What is Company Administration

Does your business have the potential to succeed but not in its current state? Then a company administration might be a good option for you.

What is Company Administration

A company entering administration is a company that requires restructuring. Most of the time, this occurs because the company shows signs of insolvency. Insolvency can appear in a couple of ways, from not being able to pay debts when they fall due to your liabilities being worth more than your assets.

What happens when a company goes into administration?

Exactly what happens during a company administration depends on the company in question and the situation they are in. All administrations are completed with the aim of restructuring the company.

Restructuring can include helping the business to keep going or maintaining value within the company so that it can be sold. In many cases, the company can be sold back to the directors in something called a pre-pack.

An administrator will be appointed to take care of the process. The outcome will be dependent on many factors, including the company’s position, financial information and the secured and unsecured creditors involved.

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How long does the company administration process take?

Most administrations will not exceed 12 months. The majority of them are completed in advance of this time. However, some larger administrations may take longer. Administrators must apply for more time and be able to provide evidence for the application.

At the beginning of the process, you may be able to request an estimated timescale for the administration.

Who can enter administration?

Insolvent companies can enter administration, but there must be evidence of hope of recovery. This recovery could be in the form of expected cash flow. These companies may be facing creditor pressure due to outstanding debts. They may have even been threatened with compulsory liquidation.

You must act quickly when your limited company becomes insolvent. Otherwise, it does not show evidence of you acting as a responsible director. Not acting quickly also puts you at risk of legal action, such as receiving a winding-up petition and facing compulsory company closure.

What are the advantages of administration?

If an administration is right for you, there can be many benefits.

  • Going into administration provides an opportunity for the business to continue in a better way.
  • Outstanding creditors cannot take further action during the administration period.
  • Breathing space while the company’s affairs are corrected – the company may be labelled a ‘going concern’.
  • The licensed insolvency practitioners will take care of restructuring and communicating with unsecured, secured or preferential creditors.

What are the disadvantages of administration?

Along with the advantages, there are also some disadvantages that you should be aware of before you enter the process.

  • Company directors face a lack of control and potential scrutiny
  • Administration is a powerful process that can become expensive
  • The company going into administration becomes public knowledge
  • Employment contracts may be affected

Company administrations don’t work for everyone. If you’re not sure if it’s the right insolvency procedure for you, get in touch with our team at Director First. We’ll provide you with honest, confidential advice to help you make the right decision regarding your insolvent company.

Chris Worden

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