Administration is a process designed to protect limited companies from their creditors while a debt restructuring plan is carried out and presented to creditors.
Subject to a major overhaul as a result of the Enterprise Act 2002, the Administration process is now more user friendly, more commonly used and designed to be a rescue tool for limited companies.
An Administration Order can be sought by the company, its Directors or any of the company’s creditors, though in practice it is more common for either the Directors or the Floating Charge Holder to seek the appointment of an Administrator.
An Administrator can now, in certain circumstances, be appointed ‘Out of Court’ allowing for a quicker and easier route into Administration. This is particularly useful in pressing situations or where an urgent appointment is needed outside of the Courts’ office hours.
Once in place, an Administration Order creates a moratorium which ring fences the company’s assets so that no legal action may be started or continued by creditors. This includes uplift of any assets by creditors and the Landlord distraining on company assets or using the powers of peaceful re-entry due to rent arrears.
Overall, an Administrator must act in the interests of all the creditors and attempt to rescue the company as a going concern. If this proves impossible they must work to maximise the recovery for the creditors as a whole. Only then may the administrator attempt to realise property in favour of one or more secured creditor.
A company in administration may continue to trade while a plan is formulated, thereby preserving goodwill, and as such, the value of a company.
A common route out of administration is Company Voluntary Arrangement, or CVA as it is commonly known. The administration gives protection to the company and its assets whilst information is gathered and proposals for a CVA are drawn up.
Pre Packaged Sale – (Pre Pack)
A pre-pack sale is the process of selling the business and assets of a company immediately after it has entered administration. In such a case, extensive negotiations and discreet marketing take place prior administration ensuring that the best value is obtained for the company and its assets.
This process has advantages in that it enables the Administrator to realise a greater amount for the company’s assets due to business continuity. By restricting the public knowledge of the pending insolvency, value of goodwill is also retained.
In most circumstances employees of the company will also be transferred to the new company, thereby preserving jobs.
Harrisons can advise and assist Directors and creditors should they be considering placing a company into Administration.
For independent, no obligation expert advice on the Administration process and how it could benefit you and your company, contact us today for a free meeting.