Types of administration
Company administration is one of the three main kinds of corporate insolvency procedure suitable for SMEs in the UK – along with liquidation and company voluntary arrangements – with the intended goal of rescuing or supporting an insolvent business to satisfy creditor demands.
When a business goes into administration, the running of its day-to-day business affairs are managed by the ‘administrator’. This, by law, must be a licensed insolvency practitioner, like ourselves here at Administration.co.uk.
Either the directors of a business or its creditors can apply to the court to put a business into administration. However, in order to be eligible to do this a company must be unable to pay creditors as they fall due.
In addition to company administration, there are other options available to a struggling business, we’ve listed these below and what you need to know about each of them:
INFORMAL ARRANGEMENT
You may be able to negotiate with creditors to accept payment in full over an extended period. In exceptional circumstances creditors may even accept only part payment of their old debts. Creditors are only likely to agree if it is commercially beneficial to them. Some organisations may be unable to or have no discretion to make a decision to compromise debts. In our experience it is very unlikely you will be able to make an informal arrangement with all creditors if you have more than a handful. However, with this option there is no court involvement nor any need to involve an Insolvency Practitioner.
COMPANY VOLUNTARY ARRANGEMENTS (CVAS)
A CVA is an agreement between the company and its creditors. The agreement can be very flexible and directors will propose such an agreement where it is likely to be a better option for them, the company and the shareholders than another form of insolvency. CVAs provide opportunity to defer and/or reduce payment terms, perhaps even over five years whilst allowing company directors to continue running the company.
CREDITOR’S VOLUNTARY LIQUIDATION (CVL)
Closing down a company is often the least attractive option but if after all the other options have been considered it is decided that liquidation is the best option a creditors’ voluntary liquidation is usually the best option and takes a lot of weight off the shoulders of the directors. An Insolvency Practitioner who is the proposed liquidator will advise the directors prior to liquidation and will guide them throughout the process. Company liquidation is a legal process that ends a company’s existence by selling its assets to pay off its debts and distributing any remaining money to.
COMPULSORY LIQUIDATION
If a creditor is owed more than £750 (usually evidenced by having an unsatisfied statutory demand) a creditor can petition the court to have the company wound up (or liquidated). At this point unless the directors can show the court they are able to and pay off the creditor or strike an alternative deal such as a company voluntary arrangement (CVA) a winding up order will be made by the court.
David Kirk ACA FABRP
Tel: 020 7123 4008
Email: David@administration.co.uk
David Kirk did exactly what he said he would. I’d be lost without Administration. Without David, we would have gone bankrupt by now. Really good
Sophie M