Administration is a business recovery process which is aimed at insolvent companies or companies at sincere risk of future insolvency.
Once a business enters the administration process, all proceedings will be managed by an Insolvency Practitioner (IP), acting as an administrator. The goal of this process is to recover the company to a profitable state and save the company from Liquidation processes in the future.
A business can exercise administration as an option, in order to try and rescue and restore it to a state of profitability. Administration is often considered a somewhat last resort to save a company, after alternatives are no longer viable.
Entering Administration with the assistance of an IP, the company can undergo restructure and enter a period of safety from legal action taken against them by creditors.
The IP’s main focus is preserving the company and ensuring that a viable solution is proposed to address all outstanding creditors. It is important to remember that in order to settle arrears or preserve the company the IP will have to make decisions in the interest of these two parties. This may mean that there are drastic changes within the structure of the company during this process.
Once a company has decided to pursue administration the appointed IP/Administrator takes over any and all operations. The process is initiated with an audit/inventory of all company assets. This enables the IP to assess viable options for repayment of creditors.
Once they have started this process, the IP has a period of 8 weeks (maximum) in order to reach a viable proposal, considering the circumstances of the case. After this they must alert the creditors of their proposed strategy for settling outstanding debts and moving forward. This must include any predictions for the final outcome of the Administration process, again considering the situation of the company as a whole.
Liquidation and Administration are very separate options which companies pursue when they are experiencing different struggles.
Liquidation is an insolvency process which terminates the business, realizing any remaining assets and using this money to settle outstanding debts.
It is usually used as a last resort when a company is no longer considered viable and have excessive debts which are causing it irreversible problems.
Administration is a business recovery process, which is often a solution pursued by larger businesses which are likely to benefit from it further.
This process sees the company undergo vast restructuring in an attempt to return the company to a state of profitability.
Yes.
During Administration the IP essentially replaces the Directors are the individual responsible for the managing and operation of the business while they determine the most appropriate course of action for recovery.
Although the goal of Administration is always recovery, sometimes the circumstances a company finds itself in do not support recovery.
In these instances, the IP may suggest voluntary Liquidation processes, which are likely to benefit the creditors and any shareholders more.
Of course.
Directors have the ability to voluntarily request Administration for their company. While they have the powers to request this procedure, the process must be managed by a licensed Insolvency Practitioner.
Others who have the powers to request Administration include shareholders.
Insolvency Practitioners must complete their initial proposals for Administration and communicate these to all creditors within a period of 8 weeks.
After this point, the process can take up to a year to complete depending on the unique circumstances surrounding each business.
The restructuring process involved with Administration procedures can unfortunately make redundancies an unavoidable outcome. The timeframe plays an important role in what this means for employees. If redundancies occur within the first 14 days of the Administration process, the employees are considered to be ‘ordinary creditors’. As the creditors are paid in order of priority this type of creditor falls beneath others. If redundancies occur after this initial period, employees are automatically considered ‘preferential creditors’ who place highly in the order of priority.
Pre Pack Administration
Similar to Administration, this is a way to restructure, rescue and restore the company. This is an Insolvency procedure in which a company sells part or all of its assets to a new buyer, prior to appointing administrators (Ips) to manage the sale process.
Depending on the severity of financial distress and the threat of creditors the company may be sold to the current Directors to form a new company (newco). In order to pursue this route, the newco must first justify its viability and demonstrate the existence of substantial funds to buy company assets at a fair price. The IP will determine the value of the company and its assets prior to sale and propose a sale price.
This solution cannot be considered or pursued once a company has been issued a Winding Up Petition. The next step after this notice is likely Compulsory Insolvency, which is difficult to halt once creditors have initiated the first stages with the court.
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