Company administration ends when the administrator decides that the process has achieved its purpose. At that point, the legal protection you had from your creditors ends. The company can then continue trading, commence another insolvency process to repay its creditors or enter into liquidation.
The exit route you take will be determined by the individual circumstances of the company, its future viability and the decisions made by the appointed administrator.
If a company is unable to pay its bills when they become due (i.e. it is insolvent), there are several options available to the directors to try and rescue the business. If the business is fundamentally viable but the creditors are threatening legal action and won’t agree to a formal repayment plan, company administration could be the best option.
Company administration imposes an immediate moratorium, which ceases all legal action and insolvency proceedings against the company. That gives the insolvency practitioner you appoint as the administrator some time to assess the company and put a plan in place. Their job is to rescue it as a going concern or get the most positive outcome for its creditors if they cannot return it to profitability.
The administration must serve a purpose. it cannot simply be used to delay the inevitable decline and failure of a company. To achieve its purpose, the administration must end in one of three ways:
The ideal scenario is that the administrator uses the time they have to successfully return the company to solvency. The company can then exit administration and resume normal trading without having to enter another insolvency procedure, such as a CVA.
Administrators can use various methods to return the company to solvency, such as sourcing funding, selling assets and reaching informal repayment agreements with creditors. Once they’re satisfied the company is stable, the administration period will end and the directors will regain control of the company.
If the business is viable but it has debts it cannot repay, it can exit administration and then enter a formal insolvency procedure called a Company Voluntary Arrangement (CVA). Once it’s agreed with the company’s creditors, a CVA allows the business to continue to trade while repaying its existing debts over a typical period of three to five years.
The aim here is to enable the company to survive and ensure a better return for the creditors than they would receive if it was liquidated. The directors remain in control of the company throughout the CVA and the creditors cannot take legal action as long as all the CVA payments are made in full.
Unfortunately, it’s not always possible to rescue the company as a going concern. If the administrator cannot resolve the company’s financial problems and the business is no longer viable, they may decide to close it down via a Creditors’ Voluntary Liquidation.
In this case, a liquidator will take control of the business and sell its assets for the benefit of the company’s creditors. If the company still has outstanding debts after the proceeds have been distributed to the creditors, those debts will be written off and the company will cease to exist.
In some cases, an insolvency practitioner might decide a CVL is the best course of action from the start. However, they may still enter administration if they believe it can help them improve creditor returns. Here, they will sell the business’s assets during the administration and then distribute the proceeds to the creditors via the CVL.
Administrations don’t usually last longer than 12 months. However, the administrator can apply to the court for an extension of up to six months if they can show it’s in the best interests of the company and its creditors.
Although company administration is rarely a quick-fix procedure, the process can end quickly when a plan is already in place to sell the business to a new buyer.
To find out more about company administration, please call 0800 063 9221 for a free, confidential consultation or request a meeting at one of our nationwide offices. We have handled administrations for companies across a wide range of sectors and have experience in restructuring and returning them to their directors.
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