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When a company has serious cashflow problems, is insolvent and facing serious threats from creditors, you might want to enter Administration.
The first objective of your administrator is to rescue your company so it can continue trading if possible. However, if we can’t find a way to rescue the company, as your administrator, we will look to achieve a better result than if your company were to go into liquidation.
While in Administration, a “freeze” or moratorium is provided – this essentially means creditors and other people you owe money to cannot pursue legal proceedings against you:
This gives you time to consider alternatives and put a plan in place to rescue the Company’s business. This means Administration is often an interim step before entering company voluntary arrangement, but not always. It can be a stand alone process to save your company.
If your company is repeatedly threatened or warned by creditors or HMRC it’s wise to consult with an insolvency practitioner. We can then discuss whether entering Administration is the right route of you, or whether something else suits your situation better.
If your directors have enough funds to purchase your company’s assets then a pre-pack sale could be arranged. This means the contracts, property, and other assets are transferred to a newly formed company.
A company cannot go into administration unless it is insolvent, or likely to become insolvent.
Entering into Administration with the assistance of a qualified insolvency practitioner gives your company the time needed to negotiate with creditors or liquidate some assets in order to repay debts. This means it could save your company from closing down.
It is incredibly quick and easy for your directors to place the company into Administration – particularly if there are no Floating Charge creditors.
As your insolvency practitioner, we will take control of the insolvency process and deal with any creditors, sales of assets etc. Effectively, we will do anything necessary or expedient for the management of your affairs, business and property of your company.
Often, Administration leads to the sale of your company’s assets. If the sale of your company’s assets is agreed before the company goes into administration, and is then completed immediately after the start of the administration, this is known as a pre-pack administration sale.
It depends very much on the circumstances. The administrators take on the employment contracts of the company after 14 days so it is desirable that the business is sold out of administration before that date. The insolvency practitioners are not allowed to run the business at a loss and so making the creditors position worse off. If there are large amounts of money to collect in or substantial realisable assets then they may trade for longer periods. During this time they will need to report to the creditors at regular intervals.
There are two ways in which a company can go into administration: by a court order made at a formal hearing or by certain parties lodging a series of prescribed documents at court (the “out of court route”).
An application for a court order can be made by one or more creditors of the company, the company itself, its directors, a liquidator, a supervisor of a company voluntary arrangement,
A company can be put into administration by filing at court a notice of appointment and certain specified supporting documents. This procedure may be commenced by either the company or its directors, or a party (often a bank or other commercial lender)
An interim moratorium, to protect the company from the actions of creditors, will apply before the administration starts from the time an application is made to the court for an administration order, or, if the out of court route is used, from the time a notice of intention to appoint administrators is filed in court.
There is an automatic moratorium which means that it is not possible for a creditor to bring or pursue legal proceedings against the company or its assets.
It is possible to ask the administrator or the court for permission to bring proceedings against a company that is in administration. However, a creditor who has a monetary claim is unlikely to be granted permission; it is generally only claims that have a proprietary nature that are allowed to continue.
If a person (creditor) is owed money by a company that has gone into administration, often the creditor’s best option is to submit details of its claim to the administrator and wait for the administrator to assess it.
A creditor may be able to join a creditors’ committee to help the administrator fulfil his functions. Administrators have a duty to report to the company’s creditors on their progress. However, being a member of the creditors’ committee may provide an opportunity for a creditor to access more detailed information and to comment on the way the administrators are conducting the administration.
When a company goes into administration, the directors’ powers are curtailed. A director cannot exercise any management power that could interfere with the exercise of the administrator’s powers without prior consent from the administrator. If the company ultimately comes out of administration and resumes trading, the directors regain their full powers.
The administration of a company automatically ends after one calendar year, unless the creditors or the court agree to an extension. In practice, many companies remain in administration for more than one year and complex administrations can last several years. If the administration leads to the rescue of the company as a going concern, the administrator hands control of the company back to the directors once the administration ends.
More commonly, the net proceeds of the company’s assets are distributed to the company’s creditors, either by the administrator or by a subsequently appointed liquidator (who may be the same person as the administrator). Depending on the circumstances, the administration can therefore end either by the company moving into liquidation or by the company being dissolved without a liquidation.
In some cases administrations are used as an initial step designed to enable the company to propose and implement a company voluntary arrangement, which, if approved by the members of the company and by its creditors, in each case by the required majorities, may also enable the administration to end.
If you’re still feeling confused, feel free to drop us an email or give us a call.
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Claire Middlebrook is authorised to act as an insolvency practitioner in the uk by the institute of chartered accountants of scotland
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