Company in administration
What is Company Administration?
Administration represents a rescue option for the companies on the brim on insolvency. During an Administration process, an Administrator (a Licensed Insolvency Practitioner) is appointed to achieve one of the following goals:
- Rescue the Company as a going concern
- Achieve a better result for the creditors as a whole than if the company would have been placed into liquidation
- Secure a distribution to the secured and preferential creditors.
The Administrator’s primary duty is to try and rescue the Company as a going concern. Should the Administrator consider this is not possible, the Administrator has a duty to achieve one of the statutory purposes.
Company administration – the necessary guidance on the path to the right management
Company administration is a crucial aspect of corporate governance that involves managing a company’s financial affairs when it faces financial distress or insolvency. When a company is no longer able to meet its financial obligations and faces mounting debts, it must consider various options to resolve its financial difficulties. One such option that companies often contemplate is the Creditors Voluntary Liquidation.
Moreover, the Company administration in the UK is a legal procedure aimed at helping struggling companies get back on their feet or, in some cases, wind up their affairs in an orderly manner. It is designed to protect the interests of both creditors and shareholders and provides a framework for addressing financial difficulties. When a company is insolvent or near insolvency, the board of directors and management must act in the best interests of all stakeholders.
Company in administration in UK – the backup plan any business should consider
One of the primary goals of company administration is to stabilize the company’s financial situation. This may involve negotiating with creditors to restructure debt, cutting costs, the Members Voluntary Liquidation or selling non-core assets to generate much-needed cash flow. Also, the company administration aims to ensure that creditors receive their fair share of the company’s assets. This often involves appointing an administrator who is responsible for overseeing the process and making impartial decisions.
While creditors are a priority in company administration, the process also considers shareholders’ interests. The administrator seeks to maximize the value of the company’s assets, for example, through the Company Voluntary Agreement, which can indirectly benefit shareholders.
By opting for services offered by insolvencyhelp.co.uk, companies can wind up their affairs in an orderly manner, ensuring a fair distribution of assets to creditors and shareholders while avoiding the pitfalls of prolonged financial distress.
A resolution to place the company into Administration must be passed at a Board Meeting. Upon passing of this resolution, the Director must then swear and sign a Notice of Intention to Appoint an Administrator. This notice must be sent to all Qualifying Floating Chargeholder at least 5 business days before the appointment to obtain their written consent to the appointment of an Administrator. The notice must be filled at Court for a fee of £50.
A Notice of Appointment must be filled at Court within 10 business days from the date of the Notice of Intention to Appoint an Administrator. When the Court receives the Notice of Appointment, it will seal the documents with the date of time of filling, and the Company will be officially into Administration. Although it might seem daunting, the filling to Court is usually done by solicitors instructed to assist with this process.
Upon appointment, the Insolvency Practitioner will become the ''Administrator'' and will take control over the day-to-day management of the business going into administration. The Administrator has the power to sell or dispose of the Company’s assets, to take possession or collect the company’s property, to appoint agents, solicitors, to continue trading etc. Notice of appointment will be sent to all interested parties upon appointment, including the Company’s creditors, London Gazette, Companies House, the Pension Regulator, etc.
Within 8 weeks of the appointment, the Administrator will draft their Proposals to creditors and members, which represents a document containing the Administrator’s plan on rescuing the company and exit route out of Administration. The Administrators will need the creditors’ approval on their Proposals.
Within 3 months of their appointment, the Administrator will prepare an investigations report into the affairs of the Company and submit a report to the Insolvency Service.
The Administrator will conduct their statutory duties during the course of the Administration. Depending on the route indicated in their Proposals, the Administration will come to an end and the Administrators will be out of office. The Administration usually concludes within one year of the appointment, but this can be extended after obtaining the creditors or Court’s approval.
- The process to appoint an Administrator is easy, as it can be done out of Court by the Directors or the Company;
- The purpose of the Administration is to rescue the business
- The business could be sold back to the Directors by way of a pre-pack sale.
- Creditors are not able to take any legal actions against the company unless they have the Court’s approval
- There are three entry routes into Administration:
- By Court Application
- Qualifying Floating Chargeholder – A QFC is a creditor of the Company who holds a floating charge over the assets of the Company. This charge must have been created on or after 15 September 2003.
- Directors or Shareholder (who hold more than 50% of the issued shares)
- A Qualifying Floating Chargeholder;
- The Directors or the shareholders, holding more than 50% of the issued shares
- A liquidator of the Company
- A CVA Supervisor of the Company
- A creditor of the Company
- A Qualifying Floating Chargeholder;
- The Company’s Directors
- A majority of shareholders (with more than 50% of the issued shares)
A company administration can last from a few months to a few years. It all depends on the complexity of the case (how many creditors, how big is the debt, how many assets are there etc.). In our experience the average length of a liquidation is under 1 year.
