What happens when a company goes into administration?

When a company goes into administration, it is a critical moment that signifies the company is facing severe financial distress and cannot pay its debts. Administration is a legal process aimed at rescuing the company as a going concern, or at least maximizing the return to creditors as an alternative to liquidation. The process entails the appointment of an administrator, who takes over the company's management to carry out the administration objectives. Here’s a detailed look into what happens during this process and the role of the administrator.

The Administration Process

1. Appointment of an Administrator: An administrator can be appointed by the company itself, its directors, a qualifying floating charge holder (typically a secured creditor like a bank), or by a court order. The appointment signifies that the company is under the protection of the administration process, and a moratorium is placed on legal actions by creditors to recover debts.

2. Moratorium on Legal Proceedings: Once the company enters administration, a moratorium comes into effect, which stops all legal actions or proceedings against the company without the permission of the court or the consent of the administrator. This gives the company breathing space to reorganize its affairs without the pressure of legal actions.

3. Public Announcement: The appointment of the administrator is made public through the relevant legal and regulatory channels. This includes informing the company's creditors, employees, and shareholders about the administration.

Role of the Administrator

The administrator’s primary role is to manage the company's affairs, business, and property with the goal of achieving the best possible outcome for the company's creditors. Their duties are governed by statutory regulations and professional standards, and they must act in the best interests of all creditors. The administrator has wide-ranging powers, including but not limited to:

• Assessing the Company's Financial Situation: The administrator reviews the company's financial position to understand the extent of its liabilities and the value of its assets.

• Business Continuation or Sale: The administrator may decide to continue operating the business or to sell the business as a going concern to realize its value for creditors.

• Asset Disposal: If continuing the business is not viable, the administrator may sell the company's assets to repay creditors.

• Proposing a Company Voluntary Arrangement (CVA): The administrator might propose a CVA to creditors, which is an agreement to pay back some or all of the debts over time, potentially allowing the company to exit administration and continue operating.

• Making Redundancies: Unfortunately, administrators may need to make employees redundant if it is in the best interest of maximizing returns to creditors.

• Paying Creditors: The administrator will distribute funds realized from the sale of assets or ongoing business operations to creditors according to the statutory order of priority.

• Report to Creditors: The administrator must keep the creditors informed and report on their progress, including the likelihood of achieving the purpose of the administration.

Conclusion of Administration

The administration process concludes when the objectives of the administration are achieved, which could be the rescue of the company as a going concern, the approval of a CVA, or the realization of assets to pay off creditors. The administrator may also conclude the process if it becomes apparent that the company cannot be saved or if the funds realized are insufficient to make any distribution to creditors.

The administrator plays a pivotal role in navigating the company through this challenging period, aiming to balance the interests of the company, its employees, and its creditors. The ultimate goal of administration is to rescue the company if possible, or ensure a more orderly and beneficial resolution than immediate liquidation would allow.