Administration is often an effective "rescue option" for companies facing insolvency. Protection from creditor claims gives you time to form a plan of action for tackling your debts.
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What is Company Administration?
Administration is an option for companies facing insolvency.
Licensed Insolvency Practitioners acting, as the Administrators, are called in to help the directors decide whether the business can be rescued.
What happens during Administration?
During this period, creditors are not allowed to take any legal action against the company unless approved by court.
This protection from creditor claims gives the company time to form a plan of action for tackling the debts.
Removing the creditor threat lowers the risk of directors embarking in wrongful trading – which could make them personally liable for their actions.
If a Winding Up Petition has been issued, a company can enter into Administration to protect itself from being placed into compulsory liquidation.
What does the Administrator do?
Under the Insolvency Act 1986, it is the Administrator’s job to perform company administration. They will:
- Attempt to rescue the company
- Try and achieve a better result for the general body of creditors than would have been the case if the company was placed into liquidation.
If the Administrators assess that the company can’t be saved, they can be appointed to distribute company property to secured and preferential creditors, then to the rest of the creditors, and finally to the members if there is anything remaining.
The Administrators will assess the company’s position and whether there is sufficient support to continue the business.
Then they will draft and send a detailed proposal to the creditors within an eight-week time frame.
This will give details on their appointment, an action plan of what they will do/what they aim to achieve and how long the Administration period is expected to last.
The Administrators will also take over the day-to-day management of the company.
They may choose to restructure the company and sell part of the business so the company may continue trading.
Staff redundancy costs will be paid for by the Government according to the Transfer of Undertaking laws. (TUPE)
Points to consider
If the Administrators sell the business on to a third party, the company directors may become redundant.
Company employees will be transferred to their new workplace according to Transfer of Undertaking laws. (TUPE)
A company placed into Administration is considered public knowledge.
All creditors will be informed of the Administration and it will be advertised in the London Gazette and a local or national newspaper.
This allows creditors to find out about the Administration so they can gather evidence of any debts the company owes to them to send to the Administrators.
Anything related to the company – such as purchase orders and website information – needs to state the company is under Administration.
Suppliers may not provide new credit terms so the company needs to have enough money to fund itself during the Administration.
Who appoints Administrators?
Creditors with qualifying security will legally hold the strongest power in choosing the Administrators. To appoint Administrator, either:
- The company directors, a majority of shareholders (more than 50%), floating charge holders or creditors with qualified security can appeal to the court for the appointment of Administrators;
- A majority of shareholders or creditors with qualified security can appoint Administrators through an “out of court” process. Directors can also do this but require shareholder approval to do so.
Administrators cannot be appointed out of court if:
- The company is in Liquidation
- A Winding Up Petition has been issued
- The company has failed Administration within the last year
- The company is in a Company Voluntary Arrangement
- An “in court” application has been made by another party that hasn’t been dealt with yet
- An Administrative Receiver is in place
Notably, floating charge holders’ (bank debentures) entitlement to appoint Administrators out of court depends on whether the charge was registered before the Enterprise Act, 2003 came into effect.
What conclusions can the Administrator draw?
- The company will be returned to the control of the directors.
- The company will be liquidated, with trade ending and company assets being sold on. The cost of Liquidation is paid off first and any remaining money then goes to the creditors. After creditors are paid, if anything remains it will go to the company shareholders.
- The company will be dissolved – this occurs when the company has no money to pay back to unsecured creditors.
How is the Administration concluded?
Administration should end within one year, however this can be extended through court appeal or creditor agreement.
If appointed by court order, the Administrators will apply for a new court order to end the Administration period.
If appointed out of court, the Administrators may conclude the period without court approval.
However, if the Administrators conclude the purpose of the Administration can’t be fulfilled, then they must apply to court irrespective of how they were appointed to explain the reasons for this.
We will sit next to you at the table and stand by you.
if you have any concerns about liquidation or debt, all you need to do is get in touch with Hudson Weir.
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Hudson Weir are an established firm of Insolvency Practitioners who specialise in business recovery and corporate financial solutions.
Hudson Weir provides industry leading, nationwide services for its clients with the intention of easing financial pressures and providing recovery strategies for struggling businesses.
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