Company administration is a formal procedure in which an insolvency practitioner is appointed to act as the administrator of an insolvent company with the goal of bringing about a recovery. When a business goes into administration, a licensed insolvency practitioner (IP) will be appointed to oversee the procedure. In their role as administrator the appointed IP will assume control of the company from the current directors and will manage the business from this point onwards. Going into administration can be an intimidating process, especially as it’s unlikely that you will be familiar with exactly what the procedure entails or the terminology used throughout, however, executed correctly administration can end up being the saving grace for your company. Administration is not a long-term solution in itself, instead it provides a company with breathing space during which time various options for the future direction of the business can be explored. Going into administration effectively means your company is being taken under the management of an administrator – who must be a licensed insolvency practitioner (IP). Once a company enters administration, it is given protection from creditors who may be threatening to begin legal action to recover outstanding debts. This legal stay is known as a ‘moratorium’ and can be hugely beneficial to those businesses that need time to put together a restructuring plan. During the time the company is in administration, the appointed IP will need to consider whether the company has the potential to trade successfully in the future or whether its problems are unfortunately insurmountable and therefore needs to be liquidated. The process of administration can last anywhere from a few weeks to up to year or more, depending on the circumstances. The use of a company administration process has to be justified to number of bodies and it must be able to demonstrate that it will rescue the company as a going concern and/or provide a better return to its creditors than other procedures. Knowing when a company is insolvent and immediately taking appropriate measures is the only way to avoid your company from going into administration or any other formal insolvency procedure. In cases where liquidation or administration seems imminent, approaching an insolvency practitioner as soon as possible will at least ensure the least detrimental outcome for the company and its creditors is achieved.
Advantages of Administration:
• Any legal actions being taken by creditors are immediately stayed, which means your company would be protected from the possibility of compulsory liquidation or any other negative legal action during the administration.
• Puts the company in the hands of a licensed insolvency practitioner acting as the administrator. This ensures that all actions taken during administration are carried out with the interest of the company and its creditors in mind.
• Keeps the financial position of the creditors from worsening.
• The administrator is given time to communicate a clear picture of the company's finances to its creditors and outline the ways in which the administrator intends to conduct the administration and how the administrator intends to realize funds for creditors.
• If a pre-pack is arranged then the continuity of the business can be protected.
• During the procedure the administrator can propose a company voluntary arrangement (CVA).