Administrations

Company Administration

Could Administration Protect the Business and What Would It Mean for You as a Director?

When a business is facing serious financial pressure, administration may be one of the options placed before its directors.

It can sometimes provide breathing space, protect a business from immediate creditor action and create an opportunity to rescue or sell the underlying operation. But it is not simply a protective shield, and it does not mean the directors remain in control while somebody else deals with the debts.

Once an administrator is appointed, control of the company and its assets passes to that administrator. The administrator may continue trading, sell the business, restructure its affairs or realise its assets, depending on what is achievable and what produces the appropriate outcome for creditors.

For directors, this creates two connected but very different issues:

What is best for the company and its creditors?

And:

What does the process mean for me personally?

Navigate Business Recovery helps directors consider both.

 

When Might Administration Be Considered?

Administration is generally considered when a company is insolvent, or is likely to become insolvent, but there may still be a business, asset base or trading operation worth protecting.

It may arise where:

A creditor is threatening immediate action

A supplier, lender, landlord or HMRC may be pursuing the company through court proceedings, enforcement action or a Winding Up Petition.

Where action is moving quickly, directors may have very little time to assess their options. Administration can, in appropriate circumstances, provide protection from certain creditor actions while a plan for the company is developed.

That protection is intended to support the purpose of the administration. It is not simply a means of putting creditors on hold indefinitely.

The underlying business remains viable

A company can have serious debt problems while still possessing a good underlying business.

It may have:

• A strong customer base.
• Profitable contracts.
• Skilled employees.
• Valuable equipment or intellectual property.
• A recognised name or brand.
• A healthy order book.
• A temporary rather than permanent funding problem.

Administration may create an opportunity to protect some or all of that value before creditor action, loss of staff or damage to customer confidence causes it to disappear.

The key question is not whether the company was once successful. It is whether the business can be viable after its existing problems have been addressed.

The business needs to be sold quickly

Sometimes the company itself cannot be rescued, but its business may still have value.

An administrator may seek to sell the business and assets as a going concern. This could preserve jobs, contracts, customers and goodwill that might otherwise be lost if the company simply stopped trading.

The purchaser may be an independent third party. In some circumstances, directors or another connected party may also wish to make an offer, but any such proposal needs to be handled transparently and at proper value.

Special rules can apply where a substantial disposal is made to a connected person shortly after an administration begins.

The company needs time to restructure

The business may require time to reduce costs, renegotiate contracts, secure new funding or dispose of an unprofitable division.

Administration may provide a structured environment in which these possibilities can be investigated.

However, the company will still need money to fund wages, rent, insurance, utilities and other expenses while the administrator considers the available options. Administration does not generate cash merely by beginning.

What Can Be Done During Administration?

The precise strategy will depend on the circumstances of the company. Administration is not one fixed process with one inevitable result.

The company may continue trading

An administrator may decide to trade the company for a period of time.

This might be done to:

• Complete profitable work in progress.
• Preserve customer relationships.
• Maintain the value of the business.
• Allow time for a buyer to be found.
• Avoid an immediate and damaging shutdown.
• Determine whether a rescue is achievable.

Continued trading is not guaranteed. It will depend on funding, profitability, employee support, supplier cooperation and the risks involved.

The administrator will decide whether continued trading is appropriate. Directors may be asked to help, but they no longer have an automatic right to manage the company in the ordinary way.

The company itself may be rescued

The first statutory objective of administration is to rescue the company as a going concern where that is reasonably practicable.

That means rescuing the actual company, rather than merely selling its business to somebody else.

A rescue might involve:

• Obtaining new investment.
• Reorganising the company’s operations.
• Closing loss-making areas.
• Renegotiating major contracts.
• Agreeing a Company Voluntary Arrangement.
• Reaching a wider restructuring agreement with creditors.

A true company rescue is possible in some administrations, but many administrations result instead in a sale of the business or realisation of assets.

