Administration

Administration

Whilst technically a company may be insolvent based on the Balance Sheet Test or Cash Flow Test, it may still be viable and with some breathing space possibly be able to trade out of its insolvent state.

When a company goes into Administration, it provides the company with a level of protection from legal action that may be taken by its creditors. The breathing space provided by this formal process allows the Administrator and the directors to consider the company's position and to create a strategy as to how to deal with the issues it is facing.

Typically there are three objectives of an Administration, these are:

  1. The viability of rescuing the company

  2. To achieve a better outcome for creditors than if the company were to be wound up

  3. To realise assets in order to distribute to its creditors

 

If a company enters Administration then the management of the company is under the control of the Administrator but utilising the experience of the directors in achieving one of the three outcomes above.

The alternative is for a company to enter into a Company Voluntary Arrangement (CVA) and keep the control however this may not always be possible if creditors do not agree with the proposal which in turn could force the company down the Administration route.

Usually a company will either return to a state of solvency or a sale of the business along with the assets may take place. This could be to the current owners or an independent third party. Should neither of the above be possible then it may be that the company is ultimately wound up.

 

Advantages of Administration:

  • Stops any further legal action being taken against the company whilst in Administration

  • Allows the company to continue trading out of its insolvent state

  • Stops the financial situation worsening to the detriment of creditors

  • Potentially saves the jobs of  its employees

 

Disadvantages of Administration:

  • Company loses its control to the Administrator

  • It becomes public knowledge as it is advertised in the Gazette

  • It affects the company's credit rating therefore possibly having implications on future credit lines

  • It could result in the sale of the business

 

If you believe the company can trade through its financial  difficulties and all it needs is some protection and extended time to repay creditors then Administration may be the solution you require.

It is important as a Director, that if you believe your company may be insolvent, then you seek professional support as soon as possible. Do not delay this as it may have serious implications against the Directors.

 

For help on this and other matters please feel free to contact us.