Knowing about Administration, why companies go into it, the whole process and what it means for the future can be a lot of information to retain and understand. To help with this, our experts have compiled this complete guide with everything that a company director needs to know about Administration.
What Is Administration?
Administration is a type of formal insolvency process for companies that are unable to pay back outstanding debts. This process will involve bringing in and appointing a Licensed Insolvency Practitioner to take control of the company as Administrator. The goal of this person’s role is to rescue the business as a going concern, create a better outcome for creditors than a liquidation or uncover saleable assets to repay creditors.
Why Companies Go into Administration
There are multiple ways to run a company, and there are also multiple ways that the same company can go into administration. Some of the most common insolvency triggers include pressure from a creditor, an inability to pay debts or balance sheet issues. Cash flow shortages, legal action from creditors, HMRC arrears or the threat of winding-up petitions are common triggers.
Administration can be a better option than liquidation when there is a viable underlying business that could be rescued or sold. It provides legal protection from creditor action, giving a company some breathing space to restructure or secure a sale.
Compared to a Company Voluntary Arrangement (CVA), Administration may be more suitable where urgent protection is needed or when obtaining a creditor agreement is unlikely.
How the Administration Process Works
1. Appointment of an Administrator
Step one involves the appointment of a licensed insolvency practitioner who will have been chosen and put into place by the director of the company, the management of the company, a bank or lender (floating charge holders) or by a court order. Once appointed, this administrator will assume control of the company in question in order to correctly handle the insolvency process.
2. Statutory Moratorium
Once a company has gone into administration, it creates some breathing room between the company and its creditors. This period is known as a statutory moratorium and prevents creditors from pursuing legal action against that company without the consent of the appointed administrator or the court system. This allows a company to explore options like selling assets, restructuring or winning in new work, without any added stress.
3. Administrator’s Role & Powers
The Administrator takes full control of the company’s affairs as well as the directors’ powers, which are suspended during the process. Their role includes assessing company viability, preparing a strategy, valuing assets and marketing the business if appropriate. The Administrator acts in the interests of creditors as a whole and has the goal of achieving the best outcome for all parties.
4. Reporting & Timescales
Following their appointment, the licensed Administrator will start to prepare formal proposals that will clearly outline a strategy for achieving the objectives of the Administration. These proposals are circulated to creditors, within eight weeks. Creditors may then vote on these proposals to decide on their outcome. Following this, regular progress reports must be issued throughout the Administration within various time scales.
5. Possible Outcomes
Administration can result in several outcomes. The company may be rescued and returned to the directors if restructuring succeeds or enough assets are sold while still allowing for continued work. It could also be sold on to another group, potentially preserving jobs and value or even a management buyout (MBO) can take place. If rescue is not viable, the company may simply close and enter liquidation.
What Director Responsibilities Change During An Administration?
With their company going into Administration and a licensed insolvency Practitioner being appointed, which of the incumbent directors’ responsibilities will change and which will stay the same? The Administrator assumes full management authority, taking over day-to-day decision making, financial control and operational oversight. The director cannot act on behalf of the company without the Administrator’s consent.
However, directors will remain in office and continue to have statutory duties, although their authority will be greatly limited. Directors are required to cooperate fully with the Administrator, provide access to company books and records, supply financial information and assist with enquiries about the company’s affairs.
A director who fails to comply with the Administrator can be dealt with via court action or personal consequences.
Practical Steps Directors Should Take
When financial difficulties arise, directors should take proactive and well-documented action as soon as possible. Obtaining advice early from licensed insolvency practitioners, accountants and legal advisers is critical. This professional input will help directors understand their insolvency options, assess risks and minimise the potential for any personal liability.
Directors should ensure that cash flow forecasts, management profiles, account details and information about all creditors are available, accurate and up to date. A clear financial picture allows informed decisions about whether Administration is appropriate.
Board discussions and decisions should be formally recorded, with clear reasoning noted. Maintaining detailed minutes demonstrates that directors have acted responsibly and in the interests of creditors. Open communication with key stakeholders of the business, like lenders, suppliers and employees, can help manage expectations and protect business value and reputation.
Seeking Professional Guidance? Contact Our Experts Today!
Here at Griffin & King we pride ourselves on being experts in formal insolvency practices and business debt solutions such as company administration, CVA and liquidation. We can provide legally compliant advice and support for any company going into Administration to take away some of the pressure from a highly stressful scenario.
Whether you are looking to appoint a licensed insolvency practitioner, advice on how to proceed with Administration or more information about the various processes that you can take, call us on 01922 722 205 or find more contact details here and get in touch today to discuss your options. The sooner you contact us, the sooner our team can implement a strategy that could save your business, rather than close it.
