What happens if a company goes into administration?

It is usual that the proposed administrators of the company will meet with the directors with a view to taking over the company once they have been appointed. The proposed administrators will usually consult with staff members of the company to inform them of what will be taking place and report on any redundancies that could be taking place. Directors of the company will be required to cooperate with the proposed administrators of the company.

The Insolvency Act 1986 sets out the purpose of the administration of a company as follows:

“The administrator of a company must perform his functions with the objective of –

  • Rescuing the company as a going concern, or
  • Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration), or
  • Realising property in order to make a distribution to one or more secured or preferential creditors”

An administrator will look to realising the assets of the company for the benefit of all of its creditors. This can be done by selling the business as a going concern, often by way of a “pre-pack” sale. The insolvency practitioner will then circulate to creditors a report known as a Statement of Insolvency Practice Support 16 (SIP 16) report. This report will inform the creditors of the company the reason for the company being sold as a “pre-pack” sale, as opposed to allowing time to market the business. The main reason for the “pre-pack” sale is to maintain continuity to trade.  

It is likely directors will have met with an insolvency practitioner and the insolvency practitioner will step into the shoes of the directors of the company to deal with the assets.

If you are a director of a company and would like to discuss what will happen should your company go into administration, please give one of our team a call on 020 7841 0390 who will be happy to discuss the matter with you.