What is a Company Administration and What it Involve?

Company Administration is something that’s regularly in the news and surrounds stories of businesses, large and small, struggling to continue trading. While this association with businesses in trouble might therefore be regarded in a negative light, in truth, company administration is merely a process where control of the company is temporarily handed over to a Licensed Insolvency Practitioner who will take over the day to day operations for the duration of the administration and is most appropriate in circumstance where the underlying core business is strong and fundamentally profitable. With this being the case, a company administration can be a sign that things are about to improve.

What Happens During a Company Administration?

While acting as administrators, the insolvency practitioner will assess the business as a whole with business rescue being the most desired outcome. Company Directors have a duty to act in the best interests of the business under normal circumstances and in the interests of the business’s creditors during insolvency. In this regard, Administrators are no different, they will look at the affairs of the company and assess what course of action will be best for the company’s creditors. In most circumstances, a functioning business which can be made to run more efficiently, enter an arrangement with its creditors (CVA), or sold as a ‘going concern’ is far more valuable than one which has been closed down, liquidated and the resulting funds distributed, so business rescue is the option which will be chosen if this is possible.

The advantage of the company Administration process is that it gives time for the company to be assessed and re-organised. Once the business enters into a company administration, it is protected from legal action and creditors recovery action for the duration of the process. Another advantage of adminstration is that the company can continue to trade, so this combination of removing creditor pressure and being able to go on for at least the short term while a recover plan is put in place can, in many circumstances help secure a successful recovery.

Once the Administrator has decided on a course of action, this will be followed through as the plan is put into action. Once the end goal has been achieved (or a year has passed), the Administrators role ends, although an extension can be agreed if more than a year has gone by. If recovery was the goal, then the business will be returned to the control of the Directors.

How is a Company Administration Arranged?

Under normal circumstances a company cannot go into Administration unless it is either insolvent or in danger of becoming so. An administration can be enacted by either the Directors of the company or its creditors, either via a court order made following a formal hearing in court, or via the out of court route which involves lodging formal documents with the court without a formal hearing taking place.

if your business is under pressure from its creditors and you’d like to know more about whether company administration, or any other insolvency option is right for you and your business, contact us for a free consultation and we’ll be able to give you further advice.