What Does Going Into Administration Mean?

Administration Frequently Asked Questions Please call us if you don't get the answers you need for your situation. We answer all these questions and more in our worried directors guide.Q: I have heard that this protects the company with a court order. A: The directors apply for a partial moratorium, then the court grants the full moratorium with the Administration Order.Q: What actually happens in an Administration? A: See the Administration guide.Q: Surely the process is much better than a CVA? A: In actual fact it is often an unnecessarily expensive process where a CVA is achievable. However, if the company is under extreme pressure it is a very powerful tool. Part of the Administration procedure is to decide what to do with the company with regard to its restructuring, often a CVA is the result.But if it is not a viable stand-alone business then this technique can be very useful to allow a trade sale of the assets of the whole company.Q: Do I stay in control of the company after the Administration starts? A: No it is the court appointed IP (insolvency practitioner) who runs the company whilst the restructuring process is under way and until the Administrator has put proposals to the creditors. After they have accepted the restructuring proposal (see the guide to Administrations for the various options) the proposal is carried out. If this is a CVA then typically the directors regain control.Q: If the business cannot be sold and it is not viable for a CVA what happens? A: Typically the company assets are sold off to the highest bidder (this may involve piecemeal sales or even an auction) then the administration process ends. Thereafter the company is liquidated.Q: How much does it cost? A: Given that the IP is running the business perhaps with his managers in the business on a day to day basis the costs of administration can rack up quickly. Cynics say that administration is preferred to straightforward CVAs by IPs because of the higher fees they can earn.However, the Administrator has to report to creditors and to the court with regard to his costs and fees. It is impossible to say categorically what it may cost because each case is different. The IP must ensure that there are sufficient assets (debtors work in progress and stock for example) that the costs are covered in the admin period.

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We are a supplier to a company that has gone into administration, What should we do? How can you avoid getting stuck?Firstly, you need to get to know your industry. There are often tell tale signs that a business is in difficulty apart from just starting to pay late. Please see our list of warning signs of a business that is in distress. Of course, these are from the company in difficulty point of view but it should give you useful pointers. So be ahead of the news. Make sure that you know all the excuses about slow or non payment - the aim is to get paid and keep your own cash flow going. But what if the debtor has gone into administration. You need to know the law and your rights as a supplier. You have a contract with ABC LTD and on 21st December 2019, ABC LTD goes into administration, You are owed all monies up until 21st May. However of course you may not receive much of it. You must be able to provide proof of debt so make sure you have invoices to hand. The administrator should contact all creditors to inform them of the administration and inform them of a creditors meeting. Make sure you attend the meeting if you can, or get someone to attend for you. Do not supply or give credit to ABC LTD, if you continue to supply credit to this company there is a good chance you wont get paid because that company on paper does not trade anymore. Speak to the management (if a new management company has been set up), the administrators, your contacts. You need to be sure you are happy to continue to trade with the new business (out of administration) . You will need to agree new terms ie, reduced credit, a DD mandate, payment up front, (pro forma) whatever you are comfortable with and you will need to get the name of the new company. In a pre-pack sale where the business is put into administration and immediately sold, it may of course be trading under a different but similar name the very next day such as ABC Ltd. This is what is called a trading administration prior to a sale. If you are asked to supply the administrator (who is running the business) ask for payment up front or a guarantee from the ADMINISTRATOR that your business will be paid. Set up a new agreement but be careful who signs it, it can be signed by the following peoplea) ABC (IN ADMINISTRATION) LTD, co-signed by the administratorsb) The administrators themselvesc) The new management company, appointed by the administrators.The debt owed to you by ABC (IN ADMINISTRATION) LTD and ABC LTD are two separate things. The main purpose of administration is to rescue the company so it is often important that all suppliers continue to supply for the good of everyone. What if the business is sold via a pre-pack to a newco and that company with the same management asks your company to supply it? If the business is sold then this could be an opportunity to supply a new and perhaps more lucrative customer! but again make sure that you get the best terms possible. Pro forma is usually the best way to supply until there is a track record of being paid. Then provide say 7 days credit over time. Once again make sure a tight rein is kept on the credit.If the administration of a large customer puts you under pressure then there is no harm in giving us a call and we will give you free no obligation advice over the phone.

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See here some unique Administration flowcharts for your free use! They explain in English what happens in an Administration process where a pre-pack is used or where CVA follows.administration-followed-by-cvaAdmin Pre Pack Flowchart - PDFSo would you now like to know why Admin pre-pack selling the business to directors is favoured by Insolvency Practitioners BUT, not necessarily by the clearing banks? Call Keith Steven on 07833 240747 to find out more and how a CVA can achieve huge change while leaving YOU in control!

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