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Advice if you supply a business that has gone into administration

14th April, 2020

Written ByWayne Harrison

Director and Licensed Insolvency Practitioner

07879 555349

Wayne works with business owners and their stakeholders across all businesses from SMEs to large companies. Primarily focussed on helping businesses to restructure and survive he also has extensive experience of liquidations and administrations in every sector. He has overseen the successful sale of London and Birmingham based law firms, has handled the administration of several haulage firms and worked extensively with a National food retailer to ensure its supply chain was not disrupted when a key delivery haulage contractor entered administration.

Wayne Harrison
  • We are a supplier to a company that has gone into administration, What should we do?

We are a supplier to a company that has gone into administration, What should we do?

How can you avoid getting stuck?

  1. Firstly, you need to get to know your industry. There are often tell tale signs that a business is in difficulty apart from just starting to pay late. Please see our list of warning signs of a business that is in distress. Of course, these are from the company in difficulty point of view but it should give you useful pointers. So be ahead of the news.
  2. Make sure that you know all the excuses about slow or non payment – the aim is to get paid and keep your own cash flow going.
  3. But what if the debtor has gone into administration. You need to know the law and your rights as a supplier. You have a contract with ABC LTD and on 21st December 2019, ABC LTD goes into administration, You are owed all monies up until 21st May. However of course you may not receive much of it. You must be able to provide proof of debt so make sure you have invoices to hand. The administrator should contact all creditors to inform them of the administration and inform them of a creditors meeting. Make sure you attend the meeting if you can, or get someone to attend for you.
  4. Do not supply or give credit to ABC LTD, if you continue to supply credit to this company there is a good chance you wont get paid because that company on paper does not trade anymore.
  5. Speak to the management (if a new management company has been set up), the administrators, your contacts. You need to be sure you are happy to continue to trade with the new business (out of administration) . You will need to agree new terms ie, reduced credit, a DD mandate, payment up front, (pro forma) whatever you are comfortable with and you will need to get the name of the new company. In a pre-pack sale where the business is put into administration and immediately sold, it may of course be trading under a different but similar name the very next day such as ABC Ltd. This is what is called a trading administration prior to a sale. If you are asked to supply the administrator (who is running the business) ask for payment up front or a guarantee from the ADMINISTRATOR that your business will be paid.
  6. Set up a new agreement but be careful who signs it, it can be signed by the following people

a) ABC (IN ADMINISTRATION) LTD, co-signed by the administrators

b) The administrators themselves

c) The new management company, appointed by the administrators.

The debt owed to you by ABC (IN ADMINISTRATION) LTD and ABC LTD are two separate things. The main purpose of administration is to rescue the company so it is often important that all suppliers continue to supply for the good of everyone.

What if the business is sold via a pre-pack to a newco and that company with the same management asks your company to supply it?

If the business is sold then this could be an opportunity to supply a new and perhaps more lucrative customer! but again make sure that you get the best terms possible. Pro forma is usually the best way to supply until there is a track record of being paid. Then provide say 7 days credit over time. Once again make sure a tight rein is kept on the credit.

If the administration of a large customer puts you under pressure then there is no harm in giving us a call and we will give you free no obligation advice over the phone.

Man with balloon

What Does Going Into Administration Mean?

Going into administration is when a company becomes insolvent and is put under the control of Licensed Insolvency Practitioners.  The directors and the secured lenders can appoint administrators through a court process in order to protect the company and their position as much as possible. Going Into Administration - A Simple Guide Administration is a very powerful process for gaining control when a company has serious cashflow problems, is insolvent and facing serious threats from creditors. The Court may appoint a licensed insolvency practitioner as administrator. This places a moratorium around the company and stops all legal actions.The administration must have a purpose and the Government encourages the use of company rescue mechanisms after administration. The 3 purposes (or objectives) of Administration Rescuing the company as a going concern. (Note: this purpose is to rescue the Company as opposed to rescuing the business undertaken by the Company.)Company rescue as a going concern – this is usually a  company voluntary arrangement. The company enters protective administration and is then restructured before entering into a CVA. The CVA would set out proposals for repayment of debts to secured, preferential and unsecured creditors. When the company has its CVA approved by creditors, then the administration process comes to an end after 28 days. Achieving a better result for the company's creditors This is as a whole than would be likely if the company was to be wound up (liquidation) See the differences between Administration and Liquidation.  This better result is usually obtained by selling the BUSINESS as a going concern to one or more buyers. The company and the debts are “left behind”. The better result may include securing transfer or employees under TUPE, as well as selling goodwill, intellectual property and assets. Controlling and then selling property/debtors. This is called realising assets. Then the administrator makes a distribution to one or more secured or preferential creditors, in order of creditors priority. Usually the business ceases trading and employees are made redundant.Only if the first two options are deemed unattainable, can the administrator use this third option.Under the administration option, it is possible for the company and its directors (or a creditor like the bank) to apply to the court to put the company into administration through a streamlined process.However, the law requires that any finance provider (like a bank or lender), with the appropriate security, is contacted and the aims of the administration be discussed and approved. The finance provider must have a fixed and floating charge (usually under a debenture) and the charge holder will need to give permission for the process to go ahead. Five days clear notice is required.  Be aware, though, that a secured lender can appoint administrators over a company without notice if it thinks its money is at risk.  So communication with the secured lender is essential.  

What Does Going Into Administration Mean?

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