The business and assets may be sold

If the company cannot be rescued, the administrator may market and sell its business or assets.

This could include:

• Customer contracts.
• Stock.
• Machinery.
• Vehicles.
• Intellectual property.
• Websites and domain names.
• Work in progress.
• The company’s trading name and goodwill.

The administrator’s role is to secure an appropriate outcome for the administration. They are not there to preserve the directors’ ownership of the business or enable them to acquire assets at a reduced value.

Where directors wish to put forward a proposal, they should understand the valuation, funding and disclosure requirements before assuming that a purchase will be possible.

Unprofitable parts of the business may be closed

Administration does not necessarily preserve the whole operation.

The administrator may decide that certain sites, contracts, products or divisions are loss-making and should be closed. Employees may be made redundant, leases may be dealt with and assets may be sold.

The aim may be to preserve the viable parts of the business rather than continue supporting areas that are causing further losses.

A better return for creditors may be pursued

Where rescuing the company is not reasonably practicable, administration may be used to achieve a better result for creditors as a whole than would be likely in an immediate liquidation.

For example, continuing to trade briefly and selling the operation as a going concern may produce more value than closing the doors and selling assets separately.

Assets may be realised for secured or preferential creditors

Where neither a company rescue nor a better overall result for creditors can be achieved, administration may be used to realise property for distribution to secured or preferential creditors.

In those circumstances, the process may look less like a rescue and more like an orderly realisation of assets before the company moves towards dissolution or liquidation.

Potential Advantages of Administration

Protection from certain creditor action

Administration usually brings a legal moratorium into effect.

This can restrict creditors from starting or continuing certain legal proceedings or enforcement steps without the administrator’s consent or the court’s permission.

That may prevent one creditor taking action that destroys the possibility of a wider rescue or sale.

The protection belongs to the company and supports the administration process. It does not protect directors from every personal claim, particularly claims under Personal Guarantees.

Time to assess the business properly

Without protection, directors may be forced to make decisions under pressure from whoever is shouting the loudest.

Administration may create time for the company’s operations, contracts, assets and funding needs to be examined more systematically.

That can make the difference between preserving a viable operation and allowing its value to collapse.

A business sale may preserve value

A trading business is often worth more than a collection of disconnected assets.

A going-concern sale may preserve goodwill, employees, customer relationships and contracts. It can also reduce the disruption caused by an abrupt closure.

Some jobs may be saved

Where the business continues trading or is sold, some employees may retain their employment.

This is not guaranteed, and redundancies may still be necessary. However, administration may offer a better prospect of preserving employment than an immediate closure.

It can create an orderly process

Administration replaces competing creditor action with a formal process controlled by a licensed insolvency practitioner.

For a director facing demands from numerous creditors, this can provide clarity about who now has authority to make decisions concerning the company.

Potential Disadvantages and Risks

Directors lose control

This is one of the most important consequences to understand.

During administration, control of the company and everything it owns passes to the administrator. Directors cannot simply continue making decisions, moving money, agreeing sales or dealing with assets as they did previously.

A director may be retained to assist the administrator, but the administrator determines what role, if any, the director will have.

The company may not survive

Administration is not a promise that the company will be rescued.

The business may be sold while the original company later enters liquidation or is dissolved. Alternatively, trading may stop and the assets may be realised.

Directors need to distinguish between:

• Saving the company.
• Saving the underlying business.
• Preserving some jobs or contracts.
• Achieving a better return for creditors.

These are not the same outcome.

It can be expensive

Administration is a complex formal process.

The company may need to fund:

• The administrator’s professional costs.
• Legal and valuation advice.
• Insurance.
• Employee wages.
• Property expenses.
• Trading costs.
• Security and asset protection.
• Marketing and sale expenses.

Where insufficient value or funding is available, administration may not be commercially suitable.

Personal guarantees remain separate

Administration deals with the company’s position.

It does not usually prevent a bank, finance provider, landlord or supplier from pursuing a director under a valid Personal Guarantee.

