Putting your company into administration can be one way of rescuing a company that has run out of cash. In an administration, responsibility for the day-to-day running of the company passes to an administrator, who acts as agent of the company with the aim of getting the company out of trouble and trading again if possible. Administrators can be appointed to a company that is unable, or is likely to become unable, to pay its debts. An administrator can be appointed by the company itself, either by the directors or shareholders. An administrator can also be appointed by a ‘debentureholder’ (usually the bank) or by other creditors.
An administrator’s primary goal is to rescue the company as a going concern. If this is not possible, the administrator will try to get a better result for the creditors than would be possible if the company was wound up, or the administrator will sell the company’s property to make at least a partial payment to one or more secured or preferential creditors, such as employees or the bank.
A certain type of administration, known as a “pre-pack”, has become increasingly common. This involves a prior agreement to sell some or all of the business to a new owner. Some pre-packs have been controversial however when used correctly, they are a legitimate means of rescuing a business and/or maximising the return to creditors.
In principle, the business or assets may be sold to the company’s owners or directors, who may set up a new company for the purpose, which may allow the business to be rescued, even if the company itself cannot be saved. The administrator has to ensure that certain safeguards are in place to ensure that the assets are sold for their true market value.
If you would like further information on company administration or would like to discuss the options for your company call Paul Moorhead now on 0333 939 0115.