When a company is experiencing financial troubles, there are several options available. These include closing the company altogether through a Creditors’ Voluntary Liquidation (CVL) to looking for options for a business rescue – which can include a Company Voluntary Arrangement (CVA) or administration.
Administration is an insolvency procedure that aims to help struggling businesses turn around and restore profitability.
To help directors find out more about the administration process and how long a company can be in administration, Clarke Bell has put together this guide to help you see if this is the right option for you.
What is administration?
As we have mentioned, a company is placed into administration when it is facing financial struggles and is looking for a way to turn things around and restore profitability once again.
When a company is placed into administration, it is given legal protection against creditors to whom it owes money. This is known as a moratorium, which stops any legal actions being taken against the company. This means that creditors cannot take further actions to retrieve the money they are owed, including issuing a winding-up petition to the court.
When a company is in administration, the aim is to draw up a realistic plan for recovery.
How does administration work?
When a company enters into administration, a licensed Insolvency Practitioner must be appointed to act as the administrator. Control of the business is then handed to the administrator.
Once appointed, the Insolvency Practitioner will work closely with company shareholders and creditors and will establish whether there is a realistic future for the business and whether it can be rescued.
A company may be allowed to continue trading whilst in administration if this is deemed the best way forward by the Insolvency Practitioner, however this is decided on a case-by-case basis.
Under the Insolvency Act 1986, the administration process has to achieve one of three statutory purposes, which includes:
- Rescuing the company as going concern
- Getting a better result for creditors overall than if the company was wound up without being put into administration first
- Realising property to make a distribution to one or more secured or preferential creditors
When one of these purposes has been fulfilled, the company is then able to leave administration through an exit route. Typical exit routes from administration include:
- The company continues to trade.
- The company enters into an insolvency procedure such as a Company Voluntary Arrangement. Find out more about this route in our handy guide.
- The company enters into a pre-pack sale. This can occur when a plan is in place and a contract of purchase has been created. Here, the company is put into administration and then sold to new owners. This can be a very quick process.
- If there is no viable future for the company, then it can cease to trade before it is entered into a formal liquidation process such as Creditors’ Voluntary Liquidation. This can occur when there is not a viable future for the business but there are still assets that need to be dealt with.
How long can a company be in administration?
Every case of business insolvency is different, meaning there is no set time frame for how long a company will remain in administration.
Some cases of administration will last longer than others, depending on the scale of problems and the complexity of the case at hand. However, administration doesn’t usually last beyond 12 months.
If more time is needed, however, this will often be granted as long as the administrator can demonstrate that more time is needed in order to get the best result for both the company and creditors.
The first stage of administration is to appoint an administrator.
Next, the administrator will obtain details of the company’s creditors and inform them that they have been appointed. Their appointment will be advertised in The Gazette to be made available on public record.
Next, the administrator will require the company directors to provide them with a Statement of Affairs. This is a document that outlines the company’s assets and liabilities.
Following this, the administrator has up to 8 weeks to create a proposal outlining what they intend to do with the company to creditors. This proposal must outline the details of the administrator’s appointment, a copy of the Statement of Affairs and a plan for how the administrator anticipates the administration will end.
A meeting of creditors must be held within at least 10 weeks of the company entered into administration. Creditors have to be given at least 2 weeks’ notice of the meeting.
For cases where the administration process lasts for 6 months or more, the administrator must report their progress back to creditors and file reports to Company House.
Looking for more help on the best way forward?
If your business is facing financial difficulties and you are unsure of the best way forward under the circumstances, Clarke Bell is here to help.
If you want to find out more about the administration process and whether this is the right option for you, Clarke Bell’s team are at hand to offer our expert advice and guidance.
We will work closely with you to understand your situation and to find the best solution for you, whether that is administration, a Company Voluntary Arrangement or liquidation through a CVL.
We have worked with thousands of businesses across the UK on insolvency procedures of all kinds, so we know what is right for you.
To find out more about how we can help you, or for a free initial consultation, just reach out and get in touch with Clarke Bell today.
