Company Administration

1. What is company administration?

What is a Company Administration as opposed to any other form of insolvency process? Company administration is essentially designed to rehabilitate a company that is experiencing some financial difficulty. A company placed into administration obtains a moratorium which means that action cannot be taken against the company whilst the moratorium is in place which gives the company time to reach some form of settlement with its creditors.
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2. What is the definition of a company administration order?

What is the definition of a company administration order? A company administration order is an order made by the court either by making an application to court or by filing a Notice of Appointment of an Administrator which is known as the out of court process.
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3. What are advantages and disadvantages of company administration?

It is useful for a company experiencing financial difficulty to know what the advantages and disadvantages of a company going into administration.

Here are 3 examples of advantages and disadvantages which an insolvent company may experience as a result of entering administration.
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4. What happens if a company goes into administration?

It is helpful for directors of a company to know what happens if a company goes into administration. If a company is unable to pay its debts, the company may be placed into administration. If a company is placed into administration an insolvency practitioner is appointed as an administrator of the company to deal with and sell the business, assets, or certain parts of the company for the benefit of the creditors of the company.
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5. What does going into administration mean?

When a company is placed into administration, this effectively means that the court has appointed an insolvency practitioner to manage the affairs of the company.
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6. How do you put a company into administration?

Here at Francis Wilks & Jones we are often asked how to put a company into administration? There are 2 ways in which a company can be placed into administration. Firstly, an application can be made to court for an administration order, and secondly by way of an “out of court” route.
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7. How long can a company be in administration?

The administration of an insolvent company automatically lasts 1 year. This can be extended by an application to the court by the administrators with the consent of the court and or the creditors of the insolvent company. It is however, the responsibility of the administrator to deal with the affairs of the company as soon as possible and if an administrator makes an application to extend the administration of an insolvent company, they will need to inform the court of the reasons for extending the administration.
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8. What is the difference between an administration and winding up?

The administration of a company and the winding up of a company both fall under the category of company insolvency procedures, unlike bankruptcy or individual voluntary arrangements which are personal insolvency procedures.

However, the company administration procedure is often considered to be a rescue process, as the view is to recover the company in order to avoid insolvency, whereas the winding up a company is often defined as a ‘burial process’, because this company insolvency procedure is focused on the compulsory ending of the business affairs of the company and terminating company obligations before liquidation, commonly referred to as a compulsory liquidation.
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9. What is the difference between insolvency and winding up?

Insolvency is the generic term that refers to either a company, a legal entity, a partnership or an individual who is unable to pay their debts as and when they fall due. In addition, in the case of a company and pursuant to section 123 of the Insolvency Act 1986, it can also mean that the value of the company’s assets is less than the amount of its liabilities (taking into account its contingent and prospective liabilities).

Winding up a company is a form of company insolvency, most commonly used to describe ending the business affairs of the company and terminating company obligations before liquidation. However, there are other forms of company insolvency procedures including, a Company Voluntary Arrangement, an Administration and a Receivership.
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10. What is a company in administration?

The company administration process is often referred to as a rescue process because the aim is to rescue the business and recover the company in order to avoid insolvency. When an administration order is made, whether in court or out of court, the company is then under the management of the administrator appointed by either the courts, the company’s creditors or the company directors. After the administration order is made and the company administration procedure commences, a moratorium also commences which puts a halt on any action against the company during that period.
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11. What happens if a company in administration owes me money?

Assuming that you are not a secured or preferential creditor, as the primary purpose of an administration is to rescue the company, administrators are not ordinarily empowered to make payments to unsecured creditors. However, if there are surplus funds available from the realisations to pay unsecured creditors, an exit route, such as a liquidation or a CVA will have to be implemented in order to make such payments to unsecured creditors.
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12. When a company goes into administration who gets paid first?

Administrations are a protective temporary measure and therefore are technically not designed to deal with payments to unsecured creditors. Payments to unsecured creditors will normally be dealt with through an alternative exit company insolvency procedure such as liquidation or a CVA.

However generally, the first amounts to be paid out of any floating charge realisations in the administration are the costs and fees of the administrator in performing their functions for the benefit of the company’s creditors.
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13. What are the rankings of creditors in insolvency?

In general, creditors in insolvency are ranked in the following order

  • Secured creditors with a fixed charge
  • Preferential creditors
  • Secured creditors with a floating charge*
  • Unsecured creditors
  • Connected unsecured creditors
  • Shareholders

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14. What is an insolvency practitioner?

An insolvency practitioner, commonly referred to as an ‘IP’, is an individual who is licensed and authorised to act in relation to an insolvent individual, company or a partnership. IP’s are normally accountants or insolvency specialists who work in a firm of accountants.
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15. What is the purpose of an administration order?

What does going into administration mean and what is its purpose? a company administration order is intended to provide a moratorium to facilitate a rescue of a financially distressed business with a three-tiered statutory purpose in mind.
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16. What is an administration order?

A company administration process can be commenced by way of a court administration order made at a formal hearing at Court.
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17. What is the "out of court route" into administration?

A company can be put into administration without a formal administration order by filing certain papers in court without the need for a court hearing.
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18. Can the company or directors use the “out of court” route into administration if a winding up petition has been filed?

The short answer is no. This remedy is only available to the company or its directors when no winding up petition has been issued.
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19. What is a pre-pack administration?

So, what does going into administration mean? Unlike liquidation, administration whether commenced by an administration order or an out of court process, is a “rescue” process rather than a “burial” process for companies in financial difficulties. Where a company is in financial difficulty and it is anticipated to place the company into a formal insolvency process such as administration, then in order to maintain continuity of trading and the status quo of business with minimal disruption, discussions are entered into between the proposed administrator and an interested purchaser prior to administration to agree a sale and purchase of the business and assets from the company to a purchaser (often managed by the existing management) immediately following the appointment of the administrators.
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20. Can my company continue to trade following an administration order?

The directors’ powers to manage to company are suspended following an administration order, but the administrator effectively steps into the shoes of management.
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21. What is the effect of an administration order?

An administration order for a financially distressed company brings about a protective moratorium to safeguard the company for the benefit of its general body of creditors.
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22. Do directors have to co-operate with the administrator?

Whilst the everyday operational function of the director is suspended once an administrator is appointed, directors still remain in office and have statutory duties to fulfil.
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23. Can you recommend a suitable Insolvency Practitioner for my business?

Insolvency Practitioners are skilled at what they do will tend to have areas of expertise in certain sectors, business sizes, geographical areas, to name but some factors to bear in mind.
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24. Is an administration order a better alternative to a winding up?

If there is a prospect of saving your business, then most definitely yes. Where winding up spells the death knell of a company, administration is intended to be a rescue process in insolvency rather than a “burial” of an insolvent business.
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25. Is an administration order suitable for my struggling business?

An administration order is suitable where there is a good prospect of survival for your business, but for certain unexpected events which are crippling your business.
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