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Administration For Businesses in Financial Distress

What is Administration?

Administration For Businesses in Financial Distress

What is Administration?

Administration is a rescue procedure designed for any business in financial distress in the UK, the primary purpose which is to save a company as a going concern.  It can provide a company with protection from action by its creditors and offers a  breathing space to consider a rescue plan or a sale of the business (often referred to as an ‘accelerated disposal’).  If no rescue plan can be formulated or no buyer can be found, the administrators are responsible for realising assets on behalf of all creditors.

By law, administrators can only be appointed for one of three purposes.  The three purposes are:

  • First, to rescue the company as a going concern;
  • If that is not possible, to achieve a better result for creditors as a whole than if the company was to be wound up
  • And finally, if neither of the other two is possible, to realise property to make a distribution to secured or preferential creditors.

The purpose of the administration, or case strategy, is normally agreed in advance of any appointment between the administrators and the directors of the company concerned.

Business Financial Distress UK: When to consider Administration?

If the directors of a company are concerned about the longer term viability of the company or if they have been trying to sell the business unsuccessfully, administration may provide a means to achieve a sale or allow time to restructure operations to secure its future.

If there are concerns about the ability of the company to repay its debts in the short term, then administration can be a quick and effective way to protect a viable business and prevent creditors appointing a liquidator.

If you are concerned that your company may be insolvent we recommend that you seek professional advice as a matter of urgency. We would be happy to review your situation and advise on the various options available.

Next steps

Before appointment, the proposed administrators’ priority is to review the company’s financial position and consider a strategy to rescue the company and, if this is not possible, ensure creditors get as much money back as possible.

Working alongside the directors, the proposed administrators will collect information to assess whether there are sufficient funds to allow continued trading and whether there is sufficient other support (employees, suppliers, customers and a funder if required) to support such a strategy.

The proposed administrators will develop a communications strategy aimed at protecting the company’s reputation during this difficult time and will tailor and deliver internal and external messages for staff, customers, suppliers, creditors and media where appropriate.

Following appointment, the administrators will provide creditors with their proposals which will include the purpose of the administration, details of the company’s financial position and an estimate of the timing and quantum for reviewing claims and making a distribution. Updates will be provided to creditors on a 6 monthly basis.

Administration Advice & Debt Recovery

For further information on Administration Advice for your company, contact us.

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