Depending on the results of the administration plan implemented, either the company can get out of administration or it can go into liquidation (CVL)
The standard price for a Company Administration is £7,500 + VAT
You might have heard terms like liquidation, company administration, insolvency practitioner, and many more. But what do they mean and what might be the best insolvency procedure for your company?
Creditors Voluntary Liquidation is a legal process in which an insolvent company is wound up. The appointed Liquidator will try to realise assets (by recovering the assets from 3rd parties, selling the Company’s assets for the best price, etc) to repay the Company’s debts. During the Liquidation process, the Company is under the Liquidator’s control and it will be dissolved by the end of the liquidation process
When a struggling business appears to be viable with the prospect of becoming profitable again, and the directors are willing to continue, a company voluntary arrangement (CVA) may be an ideal way to protect against legal actions.
MVL – Members Voluntary Liquidation (MVL) is a process of winding up a solvent company in a cost-effective way. This process is more advantageous than striking-off the Company on Companies House and taking out the assets as dividends since it is more tax-efficient. Upon making sure all company debts (if any) have been settled, the Liquidator will make a distribution to the Members of the Company
Questions And Answers About Company Administration
There are three tests you can run to see if your company is solvent or insolvent.
Cash Flow Test – A company should be able to pay it’s debt as they fall due. If this is not possible your company may be insolvent.
Balance Sheet Test – If your companies liabilities (Creditors, Loans, Debts) exceed your company assets this means your company is likely to be insolvent.
Legal actions against your company – A major warning sign that your company is insolvent is receiving any letters threatening with legal actions against your company, from creditors. Such legal documents may be: Winding Up Petitions an CCJ – County Court Judgement.
An Administration is a process in which the Administrator is looking to rescue the business and continue trading, in the best-case scenario. Liquidations means the company will cease trading, employees will be dismissed and made redundant, moving towards the end of the company, resulting in dissolving it off the Companies House’s register.
In an Administration the cost to place the company into Administration may be paid from assets if sufficient.
Administrator’s fees post appointment can only be drawn from asset recoveries.
The liquidator, administrative receiver, administrator or Official Receiver has a duty to send the Secretary of State for Business, Enterprise and Regulatory Reform, a report on the conduct of all directors who were in office in the last 3 years of the company’s trading. The Secretary of State has to decide whether it is in the public interest to seek a disqualification order against a director.
Examples of the most commonly reported conduct are:
Continuing the company’s trading when the company was insolvent;
Failing to keep proper accounting records;
Failing to prepare and file accounts or make returns to Companies House; and
Failing to send in returns or pay to the Crown any tax that is due.
Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time.
There are few instances where the Directors are liable such as wrongful trading.
Each insolvency case is different and the only way to know for sure is to speak directly with a Licensed Insolvency Practitioner.
The benefit of a limited company provides the director with protection against company debts.
However please contact one of our insolvency practitioners if you have signed a Personal Guarantee over a debt of the company.
Yes, it is possible for a director to set up a new company although there may be some restrictions put in place by HM Revenue & Customs
After obtaining advice from our Insolvency Practitioners and once agreed the administration route is the optimal route for your company, the old company can be sold via a pre pack sale to a new company or an existing company. Instructions will be made to independent valuation agents to value and market the assets to potential buyers. Should your offer be accepted by the insolvency practitioner, a sale contract will be drafted and the sale will take place, if there are no objections from interest parties (such as a qualifying charge holder).
We will provide the relevant documentation to place the Company into Administration on an online platform for you to review and sign the documents.
As a director you have certain fiduciary duties. As such, you need to make sure you follow the law and not prioritise or prefer your own interests over the Company’s creditors. Dissipating the Company’s assets in order to settle the your own debt might result in the Administrator asking for the assets to be returned to the Company or repayments to be made towards the liquidation for a fair treatment of the body of creditors.
In most cases, employees are made redundant to bring down the Company’s costs. The Administrator has the duty to rescue the business as a going concern as their main goal, which unfortunately means dismissing some or all employees.
When a Company enters into administration, a “moratorium” is created to give the company a cooling off period and allow it to trade and be rescued as a going concern, if this is possible. During a Moratorium, the creditors rights are frozen and they cannot bring insolvency proceedings or any other legal actions against the company. Please note that the creditors’ rights are temporally blocked and their rights remains.
Feel free to either reach us directly via phone or email or submit a consultation form, detailing your situation and one of our team members will get back to you as promptly as possible.