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How does a Business go into Administration?


, Senior Partner & Licensed Insolvency Practitioner

If your business is insolvent or has serious cash flow problems that will likely lead to insolvency, administration can be a solution to potentially save your business. Going into administration means that your company is being taken under the management of an administrator (a licensed Insolvency Practitioner) to find the best solution for your business going forward. Once your business enters into administration, you are protected from any creditors that may be threatening legal action to recover debts that are owed, providing breathing space to rescue the company.

If your business is insolvent or has serious cash flow problems that will likely lead to insolvency, administration can be a solution to potentially save your business. Going into administration means that your company is being taken under the management of an administrator (a licensed Insolvency Practitioner) to find the best solution for your business going forward. Once your business enters into administration, you are protected from any creditors that may be threatening legal action to recover debts that are owed, providing breathing space to rescue the company.

What happens in administration

Before a licensed insolvency practitioner acts as administrator, they must decide what the process is going to end with. They must consider whether a struggling business has the potential to trade successfully in the future, in which case the business could be sold, or whether their problems are insurmountable, in which case, the business must be liquidated. The IP will put together administration proposals, which creditors will then be asked to vote on.

The administration process depends largely on the circumstances and as a result, it can last anywhere from just a few weeks up to a year, at which point the administrator must apply to the courts or creditors for an extension. However, whilst the length of the process varies, the administrator is legally obliged to perform all administrative duties as soon as possible, so it is much more common for the administration process to be over fairly quickly. 

When a business is in administration, they may continue to trade, however, the management of the business is passed on from the directors to the appointed administrator. However, whilst trade may continue, the business cannot be run at a loss as this affects the position of the creditors.

At the end of administration, a company may have been rescued and sold to the best bidder, which could potentially be the original directors of the company, or it may have gone into liquidation if it could not be saved.

Pre-pack administration

One of the most popular methods of administration is pre-pack administration; this is where a business prepares to enter into administration and sell their assets to a new company, or to a 3rd party company. In this case, the business can be rescued to form a new company, whilst the old company is liquidated. The new business owners may be directors or others connected with the insolvent company. 

An Insolvency Practitioner can advise an insolvent company on gaining the appropriate valuations for the business, as well as marketing the business and agreeing a sale, ready for the appointment of the administrator. Therefore, the administration is pre-packaged.

Administration and Company Voluntary Arrangement

A Company Voluntary Arrangement (CVA) is a procedure where Directors are able to retain control of a business whilst allowing restructuring - this can be an option when a business has suffered financial difficulties, but is still viable and could survive, should the burden of debt be lifted for a period.

In the case of administration before CVA, a company may enter administration in order to be protected from creditors. The appointed Insolvency Practitioner then produces their administration proposals, and once these are accepted, control can be given back to the company’s directors.

Alternatives to Administration

If your business is experiencing financial difficulties or you see impending problems and you are unsure what the appropriate measures to take are, then BEACON can help. As Insolvency Practitioners, we can help you decide on the least detrimental outcome for your company.

Call today on 02380 6511441 - acting quickly means the best possible chance of rescuing your business.

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