HOW ONE COMPANY GOING INTO ADMINISTRATION WORKS
To go into administration, you must be able to achieve one of three statutory purposes.
The three purposes are:
to save the company as a going concern or,
achieving a better result for the company’s creditors as a whole than would be likely if the company went into liquidation first or,
realising property to pay a preferential or secured creditor.
If you cannot achieve one of these then the company should go into liquidation.
GETTING INTO ADMINISTRATION
A company can be put into administration by:
- A majority decision of the board of directors or,
- A debenture holder such as the company’s bank or,
- A creditor on making an application to the court or,
- A shareholder or shareholders making an application to the court.
If there is a debenture (a fixed and floating charge that will be registered at Companies house) then the debenture holder (usually a bank) can put the company into Administration or will need to be given five days’ notice of the intention to appoint an Administrator.
Note that if the bank has been given notice of your intention to appoint an Administrator they may decide to appoint their own Administrator instead.
A company can be put into administration almost immediately by filing the right pieces of paper in Court or the process will take up to five days or more if there is a debenture holder.
ONCE IN ADMINISTRATION
Once the company is in administration the Administrator will form an assessment of what the outcome should be. This may be an attempt to sell the business or part of the business as a going concern or it may be to slowly wind down the business and sell off the assets such as stock, plant and machinery or to complete work-in-progress.
The Administrator will send a report to creditors called a proposal within the first eight weeks of appointment. This will set out the financial position of the company, the value of the company’s assets and the likely outcome for creditors. The Administrator will also ask for approval of how their fees will be charged and paid.
The Administrator will conduct an investigation into what happened and file a report with the Insolvency Service. In some cases, the Insolvency Service will then investigate the conduct of the directors.
EXIT FROM ADMINISTRATION
Once the business has been sold and all assets realised, the Administrator will seek to agree the creditors’ claims, pay a dividend to creditors, and close the case. Be careful of intercompany balances which may have to be repaid.
In some cases, the Administration will end by the company going into liquidation.
David Kirk did exactly what he said he would. I’d be lost without Administration. Without David, we would have gone bankrupt by now. Really good