When to Consider Administration
Updated: Mar 19, 2021
Liquidation and Administration are two entirely different procedures, but nevertheless, it’s a question that pops up quite frequently. We address the main differences and whether Administration is the best route to take with examples of companies that have succeeded and failed after Administration.
Liquidation is a procedure that’s undertaken when a company has come to the end of its life. Any assets are sold off (or liquidated) and the proceedings are used to repay creditors. The primary goal of calling in the Administrators is to help a company pay off its debts and avoid liquidation.
When is it time to consider administration?
If a company repeatedly fails to pay its debts on time, there is the threat of being forced into compulsory liquidation. In these circumstances, Administration can be a favourable alternative. Entering into Administration with the aid of a licensed practitioner can give you the time needed to negotiate with creditors and arrange the terms to pay off creditors.
Is Administration the right procedure to take?
As discussed above, Administration can result in liquidation, but not always. The main advantage of this Administration is that any legal action against your company is frozen during the process. During this time, an Administrator is appointed and takes full control over the business operations with a legal obligation to act in the best interest of the creditors. The Administrator will outline a recovery plan which involves repaying as many debts as possible and identifying any opportunities that can save money with the goal of saving the company.
Within ten weeks of entering into Administration, a creditors’ meeting will be held – either in person or via other correspondence. The goal of these meetings is to outline the new administrative proposals. If the company has very few assets, poor cashflow or other factors that would suggest a low chance of recovery, it may be that the practitioner recommends voluntary liquidation instead.
Different Outcomes of Administration
Administration often in ends one of four ways depending on the findings.
CVA – Most favourable outcome, the Administrator works with the directors to draw up a plan for company voluntary arrangement. If the creditors agree to this, the company is handed back to the directors who continue to trade.
Pre-pack Administration – The insolvency practitioner prepares the business and its assets for a sale to a new owner. Most things are agreed in advance of the formal insolvency.
Liquidation – If agreements are not met and debts still to pay after Administration, the company will enter into liquidation and come to an end
Dissolution – dissolution negates the need to enter into liquidation and usually happens if the company has no money to pay off creditors or no assets to sell.
If you think that Administration could be the right procedure to take, or if you are facing liquidation, talk to one of our experts.
We can arrange a call or a meeting to discuss the various options available.
0161 864 3824 or e-mail: email@example.com to arrange a free, none obligated meeting, which could take place on the telephone or at our offices.