Thousands of business owners experience severe difficulties in their financial position and fear that their company may be heading towards administration.
Businesses are often experiencing no financial difficulties at all, but if a main customer experiences financial difficulty, with the prospect of administration looming, the knock-on effect can be crippling to your company.
What is Administration?
Administration occurs when an administrator is placed in a company that is experiencing severe financial problems.
The administrator will attempt to either run the company more effectively or to save it from financial meltdown and a winding up order. If the possibility of saving the business is not possible, the administrator will look to achieve the best possible financial return for the creditors of the company. The administrator used in the process of administration must be a licensed insolvency practitioner, appointed by the court.
What is Required to Enter Administration?
- Your company must be a reasonable size to be considered for administration.
- You need to have a fairly predictable cash flow.
- You must be able to predict profitability.
- You must have an insolvent position, or contingently insolvent position, whereby your company directors believe that a hostile creditor will damage any future trading potential.
- The administration process must be handled by a licensed insolvency practitioner.
- If your company has poor cash flow or few assets, with no future potential, a creditors voluntary liquidation may be more suitable for your business than an administration process.
The Administration Procedure
Insolvent companies, facing a major threat from their creditors are often forced into administration. If you are considering the administration procedure, it usually operates as follows:
- A court may put a licensed administrator into your company as an administrator. This will give your business a moratorium and prevent all legal action against your company.
- When your business enters into administration, the administration must have purpose. ‘Company rescue mechanisms’ are strongly advised by the government for all companies entering into administration.
- By applying to the High Court, it is possible for your company’s directors or a creditor to apply for the administration to enter a streamlined process.
- Law demands that your finance providers, such as banks or other creditors must be advised of the aims for the administration, which should be discussed and approved.
- Finance providers must have a fixed and floating charge. The charge holder must then give authority for the process to go ahead, which will require five days notice.