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What Happens When a Company Goes Into Administration?

What Happens When a Company Goes Into Administration?

Company administration can be a daunting task for anyone who doesn’t understand the impact on a company. In this blog, the experts at Restart BTI discuss how administration impacts companies and employees and how to plan. 

So what happens when a company goes into administration? When a company goes into administration, they must create a proposal for all creditors stating the purpose of the administration will be achieved and how debts will be paid. The Proposals to achieve the purpose of the Administration should be sent to creditors within eight weeks of the administration and the company is protected from legal action during the period of the administration.

Read on to find out more about what happens to companies when they go into administration.

What Does Administration Mean for a Company?

Company administration happens when a company has issues with legal action from creditors. It is an insolvency procedure that provides instant protection against payment demands and allows time to create a plan for the future of the company. Working closely with an insolvency practitioner, the company has to decide on one of the following choices for their administration plan:

  1. Devise a restructuring plan to rescue the company.  This may involve a Company Voluntary Arrangement
  2. Release assets to make a distribution to secured and/or preferential creditors.
  3. Secure a more advantageous outcome than liquidation.

.During the  administration, the appointed administrator must leverage the company’s assets to get the best possible outcome from creditors. The plan is then sent to the creditors in the form of a proposal, detailing how the insolvent company will repay debts. It is essential that the administrator is as transparent about the current status of the company and the anticipated outcome of the administration.

What Happens to Employees With Company Administration?

This will be dealt with as part of the Proposals.  If the company or business is rescued then employee’s jobs will be saved.  If the business cannot be solved then staff will be made redundant and they will have a preferential claim for wage arrears and unpaid holiday pay and a non-preferential claim for pay in lieu of notice and redundancy. 

What Is a Company Voluntary Arrangement?

One potential company administration outcome result is a Company Voluntary Arrangement. This is a legally binding document that enables a company to resume trading under the control of the existing management team. While trading, the insolvent company must pay back any liabilities. This option is most relevant to companies that have previously been profitable and there is strong evidence that suggests the company could regain this status. 

At least 75% of creditors have to agree with the proposed Company Voluntary Arrangement before trading can recommence. If the proposal is rejected, there is a risk of the company eventually being put into liquidation. 

As Company Voluntary Arrangements are a legally binding contract, there are a few associated risks that companies should consider. These include:

  • The company’s credit rating becomes damaged, which can cause issues with gaining credit from future suppliers. 
  • Secured creditors will still withhold the power to appoint their own administrator for any proceedings, or withdraw funding the company at any point with immediate effect.

Company Administration Advice With Restart BTI

At Restart BTI, our licensed insolvency practitioners are experts in company administration. We make the process less daunting and as smooth as possible so your business receives the best result. If you would like to find out more about how we can take away the hassle of company administration, contact our experts. Contact us now.