Administration Frequently Asked Questions
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Q: I have heard that this protects the company with a court order.
A: The directors apply for a partial moratorium, then the court grants the full moratorium with the Administration Order.
Q: What actually happens in an Administration?
A: See the Administration guide.
Q: Surely the process is much better than a CVA?
A: In actual fact it is often an unnecessarily expensive process where a CVA is achievable. However, if the company is under extreme pressure it is a very powerful tool. Part of the Administration procedure is to decide what to do with the company with regard to its restructuring, often a CVA is the result.
But if it is not a viable stand-alone business then this technique can be very useful to allow a trade sale of the assets of the whole company.
Q: Do I stay in control of the company after the Administration starts?
A: No it is the court appointed IP (insolvency practitioner) who runs the company whilst the restructuring process is under way and until the Administrator has put proposals to the creditors. After they have accepted the restructuring proposal (see the guide to Administrations for the various options) the proposal is carried out. If this is a CVA then typically the directors regain control.
Q: If the business cannot be sold and it is not viable for a CVA what happens?
A: Typically the company assets are sold off to the highest bidder (this may involve piecemeal sales or even an auction) then the administration process ends. Thereafter the company is liquidated.
Q: How much does it cost?
A: Given that the IP is running the business perhaps with his managers in the business on a day to day basis the costs of administration can rack up quickly. Cynics say that administration is preferred to straightforward CVAs by IPs because of the higher fees they can earn.
However, the Administrator has to report to creditors and to the court with regard to his costs and fees. It is impossible to say categorically what it may cost because each case is different. The IP must ensure that there are sufficient assets (debtors work in progress and stock for example) that the costs are covered in the admin period.
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Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.