Administration is an insolvency procedure that a company may enter if that company is insolvent and the insolvency practitioner nominated to be the administrator believes that one of the following objectives can be achieved:
- the rescue of the company as a going concern, or
- achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration) or
- realising property in order to make a distribution to one or more secured or preferential creditors.
Who can appoint an administrator?
There are three different ways an insolvency practitioner can be appointed as an administrator of a company. An administrator can be appointed by either;
- Director or
- Charge-holder or
Will creditors receive any money?
Whether creditors receive any payments for debts outstanding depends upon the amount realised within the administration. When paying out funds to creditors there is an order of priority and unsecured creditors rank last behind preferential creditors (e.g. employees) and those who hold security. Once appointed, an administrator is required to send their proposals to creditors within 8 weeks of appointment. This will contain information about the prospects of payment to creditors. It is an unfortunately reality of insolvency and creditors will often not receive funds in full for outstanding balances to them from the company.
Can the new company have the same directors and shareholders?
Yes, they can. It is quite common that the best offer for the business or assets of an insolvent company may be from the existing directors or management team. There is no law that specifically prevents a director of a company that has gone into insolvency from forming a new company, provided they are not disqualified, personally bankrupt or the subject of a bankruptcy restriction order or undertaking. There are, however, measures in place to ensure that the privilege of limited liability is not abused.
What are the time scales?
Putting a company into administration can take anything from a couple of hours to 2 weeks or more, this depends on the size of the business and the complexities surrounding it. Once the company is in administration, it is usually in administration for 12 months, but this could be shortened down to 6 weeks or extended into multiple years depending on the circumstance surrounding the company.
Does Administration differ to liquidation?
Administration is designed to rescue the business which is viable, whereas liquidation is the acknowledgement the company is at the end of its useful life and needs to close permanently, although assets and brand are still be sold off to interested parties.
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