Administration
Explainer
Think of insolvency administration as putting a company under “intensive care,” giving it a chance to recover, or at least making sure everything is managed properly if recovery isn’t possible.
Risk Management
If the Directors consider the company is insolvent, then they are complying with their statutory duties in taking advice and appointing Administrators.
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Administration provides protection from creditors taking legal action.
Administration is a legal process that helps companies deal with financial difficulties when they are unable to pay their debts. The goal is to either save the company by restructuring its debts or, if that’s not possible, ensure its remaining assets are distributed fairly to creditors (people or businesses the company owes money to).
Why & How does an Administrator get appointed?
When a company can’t pay its debts, an independent professional called an “administrator” is appointed. This person takes control of the company’s operations and finances. The administrator is a licensed insolvency practitioner. Administrators are usually appointed by the Directors or QFCHs of the company or sometimes by unsecured creditors or shareholders. In most cases, the appointment can be made by signing specific forms but on occasion Court Hearings may be required for a company to be placed into Administration.
How does it help?
There is an organised, legal process to deal with company's employees, assets and creditors.
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Where the company is insolvent, there is the best chance of preserving jobs and allowing the business to continue.
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It offers the a chance for the company to survive a challenging financial period and recover.
What is the Administrator there to do?
The Administrator's role is to:
- Assess the company’s financial situation.
- Try to save the company if possible (this could involve restructuring the business, negotiating with creditors, or selling parts of the company).
- If saving the company isn’t possible, the Administrator will ensure the company’s remaining assets are sold and distributed among creditors in accordance with legal requirements.​
During the Administration, the company may continue trading while options are explored.​​​​
What are the potential outcomes of Administration?
Rescue - the company is restructured and allowed to continue operating, exiting the Administration process, usually through a Company Voluntary Arrangement.
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Sale of the business - the business (or part of it) may be sold to another company, allowing jobs and services to continue.
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Liquidation of the assets - all assets are sold to pay creditors and the company will cease to exist.