Administration
Administration is a formal insolvency procedure which is used to protect a company that is insolvent (unable to pay its debts) and to help it achieve a better outcome for its creditors than would be achieved if it went into liquidation (winding up).
Administration can be used to:
- Save the company as a going concern.
- Sell the company’s assets to pay its debts.
- Distribute the company’s assets to its creditors.
Administration is a court-supervised process, which means it is overseen by a judge. The judge appoints an administrator to manage the company during the administration process.
The administrator has a number of powers, including:
- Selling the company’s assets.
- Negotiating with creditors.
- Making payments to creditors.
- Appointing a liquidator if the company cannot be saved.
Administration is a complex process, and it is important to seek professional advice if you are considering putting your company into administration.
Benefits of putting a company into administration:
- Protection from creditors: Once a company is in administration, its creditors cannot take legal action against it. This can give the company time to get its finances in order.
- Chance to save the company: In some cases, administration can be used to save a company as a going concern. This can be achieved by selling the company’s assets to a new owner or by restructuring the company’s debts.
- Fairer distribution of assets: If a company is liquidated, its assets are distributed to its creditors according to a strict priority system. This can mean some creditors receive less than they are owed. Administration helps ensure that creditors are treated more fairly.
Potential drawbacks to putting a company into administration:
- Cost: Administration can be a costly process, and the company’s directors may be personally liable for some of the costs.
- Loss of control: Once a company is in administration, the directors lose control of the company. The administrator will take over the running of the company and will make decisions about its future.
- Damage to reputation: Administration can damage a company’s reputation, making it more difficult to attract new customers or suppliers.
Overall, administration can be a valuable tool for companies that are facing financial difficulties. However, it is important to weigh the benefits and drawbacks of administration before deciding whether to use this procedure.
If you are considering putting your company into administration, it is important to seek professional advice from an insolvency practitioner. An insolvency practitioner can assess your company’s financial situation and advise you on the best course of action.