If your business is known as company administration, it means you are seeking third party help to make your business profitable again. This usually takes the form of hiring a bankruptcy practitioner.
This can mean saving the business value as well as selling the job. The administrative process of the company can take anywhere from a few hours to about two weeks.
The main form of bankruptcy is administration. When other forms of administration are no longer effective for saving business, the next step is liquidation. In the eyes of a creditor, administration is a priority because they still have the opportunity to recover. When liquidation occurs, creditors lose any opportunity to raise debt.
Listed below are the basic forms of company administration that you will see and how they differ.
The company’s voluntary agreement
If a business is functioning as a long-term entity, bankruptcy practitioners may recommend a CVA. This is where the business owes the creditors but cannot repay in full at once.
A CVA is a legal document that provides insights into business struggles. The CVA specifies the period within which creditors will be paid and determines the amount of that payment. A CVA can be effective for a maximum of five years.
During the drafting process for CVA, the struggling business is protected by a “moratorium”. A stay order prevents lenders from taking legal action against a business to recover its debt.
Once the lenders agree to the CVA, the business has formally entered the administrative process. From this point on, they hand over all profits to the bankrupt practitioners who distribute it to the lenders accordingly.
The business sells as a ‘going concern’
This process can take two forms. Either this is a “pre-packaged” sale, which means the business is marketed before the administrator is hired, or the business will be put up for sale on the open market.
During a pre-packaged administration, sales are made as soon as the administrator is hired. This helps reduce profit margins and maintains goodwill with lenders. This results in minimal disruption, which means clients and customers stick around during the process. This form of administration protects the brand and the assets of the company.
Moving from company administration to liquidation
Perhaps there are still assets that need to be recovered or a dividend that the creditors owe. In that case, liquidation is very often the next step. At this stage, creditors may threaten enforcement action if they do not receive their dues soon. The administrator becomes the liquidator and begins the process, which can sometimes take more than a year, much longer than the administration.
Liquidation is a formal business closure. During this process, All employees are made redundant And business no longer exists.
In some cases, administrators recommend liquidation routes as the best option from the start. This can be due to various reasons, the primary of which is the collapse of the market. Think about the death of a big video rental chain like blockbuster because of viewers’ preference for streaming movie platforms. Or, if one of your main clients no longer uses your services or goes through the liquidation process on their own, it could have a knock-on effect on your business.
Advantages of Administration vs. Liquidation
No one likes it when their business is facing financial problems. However, there are some advantages to company management over liquidation, such as:
- You have already seen the problem. If you wait too long, your business may close as part of the liquidation process.
- You can ask for protection from creditors. Working with administrators gives you a level of protection that prevents you from taking further legal action.
- You will have access to more capital. The total funds remaining at the end of the administrative process is usually more than the liquidation.
- Disruption of your business is minimal. The process gets rid of the historic debt business and gets rid of contracts that no longer serve the business.
- Employees will not lose their jobs. The administrator performs the process in the best interests of the business.
The company administration has its own warning signs
If you notice that your business is going Cash flow problems, It is better to seek advice as soon as possible. By waiting too long, you can burn out much needed working capital to help rebuild your business. This means you will not have any cash to pay bankruptcy practitioners to help turn your business around.
In fact, if you know you have a cash flow problem and still don’t get help, bankruptcy practitioners may charge you for incorrect trading. This means you may be ineligible to be a director for up to 15 years and may be personally liable for a percentage of the company’s debt, so avoid it by asking for help early.
Understanding a company’s administrative process and its various routes may seem complicated, but they don’t have to be. For more in-depth information on company administration, read on Easy guide for company administration By bankruptcy experts.