A director can therefore face personal demands at the same time as losing control of the company.

Directors’ previous decisions may be examined

The administrator will need to understand why the company failed and what happened before the appointment.

This may include examining:

• Payments made to particular creditors.
• Repayment of money owed to directors.
• Director loan accounts.
• Dividends.
• Transfers or sales of assets.
• Transactions involving family members or connected companies.
• Accounting and company records.
• Decisions to continue trading.
• The treatment of HMRC and other creditors.

A review does not automatically mean the director has done anything wrong. However, the office-holder is not required to accept the director’s explanation without checking the records.

Directors also have a duty to cooperate with an appointed office-holder and provide information and records.

Customers and suppliers may react negatively

Administration is a public process.

Some customers may move their work elsewhere. Suppliers may require payment in advance. Finance providers may terminate or review facilities. Employees may leave because of uncertainty.

Strong communication can reduce some of the damage, but it cannot remove all commercial consequences.

The outcome is no longer the directors’ decision

Directors may enter the process hoping that the business will be rescued, that they will remain involved or that they will be able to purchase the assets.

None of those outcomes is guaranteed.

The administrator must make independent decisions based on their statutory responsibilities and the evidence available.

What Happens When a Director Goes Straight to an Insolvency Practitioner?

Speaking to an insolvency practitioner can be an important and necessary step.

Only a licensed insolvency practitioner can accept an appointment as administrator, and specialist advice is essential when a formal procedure is being considered.

But directors should understand whose interests are being addressed at each stage.

Before appointment

Before accepting a formal appointment, an insolvency practitioner may explain the available procedures and discuss whether administration appears feasible.

However, the director should clarify:

• Who is the practitioner advising?
• Is the advice being provided to the company, the board collectively or the individual director?
• What happens if the interests of the company and director differ?
• Will the practitioner be accepting the formal appointment?
• Could information provided by the director later need to be examined or acted upon by that practitioner?

This does not mean a director should withhold information. Full and honest disclosure is essential.

It means the director should understand the capacity in which everybody is acting.

After appointment

Once appointed, the administrator becomes an officer of the court and takes control of the company.

Their job is to manage the company’s affairs, business and property and pursue the statutory purpose of the administration. Their responsibility is not to protect a director’s personal finances, reputation or future business plans.

This means the administrator may have to:

• Investigate transactions involving the director.
• Seek repayment of an overdrawn director loan account.
• Question dividends or payments made before administration.
• Reject a proposal made by the directors.
• Sell the business to another buyer.
• Make employees redundant.
• Provide information concerning director conduct through the appropriate reporting process.
• Take legal action where the evidence and duties of the office require it.

That does not make the administrator hostile to the director.

It means the administrator is performing a different role.

The practitioner cannot always be the director’s personal adviser as well

A director may naturally feel that the insolvency practitioner who explained the process is also “their adviser”.

Once that practitioner is appointed over the company, this assumption can cause confusion.

The administrator may listen to the director, request their assistance and keep them informed. But the administrator cannot place the director’s personal interests ahead of the company’s insolvency process or the interests that the statutory regime requires them to consider.

The company may need one course of action while the director personally needs advice about:

• A Personal Guarantee.
• An overdrawn Director Loan Account.
• A potential claim.
• Their conduct and decision-making.
• Buying the business or assets.
• Starting another company.
• Their employment position.
• Director redundancy.
• Their response to questions or allegations.
• Negotiations with a lender or creditor pursuing them personally.

These matters require advice focused specifically on the director.

Why Independent Director Support Matters

An insolvency practitioner and an independent director adviser do not perform the same job.

The insolvency practitioner deals with the formal process and the company.

Navigate Business Recovery helps the director understand, prepare for and navigate that process.

We do not seek to interfere with the administrator’s statutory responsibilities. We help directors engage with the process properly while ensuring that their own questions and concerns are not overlooked.

