Business Rescue

Business or Company Administration

What is Company Administration?

Business or Company Administration is a way of stopping any legal action against your business while an insolvency practitioner tries to save it. It is a formal process where an insolvency practitioner is brought in to act as the company administrator for an insolvent business. The aim to for the administrator to work towards saving the business or finding the best outcome to the situation for all stakeholders.

Administration could be a lifesaver for your business and at Frost Group we have helped many clients with this procedure.

Administration is a legal process that creates a legal stay against creditor action. And it also gives you a breathing space as a business to develop further proposals that you can put to creditors. These could be restructuring or refinancing - or selling some or all of the business.

Who is the company administrator?

Administrators can be appointed by Court Order or out of Court depending on the applicant. The administrator will assess the position and agree a strategy for action. The directors no longer manage the business, but usually assist the administrator when continuing to trade or considering the exit strategy.

Applicants may be the company's directors, the holder of a floating charge, a creditor or a shareholder.

As licensed Insolvency Practitioners, Frost Group can be appointed as administrators.

The Administration Process

Under the Enterprise Act 2002, administration has been streamlined. You no longer need petitions, independent reports and a court order. You simply file various notices in court. A licensed Insolvency Practitioner (IP) will be appointed administrator and will manage your affairs for your creditors.

Could administration be the right option?

If this sounds like your business then an administration could help:

  • You have intense cashflow pressures, but your business is sound
  • You need to quickly sell the business of a technically insolvent company
  • It’s not possible to persuade creditors to agree out of court or through consensual means to other action (such as a compromise or restructuring)
  • Agreement isn’t possible within a manageable timescale. For example, some creditors might be taking legal action that could bring the company down prematurely
  • Your company is insolvent and directors are worried about wrongful trading.

Administration will only occur if one (or more) of the following objectives can be achieved:

  • Rescuing the company as a going concern
  • Achieving a better result for creditors against a Liquidation
  • Realising assets in order to make a distribution to secure all preferential creditors

What are the criteria for going into administration?

For a business to go into administration, there are several circumstances that need to be met:

  • The company must be insolvent, but still able to achieve a specific statutory purpose as per insolvency legislation
  • There should be significant creditor pressure, so the act of entering administration would be to prevent compulsory liquidation

Advantages of Company Administration

  • Protection against compulsory liquidation
  • Provides the opportunity for the business to be rescued
  • Creditors can’t take further action against the company
  • Insolvency practitioners act as the administrator, ensuring that all actions carried out are in the interest of the business and its creditors
  • The funds realised through administration are typically larger than in liquidation
  • The business’ continuity is protected, with historic debt or onerous contracts discarded
  • Administrators can propose a CVA which enables the company to be rescued in its current state and control returned to its directors

Disadvantages of Company Administration

  • Directors lose control of company affairs from the point the notice of appointment is filed, putting control in the hands of the administrator
  • Administrations are public knowledge which can damage reputation and cause uncertainty among customers and clients
  • Administrators are obliged to report on the actions of directors, which can result in disqualification as a director
  • Costs of the process can be high

Frequently Asked Questions

What happens when a company goes into administration?

When a business goes into administration, the first step is typically searching for a buyer. While this is happening, the company will inform shareholders, creditors and employees of the state of the company. If a buyer is found, the company will change in line with the new goals and strategy for the future. If the business is not sold, the appointed insolvency practitioner will choose the best process for the company, and this will begin instead.

What is the company administration process?

There are several steps to the company administration process, all of which should be carried out with the assistance of a qualified insolvency practitioner. They will help directors to understand their responsibilities, duties and legal obligations.

Appointment

The first step of the administration process is to appoint an administrator, which can be carried out by the directors of the company. All that’s required in this situation is that the appropriate forms are completed and submitted to the court. If there are secured creditors holding the benefit of floating charges, then five days’ notice is required of the administration being served. Then an extensive proposal is put together and provided to all creditors.

Communication

The details of the creditors need to be gathered and the administrator must notify them of their appointment, which will also be advertised publicly. Once the appointment has been made, the directors must provide the administrator with a Statement of the Company’s Affairs (SOA) within 11 days. This details the company’s assets and liabilities, along with any assets which are subject to fixed or floating charges.

Proposals

There’s a time limit of 8 weeks placed on the administrator to submit proposals to the company’s creditors of any intended strategies, including full details of the administrator’s appointment, a copy of the SOA and how they foresee the administration concluding. Within 10 weeks of the day the company entered into administration, there should be an initial decision procedure to approve these proposals. Creditors must be given at least 14 days’ notice, but this can be extended by the creditors or by the Court.

Progress Report

In some situations, the administration process can take several months. If it exceeds six months, the administrator mist report to all creditors and explain the progress made so far, as well as file these reports to Companies House.

The administration process ends when the purpose of it has been reached. Typically, administration ends automatically after 12 months, but it can be extended if more time is required to meet the statutory purpose and finalise the administration matters.

What options does a company have during and after administration?

There are several options available to companies in administration. One of the main options includes putting the business up for sale on the open market or in the form of a pre-packaged sale, which involves marketing the business prior to an administrator being appointed. A pre-pack administration is a way of protecting the brand and the business itself, along with the company assets.

A Company Voluntary Arrangement (CVA) can also be chosen by the administrator if it’s believed to a viable option. An approved CVA enables the business to exit administration, with monthly repayments of a single amount which is distributed to creditors.

If after administration, there are still assets which need to be realised or a dividend to pay to creditors, this can be done by putting the business into liquidation. If there’s no need to put the company into liquidation, company dissolution may occur when there is no money or assets with which to pay a dissolution to creditors, at which point the company will be closed and removed from Companies House records.

Who gets paid first in a business administration?

The funds from the sale of assets are distributed among creditors in the following order:

  • Fees and costs of the administrator
  • All secured creditors that hold a fixed charge
  • Preferential creditors
  • Secured creditors holding a floating charge
  • All unsecured creditors
  • Company shareholders

Find Out More

Please call us on 0345 260 0101 to talk about Company Administration with one of our licensed Insolvency Practitioners at our offices in Croydon and London.

Our nationwide company Administration service operates from our offices in Croydon and London. If you are in a hurry to begin the company Administration process and are close to one of our offices we can usually arrange for an Insolvency Practitioner to see you within the hour.

If you want to stop any legal action or process against your business talk to Jeremy Frost or Patrick Wadsted about company Administration.

Contact an expert for professional help and advice

Our team member below will be able to help with all your questions

Patrick Wadsted

Licensed Insolvency Practitioner

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Frost Group Limited is authorised by the Financial Conduct Authority. Authorisation number 669247.