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picture of skyscraperAdministration is a court based procedure usually commence by the directors of a company experiencing severe financial difficulties.  It is also a process that can be instigated by secured creditors of the company should they have concern over the repayment of their debt.

As a court procedure upon filing certain documents in court, the company is protected from action from its creditors so they are unable to wind the company up or repossess goods (unless they apply to court or obtain permission from the administrator). 

An administration order may be appropriate if there is a good prospect of being able to rescue the business either through a restructuring of the existing company or through a sale of all or parts to a new business entity.  It is also sometimes used to wind/close a business down in a controlled manner.

How does it happen?

A company may be placed into Administration if it is technically insolvent or may become insolvent.  I.e. it cannot pay its debts as and when they fall due for payment.

The procedure for placing a company into Administration is usually simple and is a question of filing documents in the court.  Complications may arise if a petition for winding up has already been presented and where there are secured lenders (their agreement over the proposed administrator is usually required).

Who can be an Administrator?

Only licensed Insolvency Practitioners can act as Administrators.  Insolvency Practitioners are often accountants who have specialised in the area of business (or personal) insolvency.  They have to pass certain examinations and be considered to be fit and proper by certain regulatory bodies. 

What happens next?

Once appointed an Administrator would often consider whether and for how long the business can continue to trade.  Certain decisions regarding the structure and costs of the business usually have to be made quickly and it is not uncommon for there to be significant numbers of redundancies (see www.financialcrisis.co.uk/ee.html for more information as to the effect of Administration and entitlements to redundancy payments etc).

The business may be marketed for sale and often a short deadline is set for offers.  On occasion if it is considered that value will be lost quickly the business may be sold almost immediately to the management team through what is known as a ‘pre-packed’ sale.

If no buyer is found the business may be closed down.

Creditors meetings

Sometimes the Administrator may call a meeting of creditors to approve their proposals for dealing with the remaining aspects of the Administration.  This would also cover approval of their fees.

If such a meeting is called creditors may also appoint a creditors committee to provide a sounding board for the Administrator and to oversee some of his or her actions.

The end of the process

Once the Administration has been dealt with (normally within 12 months) the company will normally either be placed into liquidation or dissolved. 

The former method is often used if there is to be a distribution to creditors.

How much do creditors get?

Return to creditors in Administration should be higher than in liquidation but the return will vary depending upon the case. 

It will also depend upon the level of secured creditors and the fees charged by the Insolvency Practitioner.

Contact us if you require assistance in placing your business into Administration or require any advice as to the appropriate solution for your business 

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