You might consider putting your company (or limited liability partnership) into administration as a final course of action.
Even so, it may be the best option if the business has debt and is unable to pay the money that it owes.
Entering administration would mean losing total loss of control on day-to-day business operations. In most cases, all the company assets would also get sold off.
There are some advantages of placing your company into administration ‘willingly’. You would get a chance to avoid receivership and liquidation.
One of the benefits would be receiving the guidance of an Insolvency Practitioner (IP). Their expertise can postpone legal actions and reduce the burden of any unsecured debt. They are knowledgeable in relieving creditor pressures during the restructuring and negotiation process.
Thus, one common reason to put a company into administration may be to stop creditors ‘winding a company that owes money‘. In some cases, insolvency administration would mean it avoids having to pay of all its debts in full.
How to Appoint an Administrator
One of the first steps will be appointing a licensed and professional administrator. You can search online to find an insolvency practitioner in your area.
Several important changes occur during administration. The administrator would take charge of the company and its assets (everything it owns).
The person handling the administration would also create an outline of ways to deal with the insolvent company. Even though this is for the benefit of creditors, it also means they cannot petition the court for at least eight (8) weeks.
Note: The administrator will make a charge for their services but you can pay their fees through your company.
How Limited Company Administration Works
An appointed administrator has several roles. They would write to the company creditors and to Companies House (informing them of the appointment). A notice of their appointment would also appear in The Gazette insolvency section.
Another important task will be trying to protect your company from compulsory liquidation. Success would depend on several factors. But, if they fail to stop company liquidation, they would use any assets to pay as much of the debts as possible.
Insolvency laws grant administrators eight (8) weeks to write a statement clarifying what their plans are. A copy also goes to the creditors, any employees, and to Companies House. The statement invites them to arrange a meeting to approve or to amend the plans.
As a rule, the outcome of a company meeting would give the administrator several different options, such as:
- Allowing the company to trade on as usual by negotiating a Company Voluntary Arrangement (CVA).
- Selling the business as a ‘going concern’ to another company. This option also means the business can continue trading (e.g. keeping its clients, orders, and workforce).
- Trying to arrange liquidation with traders by selling the assets. This kind of creditors’ voluntary liquidation means they can pay them from any money raised and then start to close down a company.
- Completely closing the company if there are no assets to sell.
Note: The administrator has total control over the business during the administration process. It means they can also cancel or renegotiate client contracts and make staff redundant.
When an Administration Period Ends
Limited company administration ends when one of two situations take place (either can apply):
- The administrator determines that they achieved the purpose of administration. A typical example might be agreeing Company Voluntary Arrangements (CVA) with creditors.
- The contract of administration ends. Despite being renewable, it would end as an automatic process after one (1) year.
Once administration finishes you would lose protection against any legal action that creditors can take (e.g. issue a winding up petition).