Administration For Companies
Companies may voluntary go into administration or may be forced by their creditors into winding up the company if they feel they are not likely to be paid due to various financial difficulties.
Unfortunately in tough times company liquidation from insolvency is a fact of modern life and the process involves appointing an administrator to manage this.
Administration - Introduction
Administration is for companies that are solvent but are facing issues from their creditors and the act of putting a company into administration halts all possible legal action against the company. The company can still actually continue to trade as a going concern.
The process must begin with an order from the High Court either initiated by the companies creditors or the company itself and the court will appoint an insolvency practitioner as administrator.
By having a company in administration it means a protective financial and legal cloak is placed around the company whilst it develops a survival plan that is put to their creditors and is a much simplified process since the introduction of the Enterprise Act in 2002 by filing a notice of intention to appoint administrators at course whereby any party/ creditor has a floating charge over the assets of the company.
Who Gets What Money ?
There are always certain people who get paid first if a company is wound up and if you are a small creditor or employee you may not see much money if you are owed by a company in administration.
Basically secured creditors get paid first if there are charges made over owned assets or property (normally banks), then the insolvency practitioners will take their cut, next it's employees who may get redundancy and wages up to a value of £ then every one else gets a share of the pot including the inland revenue.
The Process of Administration
If your company is under pressure from creditors you may put it into administration with a company voluntary arrangement (CVA) - here are the steps to take which ca be undertaken using a "pre-package administration" where the company prepares the administration rather than the creditors and agree to sell the assets to a new company and the existing company is liquidated.
There is of course much debate in the insolvency industry over potential abuse of this type of administration as directors can buy back the business at a much reduced price and clear their debts. However the insolvency practitioner must act in the best interests of the creditors.
1: Put together an action plan together with financial plans, an understanding if the company is a viable business moving forward, if you are insolvent and any additional financial backing you may have or require.
2: Contact a specialist practitioner who will assess your business and recommend which course of action is viable for your business whether it be administration, a CVA or liquidation. All directors should attend to make the final decisions.
3: If administration is agreed the insolvency practitioner with a floating charge made against assets they will fax over the request to the High Court.
4: Company enters administrator and a moratorium is issued preventing any new or existing legal action against the company so they can develop action plans to attempt to get them out of the situation they find themselves in.
5: Insolvency practitioner calls all creditors to inform them of the company proposals and the administration process adopted and prepares the company voluntary agreement.
6: The CVA is prepared over the coming weeks and issued to all creditors who have 14 days notice before creditors meeting.
7: The creditors vote to accept or dismiss the CVA which needs 75% of them agreeing to the proposal for acceptance.
8: After 28 days the insolvency practitioner applies to the court to end the administration when the IP normally becomes the supervisor.
9: Company continues trading under the CVA agreement which normally has plans to reduce costs to bring the company out of the CVA over time.
The entire process probably takes around 5-6 weeks from initial internal meeting of the company directors.
Companies in Administration
There are a host of companies in administration in the UK and some are still trading and these include many household names. If you are a consumer and wish the trade with these companies always use a credit card for your purchase (especially with gift vouchers as you are effectively a creditor as the company owes you product against the voucher) or if you are paying a deposit or simply an order but have not yet received the goods.
Current companies include Empire Direct, Land of Leather and MFI. In fact the number of companies going into administration has jumped 30% over the past 12 months.