Administration is the process whereby an insolvency practitioner (a professional who acts on behalf of companies experiencing financial distress) is appointed as an “administrator” to formally take control of an insolvent company in order to achieve one of the following objectives:
- Rescue the company so it can continue to trade as a going concern.
- If rescue is not possible, then the administrator must try to obtain a better result for the company’s creditors than would be the case under a liquidation (which involves dissolving the company after it has distributed its assets amongst its creditors).
- If it is not possible to realise a better result for the creditors than under a liquidation, then the administrator must realise the company’s property to make a distribution to the company’s secured and/or preferential creditors.
There are numerous factors that should be considered before placing a company into administration, as it may not always be the most appropriate option (especially as it is only available for companies that are legally insolvent).
A key advantage of administration is that it will usually prevent creditors from immediately taking matters into their own hands and petitioning for the company’s liquidation. This may allow a company to recover financially under the guidance of the insolvency practitioner and resolve its issues with creditors in the future.
While there are numerous other advantages to administration, there are also various negative factors that should be taken into account before proceeding with an administration process. In particular, the directors of the company in administration will no longer be in control of the day to day running of the business, and may therefore be unable to mitigate the negative connotations that the public have of a company entering into liquidation. Reputationally, this may devalue the goodwill of the business if the company is ‘rescued’ during the administration.
If you are looking to place a company into administration, advice should be sought from a solicitor and an insolvency practitioner beforehand. Edward Beedham specialises in the legal and procedural aspects of corporate insolvency, including administration. If you require advice on corporate insolvency, please contact Edward Beedham directly at edward.beedham@herrington-carmichael.com or on 01276 854 666.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to your own particular matter before action is taken.
