IS YOUR BUSINESS IN TROUBLE? A VOLUNTARY ADMINISTRATION COULD HELP YOU.
If your company is experiencing financial troubles or you’re finding it difficult to pay your creditors, voluntary administration can be a great way to consolidate your debts, create a manageable payment plan and get your business back on track.
Voluntary administration is a very measured solution for a company that’s in serious financial trouble. Unlike liquidation, which involves the breaking up and re-distribution of the business and its assets, companies that enter administration often come out of the process with a restructured business that is still trading.
Where a liquidator’s job is to liquidate a company and its assets to recuperate as much of the debt owed to creditors as possible; an administrator’s job is to find the best possible solution for the company and its creditors.
HOW DOES ADMINISTRATION WORK?
An administration is designed to give you some breathing room to get back on track, whilst ensuring the best and most sustainable outcome for your business as well as any creditors involved.
While it can be understandably nerve-wracking to hand over the reigns of your company to someone else, it is often the best choice for a struggling business. During administration, except in very unusual circumstances, creditors can’t enforce claims whether they be personal, unsecured, or a charge over company property. Not only that, but owners of property occupied by the business cannot commence recovery actions nor can a court application for liquidation be commenced.
The process begins with a decision by the directors, creditors and a liquidator to appoint a ‘voluntary administrator, whose role is to investigate the affairs of the company and provide a report to the creditor(s). The administration process usually lasts around a month, at the end of which, the administrator makes a recommendation regarding the steps that need to be taken to return the business to a satisfactory state of solvency (where assets of the company exceed its liabilities).
IT DOESN’T ALWAYS MEAN THE END FOR YOUR COMPANY
Once an administrator has finished assessing the company, depending on their findings, they will usually recommend one of the following three courses of action for your business.
1. It is recommended that the company is returned to the directors.
This option will be recommended if the administrator decides that the directors are capable of satisfying their creditors by continuing to run the business as usual. Usually this will mark the end of the administrator's involvement.
2. It is recommended that the company enters liquidation.
This is usually when a business appears to have no chance of returning to solvency. It is recommended that the business is handed over to a liquidator (a separate process) and the business should be systematically dismantled to repay the creditors.
3. It is recommended that the company should enter a binding arrangement in which the administrator takes operational control.
In order to return the business to a satisfactory state, the administrators retain control of the business until the point it is ready to be returned to the directors. This is known as a deed of company arrangement or DOCA.
Think administration may be the right solution for your business?
Contact My Business Path for a free consultation. Our team include expert administrators who’ll be able to advise you on whether administration is right for your business and the next steps to take.