Going into administration, or when a company “calls in the administrators”, is a legal process whereby the company hands over control to an insolvency practitioner, who acts as an administrator. Creditors may not take legal action against the company during the period of administration, and cannot apply to have it wound up, without the consent of the court or the administrator.
Administration basically means that a company is insolvent and unable to pay its debts as and when they fall due.
The administrator has complete control over the company during administration. That means the authority to execute actions such as making employees redundant, selling off assets or parts of the business, renegotiating or cancelling existing arrangements or contracts. The administrator’s fees are paid by the company.
What are the objectives of the administrator?
The administrator is charged with getting the best possible result for the creditors. To achieve that, the administrator will assess the state of the business and make a decision as to what course of action is appropriate. The most common purposes of an administration are as follows:
- Attempt to keep the business operating and sell the business as a going concern.
- Achieve a better result for the company’s creditors as a whole than would be likely if the company were liquidated.
How much time does the administrator have?
On being appointed, the administrator must let relevant organisations and people know that the company has entered administration:
- Inform Companies House
- Publish a notification in The Gazette
- Notify all creditors
Within 8 weeks of being appointed, the administrator must make a statement setting out proposals for achieving the purpose of the administration.a plan and inform the stakeholders. The actions required are to formulate a statement and send it to:
- Companies House
- All creditors
Unless the period of administration is extended by either creditor consent or court order, it will automatically terminate at the end of the 12-month period from when the company entered administration.
Why is Administration different from Liquidation?
In a nutshell, administration is an attempt to keep the company alive and trading by helping it to repay its debts and avoid liquidation, while liquidation means shutting it down completely and selling off any assets to repay the creditors. Administration usually means that a business has assets and that there is something worth saving or selling. If not, the Directors are more likely to opt for winding up the company, or the courts may make that decision. Of course, the administrator may decide at any time to wind up and liquidate the company.
What can you do if your business is under pressure?
No matter how desperate things appear, the single best action you can take is to consult an insolvency practitioner. Having someone on your side who can deal directly and competently with creditors and courts takes a huge weight off your shoulders and removes a great deal of stress. In addition, an insolvency practitioner will advise you on the best course of action to take under whatever circumstances you find yourself and your business in.
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