What is Administration?

Administration is a process that helps a company survive severe financial difficulty, and offers protection from creditors who may be seeking to wind it up and recover funds owed to them. On appointment, the administrator determines the best plan of action, taking into account the business’ current financial status and the unique issues being faced.

UK Administrators offers expert business turnaround strategies delivered by our partner-led team of licensed insolvency practitioners (IPs). We have industry-wide experience, hundreds of demonstrable case studies, and can help your business navigate this challenging time with confidence.

Entering administration

A company can be placed into administration:

• By the company or its directors
• By a qualifying floating charge holder, such as the bank
• Via a court order

As this is an official insolvency procedure only a licensed IP can be appointed as office-holder but you have the right to choose your own administrator if you or other directors decide to take this route.

What are the potential outcomes and timescales of administration?

There are three specific purposes of administration, and one of the following scenarios must be achievable:

• Rescuing the company as a going concern – failing that:
• Achieving a better return for creditors as a whole – failing that:
• Realising property and other assets for distribution to one or more secured/preferential creditors

Company administration proceedings can last for up to a year, but this time period can be extended on agreement of the court/company creditors. The administrator must carry out the procedure as quickly as is practicable, but the timescale depends on individual circumstances, and will vary.

A pre-packaged administration is a specific form of administration that is characterised by a short duration when compared with the ‘standard’ procedure, which serves to preserve asset values and protect jobs.

What is a pre-packaged administration?

Pre-packaged administration, or pre-pack, facilitates the continuation of trade under a newly formed company. It is a legitimate and widely utilised process that preserves jobs and asset values, and allows for the rapid sale of underlying business assets.

The procedure is highly regulated, and insolvency practitioners must be able to demonstrate that pre-pack provides higher returns for creditors than any other available route. The business’ assets may be sold to a trade buyer or other third party, but it is also possible for the existing directors to purchase them with their own funds.

Once the administrator has taken office – notably, after the assets have been sold – the pre-pack process moves swiftly so that bad publicity is minimised and the new company can continue without the burden of debt.

Employment contracts may be transferred intact to the new company under the protection of TUPE legislation – the Transfer of Undertakings (Protection of Employment) regulations.

The company administration process

This is a basic outline of a ‘standard’ administration process:

• An administrator is appointed
• The company is assessed and a rescue plan formulated
• Formal proposals are sent to creditors, along with a Statement of Affairs prepared by the directors with assistance from the administrator
• Creditors decide whether to accept the proposals
• The administrator’s plan is put in place
• A report is sent by the administrator to the Secretary of State regarding director conduct leading up to the insolvency

So what are the potential outcomes for a company in administration?

Common exit routes from administration

Trading administration

A trading administration may be possible if informal negotiations with creditors are successful, or the sale of assets or additional alternative funding provides sufficient cash to reduce or repay debts. The company then trades its way out of difficulty once stability has been restored by the office-holder.

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement formally restructures debt repayments to make them more affordable to the business over an extended period of time – typically between two and five years. All interest and charges are frozen, and debt remaining at the end of the arrangement may be written off.

Creditors’ Voluntary Liquidation (CVL)

There can be instances where business rescue out of administration is not possible, and liquidation becomes the only option. In these cases the voluntary nature of CVL reduces the potential for wrongful trading allegations being made against directors.

Administration is designed to help companies survive, but you need to seek help at the earliest opportunity. Our licensed insolvency practitioners can formulate and deploy an effective turnaround strategy tailored to your company, enabling long-term stability and balance.

UK Administrators are turnaround specialists offering unbiased, reliable advice and support. Please contact one of our expert team to arrange a free same-day consultation, and find out if administration is viable for you.