What happens when a business goes into Administration?
A business going into Administration will find that it goes through a series of complex and challenging scenarios. Having the professional assistance from a qualified insolvency practitioner who can help a business in Administration will help directors to understand their responsibilities and legal obligations at what is a difficult time for not only the business, but on a personal level for directors and employees, suppliers, clients and all creditors owed money.
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Four Key Questions on Businesses Going into Administration
How do you begin the Administration process?
A business going into Administration is the process undertaken when a company becomes insolvent. The directors and the secured lenders to the company can choose to appoint an insolvency practitioner at this point, or through a court order, with a view to protecting the company and its position in any way possible. By entering Administration, a company puts an immediate halt to any legal proceedings that are being conducted by creditors at that point.
Legally, the Administrator is required to act in the best interests of the creditors at all times during Administration. A business in Administration will be analysed by the insolvency practitioner and all assets valued. A precise and extensive proposal will be put together and given to all creditors, outlining the work undertaken to date and any ongoing strategies, in order to help creditors recover debts owed and to offer the best outcome for the company. The Administrator’s proposals are required to be approved by creditors.
How Long Does Administration Last?
Every case of a business going into Administration is unique and different from the next. There is a 14-day period before the Administrators take on the employment contracts of the company, so it is always preferential that if the business is to be sold, that it is done so prior to that date. Once the Administrator is in charge of the running of the business, they are not legally allowed to run it at a loss.
For the duration of the Administration process, creditors must be kept informed of proceedings and ongoing plans on a regular basis to ensure that their best interests are being looked after. This stage of Administration is crucial, as it is where all assets are valued with a view to realising those assets at maximum value.
What Administration Options are There?
What happens when a business goes into Administration? There are two other options open to them. A pre-pack Administration is the process whereby the business is prepared for sale, prior to the appointment of an Administrator being confirmed. The intention here is to complete the sale immediately upon, or shortly after, the appointment of the Administrator, in order to maximise the value of goodwill and minimise the loss of customers and trade as a result of an extensive managing period by the approved Administrator.
The pre-pack sale is a way of protecting the company brand, the business itself, and all company assets, before the old company (oldco) is wound up during the Administration process in the near future. A business going into Administration may also exit Administration by way of a CVA (Company Voluntary Agreement). This is a legally binding document that is agreed between the company and its creditors and ensures that a proportion of the debt currently owed will be paid back over a set period of time, and not all in one go immediately.
For this proposal to be accepted there has to be agreement with at least 75% of all company creditors. The proposal will be put forward by the appointed Administrator and, once agreed, they hand back control of the daily operations of the company to the directors once again, with a view to putting in place the new agreement and working towards it. A CVA is a good option to improve the cash flow of a company, cut out the large costs that are expected currently and to give some time to rectify mistakes and problems and to keep the company afloat for the long-term.
How Do I Find the Right Advice on the Administration Process?
During a period of a business going into Administration, and the period just prior to a business in Administration, there are many different challenges and complex situations to understand. It is a vital period for the long-term security of a company and you should search for a licensed insolvency practitioner that can offer you expert advice and guidance, with the hard truths that will help you maximise the potential for the business, and look after the needs of your creditors. This is a service we can offer through our experts at The Insolvency Experts.
It is always good practice to understand fully the situation you are facing, and to begin negotiations with your creditors as early in the process of Administration as possible. We can help you regain some form of control from a tough situation where it may have felt like you have lost all control in recent times. If you have any further questions about the insolvency and Administration process, or any unanswered questions around ‘what happens when a business goes into Administration?’ then you’re welcome to contact one of our experts by phone or email today.