What Does Going Into Administration Mean?

Going into administration is when a company becomes insolvent and is put under the management 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.

What happens when a company goes into administration?

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.

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.

How long does going into administration last?

It depends very much on the circumstances.  The administrators take on the employment contracts of the company after 14 days so it is desirable that the business is sold out of administration before that date.  The insolvency practitioners are not allowed to run the business at a loss and so making the creditors position worse off.   If there are large amounts of money to collect in or substantial realiseable assets then they may trade for longer periods.  During this time they will need to report to the creditors at regular intervals. 

What is a pre-pack administration or administration pre-pack sale?

The pre packaged administration sale used to be a very popular method of rescuing a business. However, there has been much media coverage of creditors' dismay at seeing their "debt dumped" by a former customer. In response there is now much increased regulation.

How does it work?

The company prepares itself to enter administration and sell its assets to a new company ("newco") or to an existing 3rd party company. This is a very powerful, far reaching process that can protect the BUSINESS and be a form of business rescue, however usually the old company (oldco) is liquidated afterwards. See our guide on Pre Pack Administration for more information. Alternatively call Keith Steven on 07974 086779 to discuss how a pre-pack administration may or may not work for your company?

What is administration followed by CVA?

Basically the company enters administration to get protection from creditors. The administrator then works with the company's directors to produce his/her administration proposals. Once these are accepted the administrator hands control back to the company's board. This is powerful tool despite the fact that it is expensive and directors are not in control during the administration period.

Got questions? For answers to all these questions read our guides or call us now on 08009700539. Our trained, high quality advisors will help you.