Administration is a formal insolvency procedure whereby control of the business is taken over by administrators. Depending on the severity of the company’s situation, administrators may look to turnaround options or selling the business and its assets.
Reasons for a company going into administration
Often, administrators are called in when the business is suffering significant cash flow problems, perhaps due to falling revenue or loss of contracts. If creditors are threatening legal action for unpaid debt, administration can serve as a ring-fence around the business and protect the business while a solution is sought.
So who can appoint an administrator?
Usually, directors of the distressed company appoint an administrator or insolvency practitioner themselves. Directors can serve a Notice of Intention to Appoint to stop a winding up petition from creditors if there is an immediate threat.
Some secured creditors, for example a bank or qualified floating charge holder, can also appoint an administrator. All other creditors who are owed money (over £750) can’t appoint an administrator but can issue a winding up petition. This is usually the last resort to retrieve debt. Statutory demands and county court judgements are often the first port of call.
Is it worth looking at other options?
Again, this depends on the company’s situation but it’s worth looking at all the options before deciding on administration. Administration may not be cost-effective if the business only needs some help with paying back tax to HMRC.
A time to pay deal and a company voluntary arrangement are rescue methods that help with paying back debt over a set period of time, while the directors continue to run the company. Alternatively, if directors feel the business is no longer viable and wish to cease trading, creditors voluntary liquidation could be the best option.
If you would like some advice, call us on 0800 9700539 and an adviser can talk you through the options for your business.
Category: What is administration