Understanding Administration
Administration of a business in the UK refers to the process of running and managing a company or enterprise in the United Kingdom. Administration includes all of the activities and functions necessary to keep a business operating, such as accounting, human resources, marketing, and customer service. Administration also encompasses the management of any contracts or agreements that the business has entered into with suppliers, customers, or other businesses. In order to ensure that a business is run smoothly and efficiently, it is important to have a clear understanding of the various aspects of administration. With careful planning and execution, businesses can successfully navigate the complex landscape of UK administration.
An Administration is a process whereby the existing Company Director(s) hand over the legal ownership of the business to a licensed Insolvency Practitioner (IP). The Insolvency Practitioner assumes the title of Administrator / Company Secretary.
The Administrator’s job is to try and save the business, pay off its Creditors and make the company financially viable once again. Think of an Administrator as a doctor, but for businesses.
An Administrator can be privately hired by the Company or may be appointed by the Court / Creditors.
The administrator has full company control throughout the administration. An administrator will play the role of Company Director.
They perform the same function as an Administrator, with the only difference being that they are appointment by Creditors, rather than the Court.
Apart from the company being insolvent, there are no conditions to going into Administration.
It’s not compulsory unless Court or bank appointed. However, it is wise for Directors to bring in Administrators because they are specialists in rescuing financially distressed businesses.
Going into Administration will also protect the company from aggressive Creditors and legal action.
No. The appointed administrator will inform Companies House and The Gazette about the administration.
An Administrative order can last for up to a year with the possibility to extend the order, if required.
There is no set price. It depends on how long the process takes and its complexity.
When a company in administration is put for sale.
This is when Company Directors sell their assets before an Administrator comes on board.
A pre-pack Administration presents a very strong and legal advantage whereby a Company can sell its assets to the Company Directors, who then go on to start a new firm.
During the Covid-19 outbreak, many businesses are running into financial trouble due to the pandemic, rather than through their own fault or ‘traditional’ factors.
In usual circumstances, the Administrator would take full control of the business. With Light Touch Administration, the Directors continue to run the business under the supervision of the Administrators who will put certain rules and limitations in place e.g. spending caps.
The clear advantage is that Directors can continue running the company, which is obviously preferred to them. The knock-on advantage of having less involvement from the administration is that they won’t need to be paid as much.
The order of priority is as follows:
- The cost of the Administrator
- Secured creditors that hold a fixed charge e.g. a bank
- Any creditor deemed preferential
- Secured creditors holding a floating charge e.g. short-term loans
- All unsecured creditors i.e. someone who loaned you money without taking an asset as collateral
- Company shareholders
What happens after Administration?
The outcome of the administration can be numerous. Overall, the Administrators will do one of the following:
-
Save the business.
-
Save enough of the business to pay off creditors.
-
Entertain another debt recovery solution such as Company Voluntary Arrangement (CVA).
-
In severe circumstances, close the business down, via a form of Liquidation.