Administration
The corporate recovery procedure
The main objective of an Administration is to provide breathing space to a Company whilst a restructuring plan is formulated and carried out. The process requires a Licensed Insolvency Practitioner to act as the Administrator and manage the affairs of the Company.
The Administrator must perform their functions with the objectives of:
1. Rescuing the Company as a going concern should be the primary objective; or
2. if a rescue is not reasonably practicable, achieving a better result for the Company’s creditors than would be likely in a liquidation (possibly by trading whilst seeking a buyer for the business as a going concern) ; or
3. Realising property in order to make a distribution to one or more secured of preferential creditors. This objective can only be pursued where it is not reasonably practicable to achieve either objective one or two.
A Company can be placed into Administration by either a Floating Charge Holder (i.e. the bank if they have a registered charge at Companies House); the Company Director(s), or any creditor via Court.
Once appointed, the Administrator will manage the Company’s affairs, business and property, submitting regular reports to all parties.
Advantages of an Administration:
• Provides an automatic moratorium – preventing creditors from taking legal action, providing breathing space to strategize a survival plan.
• The business can continue.
• Employees contracts continue
• The procedure provides an opportunity to explore restructuring plans, whilst carving off non-profitable parts of the business.
• Preservation of business/assets/goodwill, resulting in a potentially better return to creditors than in Liquidation.
• Better return to creditors – linked to its statutory Purpose is that the realisations in this procedure will generally be greater than the outcome in Liquidation.
Disadvantages of Administration:
• Stigma – The procedure and appointment of administrators is advertised in the London gazette and updated at Companies House. It demonstrates the company’s insolvent position and could be harmful to a business.
• Directors lose control and the reigns handed to the appointed Administrator.
Alternatives to Administration include a Company Voluntary Arrangement or ceasing trade and entering Voluntary Liquidation.
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