What happens when a company goes into administration?

If you believe your business might be in a position where it is insolvent – or in other words, unable to pay its debts – then you might be considering going into company administration. At FA Simms, we recognise that being in this position can seem scary, overwhelming and often confusing.

Our team of industry experts are here to reassure you that you’re not alone. This guide discusses what happens when a company goes into administration, so you can decide whether it’s the right option for you and your business.

Are you insolvent?

In short, being an insolvent company means that your business doesn’t have the money to pay off its debts. If this sounds familiar, it’s important to recognise that there are many options available to you, one of which is administration.

What is company administration?

Administration is a great option if there is potential to save parts of your business, for example, the brand or premises. 

When a company goes into administration, the control of the company is passed to an Administrator – this person must be a licenced insolvency practitioner, like ours at FA Simms. 

The main aim of the Administrator is to utilise the company’s assets to pay off its creditors as quickly as possible.

As company administration will halt any legal action that is being taken against your business, it’s a great opportunity for you to get the breathing space you require, so you can work with your licensed insolvency practitioner to plan for survival.

During the administration process, your company will be put in the safe hands of a licensed insolvency practitioner – or in other words, the administrator. The reason for this is to ensure that the administration procedure is carried out properly and, with the interest of the company and creditors in mind.

What happens when a company goes into administration?

Once an Administrator is appointed, they are given an eight-week period to send out formal administrative proposals to all of the creditors, who are owed money by the company. These proposals tend to include a basic plan of action, detailing how the Administrator intends to repay any debts, including the anticipated outcome. Plans should also be sent to employees and Companies House. Additionally, creditors, employees and Companies House should be invited to approve or amend these plans at a meeting.

It might be that the Administrator decides to:

Negotiate a Company Voluntary Arrangement (CVA) so that your company can keep trading.

Sell your business to another company, or to the original directors but under a different name (Pre-Pack Administration).

Sell your assets as part of a Creditors’ Voluntary Liquidation, to pay your creditors from that money and then close your company.

Close your company if there is nothing to sell.

It’s important to recognise that company administration is often a temporary solution, giving your business the time necessary to devise a more permanent plan of action.

The benefits of company administration

As well as giving your business breathing space, there are many benefits that company administration might have:

  • Following the administration process, you will be able to move forward debt free.
  • You could save the jobs of your employees.
  • You’ll be able to create a more agile business that can better respond to future economical and environmental changes.

Do you feel that company administration is the best option for you?

Before you take any further action, it’s fundamental that you get professional advice and support from the industry experts at FA Simms. We listen to your individual circumstances, before discussing your potential options with you. Get in touch with our insolvency specialists today.

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