Administration is a formal insolvency procedure. Unlike liquidation, where a company will typically cease trading, administration is designed to protect a financially distressed company by creating a moratorium on the ability of creditors to take steps to wind up a company or otherwise limit the chances of preserving some or all of the business.
How does administration support business survival?
An Administration is a flexible insolvency procedure aimed at providing a lifeline to businesses in financial difficulty. An administrator will use the moratorium to prepare proposals to restore the company to solvency or to sell the business as a going concern or otherwise seek to achieve a better outcome for creditors than would be the case in a liquidation.
What are the administrator’s next steps?
The administrator must present his proposals to creditors within eight weeks of appointment. These proposals might involve:
- A Company Voluntary Arrangement (CVA) where a compromise is agreed with the company’s creditors in order to return the company to solvency
- A sale of the business and assets as a going concern.
- Ceasing to trade, but in an orderly fashion to maximise returns to creditors.
- Making a distribution to secured and preferential creditors.
What happens if the business can’t be saved?
Where the company has not been restored to solvency, but where hopefully the administrator is holding funds from the sale of the business or following ceasing to trade, then the administration will normally convert to a liquidation for the formal agreement of creditor claims and distribution of funds.
