Every week in our regular news round-up, we report on the growing number of companies that have filed a Notice of Intention to appoint administrators.
Why are so many companies choosing this insolvency process? What benefits does it give them and what options do they have once they are in administration?
The story of administrations
| 2024 (to Jun) | 2023 | 2022 | 2021 | |
| Administrations | 853 | 1,567 | 1,231 | 796 |
Since the Covid-19 affected year, which saw an historically low number of administrations at 796, they have continued to grow year-on-year.
170 were recorded in June 2024 which is the second highest monthly total since January 2021. The 853 recorded in the first six months of the year means that administrations are on course to surpass their 2023 total, which will mean three years consecutive increases.
What does an administrator do?
The first thing to clarify for directors is what an administrator can and can’t do once a company enters administration and the administrator takes responsibility for operating the company from that point.
Their responsibilities include:
- Acting in the best interest of creditors: Even if they are appointed by the current directors, an administrator will always act and take decisions that will be for the best interest of creditors.
- Assessing the Company’s Financial Situation: The administrator conducts a thorough analysis of the company’s finances to determine the most appropriate course of action and any imminent issues to be dealt with.
- Developing a Rescue Plan: If, after the review, they conclude that rescuing the company is feasible, the administrator will create a plan to restructure and stabilise the business.
- Communicating with Creditors: Administrators regularly update creditors on the progress of the administration, including meetings where creditors can vote on any proposals.
- Realising and Distributing Assets: If the company cannot be saved, the administrator will eventually oversee the sale of assets and ensure that the proceeds are distributed fairly among creditors.
How is a business “protected” in an administration?
We’ve talked about businesses getting protection when they enter administration but this is actually a legal moratorium which is granted to give the company sufficient time and space for the administrator to assess the full financial picture.
If there is the possibility of recovery then they will use this time to formulate an action plan to restructure existing debts and set out a pathway back to profitability.
The moratorium puts all legal action proceedings and recovery action on hold. These include any statutory demands, winding up petitions, landlord actions as well as any action from appointed high court enforcement officers or bailiffs acting on behalf of creditors.
However the court can grant permission for these to proceed in certain circumstances so it’s important to act quickly when a moratorium is granted. Employment tribunals will also usually continue in moratorium so it is not a 100% lockdown on actions.
How does it work?
The administration process itself is well structured and easily understandable and any accountant or advisor will talk you through the steps while you are still exploring your options.
- Initial advice meeting
This can be an online meeting or in person if you prefer at a time and place that suits you. At least one director has to be in attendance to explain the company’s financial situation in more detail and answer any specific initial questions.
- Advice and review
Once all company information is reviewed, professional advice is given on all options available to the business including administration if it is viable. A fee for all work is quoted in advance so there are no hidden charges or surprises and the terms of business are set out explaining what will happen and when.
- Instruction and arranging the board meeting
If administration is the best option and you agree with the terms of business, you will then formally instruct the insolvency practitioner to assist in placing the company into administration.
A designated board member is nominated to sign the necessary administration documents.
- Official notice of intention to appoint an administrator is given
If the company has a qualifying floating charge holder registered at Companies House, advance notice of the administration must be given to them. This will be done through a public notice posted in The Gazette.
The designated board member will also need to visit their solicitor to provide a statutory declaration.
- Appointment of an administrator
Once the notice period has expired or if the charge holder consents, the notice of appointment is filed in court.
The designated board member needs to visit their solicitor again with a further statutory declaration to confirm this.
- Statement of affairs
Once the business has entered administration, the administrator requires directors to provide a statement of affairs, which details all the company’s assets and liabilities. This should be prepared by an accountant and once completed, the contents must be signed off and a copy sent to Companies House.
- Assistance and closure
Depending on the outcome of the administration, the practitioner will work with you to ensure that the company’s books and records are moved to the administrators office and that all assets are properly realised.
If the business is going to close then an application for dissolution is made or the company moves into liquidation. If the business exits administration then the directors resume control at this point.
If any of this sounds like it could be useful then an administration may just be the ideal solution your business needs.
We offer a free initial consultation for any business owner or director who wants to discuss the circumstances their company faces in more detail and explore what options are available to them.
Our expert advisors provide unbiased and clear advice purely based on the unique circumstances facing your business and suggest what solutions would be the most appropriate and easiest to implement.
Get in touch today and find out what we can do for you.