What is administration?
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When a company encounters financial difficulties and needs to formally enter an insolvency procedure, directors often assume that liquidation is inevitable. However, there are several other formal procedures designed to help struggling companies, and one of those is administration.
Administration is a legal process that protects a company from creditor action while options are explored to rescue the business, restructure its affairs, or achieve a better outcome for creditors than would otherwise be possible via a liquidation or realise assets for secured or preferential creditors.
At BRI Business Recovery and Insolvency, we regularly help directors understand whether administration is the right solution for their company’s circumstances and guide them through the process from start to finish.
Understanding Administration
Administration is a formal insolvency procedure that places a company under the control of a licensed insolvency practitioner, who is appointed as the administrator.
Once a company enters administration, it benefits from legal protection known as a moratorium. This prevents creditors from taking or continuing legal action against the company without permission from the court or the administrator.
This breathing space allows the administrator time to assess the business, its finances, and its future prospects without the immediate pressure of creditor enforcement.
Administration is intended to help businesses that are experiencing financial difficulties but may still have value that can be preserved through rescue, restructuring, or sale.
What is the Purpose of Administration?
The law sets out three specific objectives for administration. An administrator must work towards one of the following:
- Rescue the Company as a Going Concern
The primary objective of administration is to rescue the company itself and allow it to continue trading.
This could involve restructuring debts, reducing costs, renegotiating contracts, or implementing operational changes that return the business to profitability.
Where successful, the company may eventually exit administration and continue trading under the control of its directors.
- Achieve a Better Outcome for Creditors
If rescuing the company is not possible, administration may still achieve a better result for creditors than liquidation.
This often involves continuing to trade the business while a buyer is sought or selling profitable parts of the business separately to maximise value.
- Realise Assets for Secured or Preferential Creditors
In situations where rescue is not achievable, the administrator may realise company assets to make distributions to secured or preferential creditors.
Even in these circumstances, administration can provide a more orderly process than liquidation given the protections of maroatorium.
How Does a Company Enter Administration?
A company can enter administration in several ways.
The process is commonly initiated by:
- The directors
- The shareholders/creditors
- A qualifying floating charge holder, such as a lender
Before administration begins, an insolvency practitioner will often review the company’s circumstances and determine whether administration is likely to achieve one of its statutory purposes.
If administration is considered appropriate, the necessary legal documents are prepared and filed.
What Happens During Administration?
Once appointed, the administrator takes control of the company’s affairs.
During this period, they will:
- Review the company’s financial position
- Protect company assets
- Communicate with creditors
- Assess rescue opportunities
- Explore potential sales of the business or its assets
- Develop a strategy for achieving the best possible outcome
The directors remain involved and can provide valuable assistance, but responsibility for the company ultimately rests with the administrator throughout the administration period.
Can a Company Continue Trading in Administration?
Yes. In many cases, a company can continue trading while in administration.
This is often one of the key advantages of the procedure. Continued trading can help preserve goodwill, maintain customer relationships, protect jobs, and maximise the value of the business.
Whether trading continues will depend on the specific circumstances of the company and whether doing so is likely to benefit creditors.
At BRI Business Recovery and Insolvency, we carefully assess whether continued trading is appropriate and beneficial in each case.
What is a Pre-Pack Administration?
You may have heard the term pre-pack administration.
A pre-pack administration occurs when the sale of a business is negotiated before the company formally enters administration. The sale is then completed immediately or shortly after the administrator’s appointment.
This approach can help preserve business value through continuity, minimise disruption to customers and employees, and maximise returns for creditors.
While pre-pack administrations are not suitable in every situation, they can be an effective rescue tool where speed is essential.
What are the Benefits of Administration?
Administration offers several important benefits for companies facing financial difficulties.
These include:
- Protection from creditor action
- Prevention of winding up petitions progressing
- Time to explore rescue and restructuring options
- Potential continuation of trading
- Preservation of jobs and business value
- Greater returns for creditors than immediate liquidation
For many companies, administration provides a vital opportunity to stabilise the situation and consider the available options.
Is Administration Better Than Liquidation?
Administration and liquidation serve different purposes.
Liquidation is generally used when there is no realistic prospect of rescuing the business. Administration, on the other hand, is designed to provide an opportunity for rescue or to achieve a better outcome for creditors.
The right option will depend entirely on the circumstances of the company.
Seeking advice as early as possible allows more options to remain available and often improves the chances of a successful rescue.
How BRI Business Recovery and Insolvency Can Help
At BRI Business Recovery and Insolvency, we understand that financial difficulties can place enormous pressure on directors, shareholders, employees and other stakeholders.
Our experienced team will take the time to understand your situation, explain your options clearly, and help you determine whether administration is the most appropriate route for your business.
We believe in providing honest, practical advice tailored to your circumstances and will always seek the solution that delivers the best possible outcome for all parties involved.
Speak to BRI Business Recovery and Insolvency About Administration
If your company is experiencing financial difficulties and you would like to understand whether administration could help, please contact BRI Business Recovery and Insolvency.
There is no charge for an initial discussion, and it is carried out in complete confidence and without obligation.
The earlier you seek advice, the more options are likely to be available to you and your business.