Company administration occurs when a business is faced with serious cash flow issues, and the threat of insolvency is inevitable. An administrator is appointed, who must attempt to balance helping the business run more effectively to promote a healthier future, while ensuring that all creditors are paid what they are owed.
Administration in business can represent an opportunity for a company to attempt to regain some semblance of control of their own financial situation. This is done by gaining some clear space to take stock of their operation, assess any wrongdoings, and work out how best to repay creditors —
without them breathing down their necks.
Going into administration means your company is effectively taken under the management of an independent administrator — known as an insolvency practitioner (IP). They will act on behalf of the creditors to ensure that they receive the money owed, while considering whether the business has the possibility to successfully trade in the future. This will be done by assessing the viability of restructuring company operations or shifting focus to other aspects of the firm to promote future success. However, it is possible that the issues plaguing the company could be deemed too much to overcome, and it will need to be liquidated.
The process of administration is set out within The Insolvency Act 1968 and aims to put an official moratorium on all legal proceedings a business might be facing. For administration to be sanctioned by the court, a judge must feel that it is a correct and justifiable course of action, and represents the best opportunity for the company’s creditors to receive the money owed to them.
The act of going into administration can be intimidating for business owners. For some, it has a reputation for being the final straw for a dying company. In reality, this is a misconception due to the severity of the situation that many firms who enter administration have found themselves in. If executed correctly at the optimal time, administration can be the saving grace for your business when it needs it most.