funding to ensure cash flow to commence reducing and possibly paying the outstanding debts. The company then can trade out of difficulty once the officeholder has restored confidence. Once the company going into administration has a Licensed Insolvency Practitioner appointed. The company then is ring-fenced from creditors threatening to commence or in the process of any legal action to recover outstanding monies.

When to consider Administration

Possession threats by Landlords
HMRC Pressure.
Bank or other finance
companies threatening account closure.
Pending legal action claims from Creditors.

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Who chooses to place a limited company into Administration?

If the company is facing challenges then normally the directors will seek engagement and initiate the process voluntarily, often supported and guided by their accountant. In some circumstances however an Administration maybe initiated by a Qualifying Floating Charge Holder. These are normally Banks or other Secured lenders who may feel that their monies are at risk.

Will an Administration be allowed?

An administrator must demonstrate that they may achieve one or more of the following: –
The rescue of the Company as a trading concern.
Achieving a better result for the company creditors as a whole, than would be likely if the Company were wound up (without first being in Administration).
Realising property to make a dividend to one or more of the “secured” or “preferential creditors”

Advantages of a Company Administration?

A Company administration protects a company experiencing insolvency from creditors.
It is often used as a Business Rescue tool to prevent the Company from entering Liquidation and closing down.
It is also used to enabling a business the time to plan and implement a restructure and recovery plan.
It allows Directors the ability to safeguard their position and create timescales to sell assets to pay creditors.
A key component and advantage is when a business has a stable cash flow as well as assets. This can be an effective tool to allow for a Business Rescue and Recovery option.

Disadvantages of a Company Administration?

A business that has unstable cash flow as well as few assets, however, may not suit an administration. Therefore, a Company Voluntary Arrangement may be better suited?
The administration process is known to the public domain. Therefore, your company creditors, staff and customers will possibly have knowledge companies’ financial predicament.
A company administration remains an expensive process for a company to go through.

What’s the difference between an Administration to a Liquidation?

An administration is seen a Business Rescue and Recovery process for a viable business. A Liquidation will close the business permanently.