Company administration can be a lifeline for struggling businesses. Chris Worden from Director First explains how administration works, its benefits, and what directors should expect.
- Administration is a legal process to protect companies in financial distress.
- It offers a pause on creditor action and can save jobs and business value.
- Directors lose control during administration but must cooperate fully.
- Pre-pack administration allows quick sale of assets, often to existing management.
- Early action and accurate information are crucial for the best outcome.
What is Company Administration?
Administration is a formal insolvency procedure designed to rescue or restructure a company that cannot pay its debts. Once an administrator is appointed, they take control of the company, aiming to stabilise it, protect it from legal action, and decide on the best outcome—rescue, sale, or orderly wind-down.
Key Benefits of Administration
- Immediate legal protection (moratorium) from creditors, landlords, and HMRC.
- Breathing space to assess options and negotiate with stakeholders.
- Potential to save jobs and preserve business value.
Legal Objectives of Administration
- Rescue the company as a going concern.
- Achieve a better result for creditors than liquidation.
- Realise assets to pay secured or preferential creditors.
The Administration Process: Step by Step
- Appoint an administrator: Usually a licensed insolvency practitioner, appointed by directors, charge holders, or the court.
- Moratorium begins: All creditor actions are frozen, providing breathing space.
- Business review: The administrator assesses finances, contracts, and debts to decide on rescue, sale, or liquidation.
- Proposals to creditors: Within eight weeks, the administrator must outline the plan to creditors.
- Outcome and exit: The company may be rescued, sold (often via pre-pack), or liquidated.
Pre-Pack Administration Explained
Pre-pack administration involves arranging the sale of a business or its assets before the administrator is appointed, with completion immediately after. This can save jobs, brand value, and wipe out unsecured creditor debts. Independent evaluators review sales to connected parties to ensure fairness.
Director’s Role and Risks
- Directors lose control but must cooperate with the administrator.
- Overdrawn director’s loan accounts and preference payments will be scrutinised.
- Reckless or wrongful trading and missing assets can lead to personal liability.
How to Act: Director’s Playbook
- Act early—seek advice as soon as insolvency is likely.
- Prepare accurate financial information and creditor lists.
- Choose the right advisory firm—check reviews and experience.
- Communicate openly with staff and creditors.
- Treat administration as a strategic tool, not a failure.
Key Takeaways
- Administration offers a chance to save or restructure your business.
- Early, informed action increases your options.
- Chris Worden and Director First provide expert, impartial advice for directors.
- Transparency and cooperation are essential throughout the process.
Frequently Asked Questions
- What is company administration?
- It is a formal insolvency process to protect and potentially rescue a company in financial distress.
- How long does administration last?
- The initial moratorium usually lasts eight weeks but can be extended by the court or creditors.
- What is a pre-pack administration?
- A pre-pack is a sale of the business or assets arranged before administration and completed immediately after appointment.
- Do directors lose control during administration?
- Yes, directors’ powers are suspended, and the administrator takes control of company decisions.
- Can administration stop HMRC and creditor action?
- Yes, administration provides a legal moratorium that halts most creditor and HMRC enforcement actions.
