Administration is a formal insolvency process applying to a company that is, or is likely to become insolvent. A company is placed under the control of an administrator (an Insolvency Practitioner) by one of the following:
• the court, following an application from a creditor or director
• the holder of a qualifying floating charge over the assets of the company (usually a bank or other financial institution)
• the company or its directors
The main purpose of administration is to rescue the company as a going concern, in many cases through the sale of the business.
If this is not possible, the administration should achieve a better outcome for creditors than would have been possible if the company had been wound up (placed into liquidation).
If neither of the above purposes are possible, administration can take place in order to allow a distribution to secured creditors (banks and financial institutions) or the company’s preferential creditors (which usually form employees’ claims against the company in relation to arrears of wages and unpaid accrued holiday pay).
Administration creates a moratorium preventing creditors from beginning or continuing with action against the company, this includes HM Revenue & Customs, banks, finance providers, landlords, creditors and employees etc.
Following appointment, the administrator’s main duties include:
• realising the company’s assets
• reporting to creditors and shareholders
• statutory reporting to the Department for Business, Innovation and Skills
• assisting employees with their claims
• where possible, distributing to creditors and shareholders
If dividends are available for unsecured creditors, the administration process moves to a liquidation to enable dividends to be distributed, following which the company is dissolved.
If there are insufficient realisations to enable a dividend to be distributed to unsecured creditors, the company moves directly to dissolution.
It is also possible for an administrator to propose a Company Voluntary Arrangement (CVA) to creditors as an exit route from administration.
At Bailams we seek to use the benefits of the administration process to help in long term survival of businesses and preservation of jobs.