Administration is a process available to insolvent companies in order to provide protection from its Creditors whilst a plan outlining how to restructure or sell its business and assets is formulated.
Protection from Creditors is particularly useful and necessary in a situation whereby a company is being proactively or aggressively pursued for payment of a debt from one or more of its Creditors. A common reason for a company to enter Administration is if Creditors are threatening or have issued a Winding up Petition or is otherwise being pursued aggressively through the Courts by Creditors.
What Is Administration?
- It’s a rescue procedure for businesses first introduced by the 1986 Insolvency Act although there have been significant improvements with the 2002 Enterprise Act.
- It was designed as a procedure to hold together a business whilst rescue plans are put together, often at a time when there is aggressive creditor pressure.
- A common reason to place a Company into Admin is when it has received a Winding Up Petition.
- To place a Company into Admin, the proposed Administrator must be of the opinion that at least one of the following 3 objectives are likely to be achieved:
- Rescue the company as a Going Concern.
- A better result for creditors than winding up.
- To realise property to distribute to secured or preferential creditors.
- A creditor with a Qualifying Floating Charge (QFC) can overrule the appointment of an Administrator chosen by the Directors of the Company.
- Once an Administrator is appointed the powers of the Directors cease.
- The Administrator must send out his Proposals for creditor approval detailing a plan of action.
What Are The Advantages Of Admin?
- As soon as a Notice of Intention to Appoint an Administrator is filed in Court, creditors are precluded from taking any enforcement action.
- Entering into admin ceases all legal action against the Company, providing breathing space for the Administrator to implement measures to achieve one of the purposes listed above.
- By preventing the financial position worsening it reduces the risk of the Directors opening themselves up to a potential wrongful trading action.
- The business may continue trading and maintain its employees.
- There are various exit routes now available to the Administrator, liquidation, dissolution, CVA, returning the Company to the Directors.
- The Administrator can now distribute funds to the unsecured creditors, from the Prescribed Part, without Court approval.
What Are The Disadvantages Of Admin?
- If trading continues it's an expensive procedure as the Administrator takes over the day to day running of the Company.
- The Directors relinquish the control of the Company.
- Any QFC may overrule the Directors choice of Insolvency Practitioner and appoint an Administrator from their “panel”.
- Continuing to trade whilst in Admin is challenging, particularly in terms of funding and obtaining credit from suppliers.
What You Need To Know
What’s A Pre Pack?
- This is where a sale of the business and assets is agreed in advance of the appointment of the Administrator.
- As soon as he is appointed, the Administrator concludes a sale of the business.
- Pre Packs may be useful, for example, when there is a requirement for the immediate continuity of the business and ongoing trading is not feasible.
- They can be utilised to preserve jobs with employee contracts being transferred to the purchaser.
- A Pre Pack may provide the prospect of enhanced realisations in light of the continuation of the business.
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Next Steps Together
DSi provides expert advice to businesses and individuals encountering financial difficulty. We are a friendly yet professional firm, offering a spectrum of financial solutions to insolvency.
Our experienced team are here to help and do understand that financial problems can be extremely stressful. Our aim is to guide you through this giving straight forward and honest advice.
If you would like to discuss any aspect of Admins or Pre Packs please don’t hesitate to contact DSi Business Recovery to arrange a Free and Confidential meeting on 01924 790880
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