An administration is an insolvency process which creates an immediate statutory moratorium protecting the company from any of its creditors. An administration gives an indebted company valuable time and legal protection to help steady the business, keeping it safe from creditor pressure and threats of winding up action.
When is an Administration Process effective?
- The company is experiencing severe cash flow problems but there is a viable ongoing business to be saved.
- The company is insolvent and there is an urgent need to sell the business to preserve as much of the Company’s value.
- The company is insolvent and the directors are concerned about the risks of wrongful trading.
- To provide breathing space to implement a CVA
- To provide breathing space to re capitalise the company
Who can appoint an Administrator?
An administrator can be appointed by:
- The company or its directors
- A secured creditor with a floating charge
- Other creditors on application to the Court
When a company enters an administration it is granted protection by way of a moratorium; this means legal action by creditors or landlords cannot be started nor ongoing litigation continued; bailiffs are not able to seize any assets of the company whilst it is in administration, nor can asset-based lenders or hire purchase companies take possession of company property. The administrator is an officer of the Court. Directors are able to appoint an insolvency practitioner of their choice to act as administrator. However, when the company is placed into administration by a secured lender, the lender is likely to make such an appointment and choose their administrator.
How does an Administration work?
A company can only enter into administration for one of the three following statutory purposes:
- Rescuing the company as a going concern or;
- Achieving a better result for the company’s creditors as a whole, than would be likely if the company were wound up or;
- Realising property in order to make a distribution to one or more secured or preferential creditors.
If none of the above objectives can be met, the licensed insolvency practitioner will not recommend administration as a proposed route, and will discuss which alternative solutions which may be more appropriate.