Effective Company Administration for Business in Distress

Administration can be a highly effective tool for addressing financial difficulties, but only when the conditions are suitable and it is confirmed as the best remedy for all stakeholders, including creditors. A company can only enter administration if it meets one of the three statutory purposes outlined below:

1. Rescue the company as a going concern: The primary goal is to restructure and revive the business, ensuring its survival and continued operations.
2. Achieve a better outcome : If rescuing the company isn’t viable, administration should aim to provide a better return to creditors than would be possible through immediate liquidation process.
3. Realise assets for secured or preferential creditors: When neither of the above is achievable, the focus shifts to selling company assets to distribute funds to secured and/or preferential creditors.

Administration is not always the right approach for every case of insolvency. Before a company enters the administration process, an insolvency practitioner must establish that the following conditions are met: 

Administration is not a long-term solution to a company’s financial distress but rather a temporary measure that provides a crucial holding stage. During this period, the company and its administrators can develop a viable plan for moving forward. Eventually, the company must exit administration, which can happen in several ways, including continuing trade under the current ownership, selling the business to a third party, or transitioning into another insolvency procedure.

If the company is sold through a pre-pack administration process, all employment contracts are typically transferred to the new company under established procedures. Other exit routes may include entering a Company Voluntary Arrangement (CVA) to restructure debts, proceeding to company liquidation if the business cannot be saved, or finding alternative solutions to meet obligations to company creditors. It is also essential to consider the administration cost, which can impact the feasibility of certain recovery strategies, ensuring that the chosen path provides the best outcome for all stakeholders. Contact us 

Only a licensed insolvency practitioner can serve as a company administrator. Before their appointment, the practitioner’s role is to advise the company directors on the company’s financial position and the available options for addressing its challenges.

If administration is determined to be the most appropriate and necessary course of action, the company will appoint the insolvency practitioner to initiate the process. Upon appointment, the practitioner assumes control over the company’s affairs, acting as an agent with authority comparable to that of a director. Their powers are outlined under the Insolvency Act 1986 (as amended), enabling them to manage the company’s operations and assets effectively.

Throughout the insolvency process, the Administrator must prioritize the interests of the company’s creditors. They are required to assess how each decision, both prior to and during administration, will impact creditors and the potential returns they may receive. The Administrator must act impartially, ensuring no creditor class is favored at the expense of others, while focusing on practical and commercial steps to minimize costs and maximize returns for the collective body of creditors.