Continue Trading and Prevent Creditor Action with an Administration
What is Administration?
Administration is a process for insolvent companies that achieves more for creditors than placing a company into liquidation. Unlike liquidations, administrations allow trading to be maintained by the assets and trade being sold to another entity that takes on none of the liabilities (except TUPE) of the old company.
A trading Administration is one where the Administrator continues to trade within the business whilst looking to sell it. This is unlike a Prepack Administration where the sale of the business is discussed and arranged prior to the formal Administration process commencing.
Is Administration good for my business?
Yes it can be because it stops action being taken against your business and its assets (e.g. by bailiffs or creditors) and provides breathing space to achieve a turnaround or structured exit. It is also good for your creditors as a whole because it will result in a higher return than a liquidation would because the trading business is saved thereby making it more valuable and your employees are not immediately made redundant.
How long does it take?
Entering administration can take anything from a few hours to 2 weeks or more depending on your circumstances. The process itself will last for up to 12 months, but it is unlikely the business will be run by the Administrator for that length of time – around 6 weeks is the maximum length of time this normally happens.
How does Administration differ to liquidation or a receivership?
Administration is designed to rescue the business, a receivership is designed to predominantly look after the secured lender (creditor) who appoints the receiver by selling assets and/or the business to a third party to achieve their aim, whereas liquidation is the acknowledgement the company is at the end of its useful life and needs to close permanently.
What are the pro’s and con’s of Administration for my business?
If we assume you are buying the business back and not looking for it to be sold to a third party, the pros and cons are:
Pros – immediate protection from creditor action; breathing space to work out a solution; trading continues; the business will be rationalised by the Administrator.
Cons – 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.
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