How Navigate Business Recovery Helps Directors

We assess the position before a formal appointment

Before a director commits to administration, we help establish:

• What is causing the immediate pressure.
• Whether the underlying business is viable.
• Which creditors can act quickly.
• What assets and value remain.
• Whether sufficient funding exists.
• What alternative solutions may be available.
• What the likely effect will be on the director personally.

The purpose is not to avoid speaking to an insolvency practitioner.

It is to help the director arrive at that conversation better informed and better prepared.

We compare administration with the alternatives

Administration may be appropriate, but it should be compared with options such as:

• An HMRC Time to Pay Arrangement.
• Informal creditor negotiations.
• Refinancing.
• New investment.
• A Company Voluntary Arrangement.
• A solvent or distressed business sale.
• A Creditors’ Voluntary Liquidation.
• An orderly cessation of trade.

We help directors understand not merely whether an option is technically available, but what it is likely to achieve in practice.

We help directors choose and brief an insolvency practitioner

Directors may speak to more than one practitioner before proceeding.

We can help prepare the information they will require and identify the questions that need clear answers, including:

• What is the proposed purpose of the administration?
• How will trading be funded?
• Is a company rescue genuinely anticipated?
• Is a sale already being considered?
• What valuation and marketing will be undertaken?
• What role will the directors have?
• What are the estimated costs?
• What happens if the proposed strategy fails?
• What information will be required from the directors?
• What personal issues should the directors address separately?

We review the director’s personal exposure

We help identify issues such as:

• Personal Guarantees.
• Director loan accounts.
• Dividends.
• Director remuneration.
• Payments to connected parties.
• Asset disposals.
• Personal assets used as security.
• Joint and several liabilities.
• Potential claims against the director.
• Employment and redundancy rights.

Where specialist legal, tax or regulated advice is required, we help the director identify and work with the appropriate professional.

We help prepare the director’s account of events

Directors are often asked to explain:

• When financial problems first became apparent.
• What steps were taken.
• Why the company continued trading.
• What professional advice was obtained.
• How creditors were treated.
• Why particular payments or transactions took place.
• What efforts were made to rescue the company.

Memories become less reliable under stress, and important decisions may have been made over many months or years.

We help directors organise records, build a clear chronology and present an accurate, evidence-based explanation. We do not manufacture a defence or rewrite history; we help ensure the actual history is properly understood.

We remain available after the appointment

Once the administrator takes control, directors can feel that they are no longer part of the conversation except when information is required from them.

We continue supporting the director by:

• Explaining requests for information.
• Helping gather records.
• Preparing for meetings.
• Reviewing correspondence.
• Helping the director understand proposals.
• Supporting discussions about personal guarantees or claims.
• Helping the director consider future plans.
• Coordinating with solicitors, accountants and other advisers where appropriate.

We help directors communicate without making matters worse

Under pressure, directors can make damaging statements, give incomplete explanations or agree to something without understanding its consequences.

We help directors communicate clearly and constructively with:

• The administrator.
• HMRC.
• Banks and funders.
• Landlords.
• Suppliers.
• Employees.
• Accountants and solicitors.
• Personal guarantors and co-directors.

The objective is not to obstruct the process. It is to help the director cooperate effectively while protecting their legitimate personal position.

The Difference in One Sentence

The administrator’s job is to deal with the company and fulfil the purpose of the administration. Our job is to help you understand what is happening, meet your responsibilities and deal with what it means for you as a director.

Speak to Us Before You Commit to a Course of Action

Administration can rescue a company, preserve a business, protect jobs or produce a better result than an uncontrolled closure.

It can also mean loss of control, substantial costs, investigation of previous decisions and personal financial consequences for directors.

The right question is not simply:

“Can the company go into administration?”

It is:

“What is administration expected to achieve, what are the alternatives, and how will each option affect the company and me personally?”

Navigate Business Recovery helps directors answer those questions before, during and after a formal insolvency process.