Administration

Administration stops legal actions against a company such as winding up giving time for a rescue package to be implemented.

• Winding up action stopped
• Creditors interests protected
• Business given time to restructure

If your company is suffering serious financial difficulties or you have been threatened with a winding up order -
find out how administration can save your company

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What happens to Directors

Give control of the business to the Administrator

Once appointed, the directors give control of the company to the administrator. The administrator will review the business as quickly as possible and decide how best to resolve its financial problems.

The role of the administrator is to try and save the company thus protecting ongoing trading and its employees. However, they will act in best interest of the creditors.

If the administrator decides that the company cannot be saved, they will recommend to the creditors that it is liquidated.

Creditors decide on future of the company

The administrator will present their recommendations to the company creditors who vote to accept or amend them at a creditors meeting. The agreed proposals will then be implemented by the administrator.

If it is agreed that the company should continue to run but be restructured or a CVA implemented, he directors may be asked to continue to run the business.

If the business is restructured or sold, the directors may be asked to leave the company.

If the business is liquidated, the liquidator will undertake a review of the director's activities and present a disqualification report. If the directors are considered to have allowed the company to trade while insolvent, they may be disqualified as directors and held liable for some or all of the company's debts.

What happens to Employees

Business restructured

The administrator will attempt to find a way to restructure the business so that it can continue to trade. This may involve the implementation of a company voluntary arrangement.

A CVA alone will normally not effect employees. However, if restructuring of the company is also required, this may result in some of its employees being made redundant. The administrator will manage this redundancy process.

If employees are made redundant as part of any restructuring process, normal redundancy procedures must be followed. Redundancy payments will be made in accordance with employment law and the employees' contract terms and conditions.

Business sold

If all or part of the company is sold as part of the administration process, under European employment law (TUPE), any effected employees must be transferred to the new company.

Employees must be transferred under their original employment terms or conditions.

Once employees have move over to the new company, if they are no longer required they could be made redundant at that time. However, this would have to be in accordance to employment law taking into account their terms and conditions of employment and full length of service.

Business closed

A decision may be made to liquidate the business because it cannot be saved. Where this is the case, employees will be made redundant. They will be entitled to redundancy payments if the company can afford to pay these.

Where the company does not have the funds to pay full redundancy, employees will be paid preferentially up to £800 of what they are owed. Anything over this will be treated as unsecured debt. As such, employees are unlikely to receive everything that they are owed.

What happens to Creditors

Creditors interests protected

Administration is designed to promote the best interests of the company's creditors. The interests of all of the creditors are taken into account and no single creditor is treated preferentially.

As such, if any individual creditor is in the process of taking legal action against the company such as a winding up order, this will be stopped.

The administrator then has time to assess the position of the business and decide what action should be taken to best protect all of the creditors.

Creditors vote on recommendations

A creditors meeting is held giving creditors the opportunity to agree or disagree with the administrator's recommendations for the future of the company.

If the administrator decides that the return to creditors would be maximised if all or part of the company continues to trade (perhaps under a company voluntary arrangement) they will recommend this solution.

However, if it is felt that the creditors' losses will be minimised by simply closing the business, this is the action that will be recommended.

What will an Administration cost?

No Upfront Fees

The cost of administration will consist of the administrator's fees. These will be paid by the company, either from available cash or from the proceeds of the sale of company assets if the business is sold or closed.

Drafting Fee

Depending on the complexity of the situation, an initial drafting fee may be charged to pay for the time spent analysing the company's financial position and presenting the information so that a decision whether to implement administration can be made or not.

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