What Is Administration
Company Administration is an alternative to liquidation. Company administration is a formal procedure in which an Insolvency Practitioner (IP) is appointed to act as the Administrator of an insolvent company with the goal of bringing about a recovery.
If your company is in severe financial distress and insolvent an administration order could provide legal protection from your creditors whilst a restructuring plan is put together. The administration procedure is an alternative to receivership or liquidation with its primary purpose being the survival of the company or of part of its operation as a going concern.
Protection from creditors is necessary in a situation where a company is being aggressively pursued for debt repayment by one or more of its creditors. A common reason for a company to enter Administration to avoid a winding-up petition.
Once in administration the company's affairs are managed by a licensed Insolvency Practitioner, and it may continue to trade while a plan is formulated for the restructuring of the business.
The objective could be:
- To rescue the Company as a going concern
- To achieve a better result for the Company's creditors as a whole than would be likely following a winding up.
- To realise the assets of the Company in order to make a distribution to one or more secured creditors
Assuming you are buying the business back and not looking for it to be sold to a third party, the advantages are:
- Immediate protection from creditor action
- Breathing space to work out a solution
- Trading continues
- The business will be rationalised by the Administrator
The disadvantages are:
- Buying the business back is much more expensive than liquidation
- You lose control whilst the Administrator runs your business
- Your business may be sold to a third party
- Trading will cease if the Administrator cannot foresee that the company will trade at a profit.
For more information about the process or if you are facing extreme financial pressure and think your company may benefit from entering Administration - contact us today and arrange a free consultation.