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
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.