Company administration

 

In recent years, there has been a movement towards developing a ‘rescue culture’ when companies are struggling to meet their obligations. In many cases there are steps that can be taken to get a failing business back on its feet.

These can range from restructuring inefficient management hierarchies, to discontinuing unprofitable product lines, to more drastic measures such as redundancies and selling off assets. The process of administration allows an objective outside specialist to review the company with the sole objective of keeping it in business.

How can it be used by the company?

Administration is an alternative to liquidation and is only available for companies who cannot pay their debts or are likely to be unable to pay their debts in the near future.

As it is intended as a rescue mechanism for a failing company, and because of this a company will usually be allowed to continue trading whilst in administration, so as to maximise the assets of the company.

This mechanism is markedly different from the harsher old insolvency practices where debtors can demand that a company pay them or liquidate their assets, regardless of whether this will mean the company closing down.

How does it take place?

The administrator can be appointed by the court, on application by the creditors or the directors of the company. The administrator can also be appointed out of court by the holder of a qualifying floating charge over the assets of the business or by the company or its directors.

Administrators have extremely wide-ranging powers, being able to take over the complete running of the company from the previous management, provided it is necessary or expedient to do so. As offices of the court however, they are not however personally liable for any deals they enter into on behalf of the business.

What are the advantages and disadvantages?

The advantage of administration is that there is a ‘moratorium’, or ‘freeze’, on actions brought by creditors. This gives the administrator time to rescue the company, if this is possible. The object of the administrator is firstly to rescue the company as a going concern.

However, for a variety of reasons, this is not always possible. The market may be hostile, the business model may be completely unviable or there may simply be an impossible amount of debt to discharge.

In this case the administrator will attempt to secure the best deal possible for the creditors of the company. If this is also not possible the administrator will sell the company’s assets for distribution to secured or preferential creditors. Our page on insolvency law has more information on this subject.

If a petition for administration is brought against your company, or you wish to bring a petition for administration, you would need to instruct an insolvency solicitor, as legislation in this area can be complex.

If you would like to obtain legal advice on administration or advice about the options for a solvent or an insolvent company, Contact Law can put you in touch with a local specialist insolvency solicitor free of charge. So, if you have any questions or would like our help please call us on 0800 1777 162 or complete the web-form above.

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