In the world of business, turbulent times are an unfortunate inevitability for some. Whether due to financial missteps, unpredictable market dynamics, or other extenuating circumstances, many businesses may face the prospect of insolvency. In these challenging situations, company administration is often the next step in the journey.
Company administration is a legal process that offers struggling businesses the opportunity for restructure or an orderly end. It is often viewed as the last chance for companies to turn around with the help of licensed insolvency practitioners appointed as administrators. These administrators manage the company’s affairs, business, and property. This process can be crucial in preserving assets for the benefit of creditors. Companies house, banks, and firms often rely on administrators to navigate difficult financial situations.
In times of financial distress, knowledge is indeed power, especially when it comes to understanding the ins and outs of the administration process. This is where our firm, Company Doctor, steps in to help with legal action, money matters, and payments. We can make a difference between survival and liquidation.
We are an insolvency practitioners based in Leeds, offering assistance nationwide. Our team, led by an in-house licensed insolvency practitioner, provides comprehensive guidance and services in matters of insolvency, including Creditor Voluntary Liquidations. We aim to make the administration process as smooth as possible, helping company directors who wish to close their insolvent companies in the best manner possible. With our services, you can navigate these rough waters with confidence and an expert by your side.
Whether you seek understanding, advice, or practical help, Company Doctor is here for you. Reach us on 0800 169 1536 or visit our website at www.companydoctor.co.uk for a free consultation today.
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What Happens When a Company Goes Into Administration?
Understanding the steps involved when a company goes into administration can be quite complex. Here, we aim to simplify the process for you.
Appointment of an Administrator
When a company enters administration, a licensed insolvency practitioner is appointed as the administrator. This can be initiated by the company directors, secured creditors, or by a court order. The administrators take over the control of the company, their primary goal being to save the company if possible, or to ensure better returns for creditors than in liquidation. The administrator acts in the interest of all creditors and is required to act with objectivity, integrity, and independence.
Moratorium Period
Upon entering administration, a company gains a temporary ‘moratorium period’ or ‘breathing space’. During this period, which lasts for 8 weeks, most legal actions by creditors are halted. This gives the administrator time to assess the company’s situation and to develop a plan for the business rescue or an orderly wind down. This freezes all legal action.
Evaluation of the Company’s Position
The administrator will thoroughly evaluate the company’s financial position during the administration period, including reviewing its assets, debts, and cash flow. The outcome of this evaluation helps to determine the most appropriate course of action for the administration proposals.
Proposing an Administration Plan
After the evaluation, the administrator prepares a set of administration proposals. These proposals outline how the administrator plans to achieve the purpose of the administration. This could involve business restructuring, a Company Voluntary Arrangement (CVA), sale of the business or its assets, or winding down the business. Creditors will receive a copy of the proposals and have an opportunity to vote on them.
Implementation of the Administration Plan
Once the plan is agreed, the administrator will begin implementing it for an insolvent company. This could involve running the business, selling assets, making agreements with creditors of the insolvent company, or beginning liquidation procedures. The administration process for an insolvent company usually lasts for a year, but it can be extended if necessary with the consent of creditors or the court.
Creditors in Administration
In the administration process, creditors are typically divided into two categories: secured and unsecured creditors.
Secured creditors have a ‘charge’ over some of the company’s assets, meaning that they have a legal right to the asset or its value to recover the debt. This could be a fixed charge (over specific assets) or a floating charge (over general assets of the business).
Unsecured creditors, on the other hand, do not have a charge over the company’s assets. This group typically includes suppliers, customers, and employees who are owed money.
While the administration period is in effect, the administrator has the duty to act in the best interest of all creditors. It’s worth noting that secured creditors are typically paid first from the sale of the secured assets during this period. They are followed by preferential creditors, such as employees owed wages, and lastly, the unsecured creditors. However, the exact order and amount can vary based on the circumstances and the nature of the insolvency procedure.
This complex process can be distressing for company directors. That’s why, at Company Doctor, we provide expert guidance to navigate this process and make the best possible decisions. To find out more, contact us for a free consultation today.
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The Impact on Employees
The administration process can bring about significant changes for employees of the company, impacting not just their employment status, but their rights and entitlements too.
The Effect on Employment
When a company goes into administration, the administrator may continue to operate the business. During this period, employees may continue to work and receive pay as normal. However, as the administration progresses, the administrator may need to make tough decisions about the company’s workforce to cut costs or prepare the business for sale.
In many cases, some or all employees may be made redundant if the company is insolvent or if the business or its assets are sold. The timing and scale of redundancies can vary widely depending on the circumstances.
Employee Rights and Redundancy
The employment rights of staff are protected under UK law, even when their employer is going through administration. This includes the right to a redundancy payment and to claim for outstanding wages, holiday pay, notice pay, and any unpaid pension contributions.
