The prospect of putting your company into Administration can be extremely daunting. After all, you’re handing over the running of your company to someone else.

Whilst it is true that technically an insolvency practitioner will take over responsibility for the running the company once it is in Administration, the reality is that you have the power to be the instigator of the process and so will be directly involved in determining the plan for the Administration process.

By taking affirmative action at a relatively early stage, you can ensure that the maximum range of turn around options remain open thus enabling you to work towards an effective rescue or restructure package to save an insolvent business.

What are the benefits of Administration?

The key benefit of Administration is that, unlike most other forms of insolvency or rescue processes, Administration provides immediate protection for your business. This protection prevents aggressive creditors such as HMRC or your landlord from taking their own recovery action for tax or rent arrears including instructing bailiffs to take distraint over assets or issuing a winding up petition. This gives you invaluable time to formulate the right recovery plan.

As a director, you are able to appoint an Administrator without the need for a Court hearing provided a winding up petition has not already been issued. This means that you can choose which Insolvency Practitioner to work with and can be directly involved in planning the best rescue plan from the outset.

You can find out more about the administration process here…

In the period immediately before the company is placed into Administration, your chosen Insolvency Practitioner will look to understand your business, its historic difficulties and your objectives for the future. Based on this, the Insolvency Practitioner will arrive at a proposed course of action which they will agree with you.

Don’t forget, at this stage, you have not yet formally appointed the Administrator and as such can choose not to proceed with the process if you are not happy with the Insolvency Practitioner’s proposals. This is a key feature of taking control of the process yourself rather than just hoping for the best.

What happens to the business?

For the majority of people, the most important consideration is what actually happens to the business so that is what we have focussed on here.

In order to know what to expect, it is important to understand what the Administrator is required to achieve. This is relatively straightforward as the Insolvency Act sets out 3 objectives:

• Rescue the company as a going concern. This means that the limited company itself continues, usually in a Company Voluntary Arrangement (CVA).
• To achieve a greater return to creditors as a whole than if the company was wound up. This means that the Administrator must be able to pay more to creditors as a result of the Administration than would have been possible if the company had just been liquidated.
• To make a distribution to a secured or preferential creditors. This could be to a bank or factoring company or to employees for wage arrears or holiday pay.

If a CVA is to be proposed, the insolvency practitioner will look to agree the outline of the CVA proposal with you before the company goes into Administration so that he can get the proposals out to creditors as soon as possible. You will be integral in putting this proposal together and can find out more about how CVAs work here.

If a limited company is not going to continue in its current legal form then it will be necessary to sell all or part of the business and assets. Insolvency Practitioners have a duty to sell the assets for the maximum overall value and so will market the business. However, there is no restriction on you making an offer to purchase some or all of the business either personally or through another limited company. In the vast majority of cases, the business will be of far more value to you and the incumbent management as you know the business and its customers and as a result, you are likely to be the highest bidder and so can buy the business back in a restructured form and free of its historic debt thus saving all you have worked so hard to build.

Selling the business

Depending on the nature of the business and on the content of initial discussions, the proposed Administrator may feel that it is appropriate to agree a sale of the business prior to his formal appointment. This sale is then ratified and completed immediately upon his appointment being formalised. This is known as a Pre-Pack (as the sale is pre-packaged). A Pre-Pack is often the best option where continuity is essential and a connected party is willing to make an offer for the business which exceeds the amount the insolvency practitioner would expect to achieve through any other sale.

If no sale has been agreed by the time the Administrator has been appointed then he will seek to trade the business until a purchaser is found. The Administrator will usually seek the help of existing directors and managers during this trading period as you possess the day to day knowledge necessary to run the business. You can of course still make an offer to purchase the business or assets during this trading period.

Where to start?

Administration is a powerful turnaround process and one that allows a myriad of options for your business. As such, it is essential that you get advice you can trust as early as possible so that you can understand your options and how these might be implemented.

To discuss how Administration might work for your business or to find out more about restructuring a business through Administration, call us free on 0800 066 3122