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Administration Frequently Asked Questions

Does entering into administration prevent compulsory liquidation?

Entering into administration immediately protects your company against a winding up petition being filed by a creditor. This means that your company can’t be wound up through compulsory liquidation while it’s in administration.

This does not guarantee that your company won’t be liquidated. If the company has no viable chance of recovering and can’t afford to pay its creditors through a limited asset sale, it may need to enter into Creditors Voluntary Liquidation.


Can our company propose a CVA while it’s in administration?

When your company enters into administration, a third-party administrator takes over management of the company. Their goal is to facilitate a recovery and ensure the interests of your company’s creditors are prioritised.

If entering into a CVA allows your company to recover and creates the best possible outcome for its creditors, then the administrator may decide to propose a CVA while the company is in administration to provide a means of recovery.


What goals does the administrator have for our company?

Administrators have several important jobs to perform when tasked with managing your company. The first goal of any administrator is to achieve, if possible, financial recovery for the company and an exit from insolvency.

If this isn’t possible, the job of the administrator is to create the best possible result for the company’s creditors. An administrator will typically consider options such as a CVA before realising company assets through voluntary liquidation.


What happens after our company enters into administration?

After your company enters into administration, the administrator runs the company and manages its finances. Your company’s directors will no longer have control over the company until it successfully exits administration, if this outcome is possible.


When should we consider using pre-pack administration?

Pre-pack administration is a powerful process that allows you to legally sell – and, in some cases, purchase through a new company – company assets. This produces cash that can be used to pay your company’s creditors and produce an optimal outcome.

Your insolvency practitioner will decide whether pre-pack administration is a good option for your company. One of the advantages of pre-pack administration is that it allows your business to continue as a new company, preserving jobs and contracts.


Can we make employees redundant in a pre-pack administration?

Although your company can make changes in pre-pack administration, such as the removal of contracts that are negatively affecting the company’s finances or ability to trade, there are some restrictions on what it can do.

In certain cases, your company may be able to make redundancies during a pre-pack administration sale. However, all of its actions must comply with TUPE regulations, otherwise the company could face legal action.


What happens to our company’s relationship with suppliers?

If your company owes money to its supplier, such as for products or services that were delivered prior to the company entering into administration, the cash raised from the sale of its assets, minus costs, will be used to compensate its creditors.

This includes unsecured creditors such as suppliers and contractors. As suppliers may not receive all that they’re owed, pre-pack administration can often result in a new company needing to work with different suppliers and contractors.


How much does it cost to enter our company into administration?

Although in some cases it can be the most economical solution, administration tends to be relatively expensive. This is because the administrator – often several people – will run your company during the administration period.

In most cases, pre-pack administration is a less costly option than administration for the majority of businesses. Many insolvency practitioners recommend entering into a CVA as an alternative, more affordable solution for insolvent but viable companies.


Can our company’s creditors choose to enter it into administration?

Your company’s creditors can’t enter your company into administration. However, they can take action to liquidate the company if you ignore a statutory demand and don’t seek help from an insolvency practitioner after a winding up petition is issued.

Creditors that have a floating charge can, in some cases, opt to enter your company into administration after non-payment of a debt. This is a relatively rare occurrence and is typically pursued only by banks and institutional lenders.


Does entering into administration prevent action from HMRC?

Your company’s creditors cannot take legal action against your company in order to recovery debts while it’s in administration. This includes HMRC, which is prevented from filing a winding up petition against your company.


How much control do directors have during administration?

Administration requires your company’s creditors to give up control throughout the entire administration period. You may regain control of the company, depending on the outcome of the administration.

If the administrator decides to begin voluntary liquidation of your company in order to raise cash and pay creditors, your company will close and its assets will be sold in order to create liquidity.


Could our company become liquidated while in administration?

In some cases, the administrator may decide to enter your company into liquidation voluntarily. This is typically the case for companies that are unviable and can’t enter into a pre-pack administration sale to raise cash.

If your company is viable and can recover once an arrangement is made between it and its creditors, your company may be able to exit administration by using a loan to create liquidity or by negotiating a CVA with its creditors.


What other options are available for a company to exit administration?

There are several ways a company can exit administration. Many companies end the administration process through voluntary liquidation. Nonviable companies may be dissolved and struck from the registrar at the end of administration.

Companies can enter into a CVA, ending administration and starting the CVA period with their creditors. In some cases, companies can exit administration through the sale of their assets, typically in the form of a pre-packaged asset sale.


How long does the administration period last?

The amount of time required for administration can vary based on the size of your company and the complexity of its financial issues. Administration usually lasts for several months, although in certain cases administration can take over one year.


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