If the company is unable to pay these amounts due to insolvency, employees can make a claim to the National Insurance Fund (NIF). This fund, administered by the UK government, is designed to ensure that employees receive the money they are entitled to when their employer cannot pay.
Claims to the National Insurance Fund
Claims to the NIF can cover redundancy pay, up to 8 weeks of outstanding wages, up to 6 weeks of holiday pay, and notice pay. The amounts payable are subject to statutory limits. For redundancy pay, this is based on the employee’s age, length of service, and weekly pay (up to a set limit).
Please note, any claims for unpaid pension contributions are not covered by the NIF. These would instead be claimed from the Pension Protection Fund.
While the prospect of company administration can be unsettling, employees do have rights and protections. If you are a director of a company facing financial difficulties, it is crucial to understand the administration process and its impact on your employees. At Company Doctor, we are here to help. As insolvency practitioners, we can guide you through the process and help you understand your options. Contact us today for a free consultation.
Frequently Asked Questions
How long does company administration last?
Company administration typically lasts for one year, but this period can be extended with the agreement of creditors or the permission of the court.
What is the difference between secured and unsecured creditors?
Secured creditors hold a charge over a specific asset or group of assets owned by the company. This could be property, vehicles, machinery, or other items of value. In the event of a default, they have the right to take possession of these assets to repay the debt.
Unsecured creditors do not hold a charge over the company’s assets. They include suppliers, customers, HM Revenue and Customs, and employees. In the event of liquidation, unsecured creditors are usually paid after secured and preferential creditors, if funds remain.
Can a company come out of administration?
Yes, a company can exit administration through a successful business rescue or through a Company Voluntary Arrangement (CVA). A CVA allows the company to pay its debts over a fixed period while continuing to trade. The exit from administration will be determined by the proposals set out by the administrator and agreed to by the creditors.
How does the appointment of an administrator affect the control of the company?
Once an administrator is appointed, the company directors lose control over the day-to-day management of the business. The administrator takes full control and has the authority to make decisions, including the sale of assets and decisions about the workforce.
Is liquidation the same as administration?
No, they are different. Administration is a process that aims to rescue the company as a going concern or achieve a better result for creditors than would be likely if the company were wound up (liquidated). Liquidation, on the other hand, involves winding up a company’s affairs, selling its assets to repay creditors, and then dissolving the company.
If you have any more questions, don’t hesitate to get in touch with us at Company Doctor. Our expert team of licensed insolvency practitioners is here to provide a free consultation and guide you through this challenging time. We can help you understand the administration process, your role in it, and the potential impact on your business and your employees. Contact us today on 0800 169 1536 or visit our website at www.companydoctor.co.uk.
Company Doctor: Your Ally in Insolvency
During uncertain times, it’s crucial to align yourself with an expert who understands the intricacies of company insolvency. That’s where Company Doctor comes in.
We are a Leeds-based firm of insolvency practitioners offering assistance nationwide. Our specialisation is Creditor Voluntary Liquidations (CVLs), and we are dedicated to assisting directors who wish to close their insolvent companies. This process can be daunting, filled with legal jargon and overwhelming decisions. It’s our goal to ease this burden, explaining the process in plain English and providing the support you need during this challenging time.
Our team includes a licensed in-house Insolvency Practitioner who is skilled and experienced in managing the process of company administration. We strive to understand your unique situation, explore all possible options, and work towards the most positive outcome for your business.
We believe in transparency and open communication. We’re here to listen, provide clear advice, and guide you through the necessary steps. We also understand that every second counts when facing insolvency. That’s why we offer a free consultation to provide immediate advice tailored to your needs.
The journey through insolvency may seem long and intimidating, but you don’t have to go through it alone. Contact Company Doctor today. We’re ready to guide you, answering any questions you might have about the insolvency procedure, secured and unsecured creditors or liquidation.
To find out more about how Company Doctor can assist you in navigating your company through the complexities, call us on 0800 169 1536, or visit our website at www.companydoctor.co.uk. Let us help you work towards a resolution that safeguards your interests and those of your employees.
In the face of insolvency, trust Company Doctor – your ally in navigating the winding road of company administration.
Conclusion
In conclusion, entering into administration is a significant process that directly impacts a company’s future, its creditors, and its employees. It’s a path that provides the necessary breathing space from creditors and offers a chance for the business to regroup, strategise and possibly return to profitability. During this process, employees retain specific rights, including claims for redundancy and outstanding wages. Navigating these complex procedures can be daunting, which is why seeking expert guidance is vital.
Company Doctor, as a reputable firm of insolvency practitioners, stands ready to provide this guidance. We’re on hand to offer a free consultation and walk you through each step of this challenging journey. We’re committed to working with you towards the most favourable outcome for your business and its employees. In the face of insolvency, trust in the professionals – trust in Company Doctor.
References
The primary sources for this article are listed below.
Insolvency Act 1986 (legislation.gov.uk)
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