Administration Law

The ins and outs of administration

Administration is a process in which every part of the business is managed carefully to maintain its growth or stability. The majority of companies have a team of administrators to carry out this role. Until a restructuring plan is completed the by the process of administration the company is protected from its creditors. However, a company needs a licensed insolvency practitioner to act as the administrator. This individual is appointed by the court.

Administration objectives

When a company goes into administration there are three main outcomes they hope to accomplish, the main outcome being that the company is rescued. They will also want the administrator to get a better result for the creditors than a winding up of the company. They also hope the administrator can realise property to make a distribution to secured and preferential creditors.

Administration proposal

The desired outcomes for administration however depend on the administration proposal. This proposal will begin with details explaining the administrator’s appointment. It will then describe all of the circumstances as to how and why the company is going into administration. Details then follow as to how the administrator proposes to achieve the goals of the administration and how it will end. The proposal will generally finish with a statement of the company’s general affairs.

Creditors' meeting

A creditors meeting will then follow from an invitation in the proposal. It is essential that the meeting is held within 10 weeks from the date the business entered administration. At the meeting the proposals outcome is decided – whether it is rejected, accepted or modified and then accepted. In the case of a rejection the administrator is required to report to the court to receive further directions. Once these procedures have been finalized the administrator will send a report of the final outcome of the meeting of the court. The administrator will then manage the company’s affairs based on the outcomes of the meeting.

Advantages of administration

Administration is one of the most useful tools to ensure the safety of the business and is a means of protection from the company’s creditors. It also flexible as it allows the administrator to appoint managers to run the company. It also prevents director’s form being accused of wrongful trading as no action is being taken.

Disadvantages of administration

Administration does have its downsides for example; directors may be removed from the business as they are not in control of the business. Also the majority of customers and suppliers usually become aware that the company has become insolvent. Costs are also high for this procedure and it is difficult to finance trade and other supplies.

Bankruptcy and insolvency - bad news for businesses

Bankruptcy and insolvency are two terms which are used to describe businesses which are suffering financially. Although they both relate to similar financial issues, they describe two very different stages in this process.

Deconstructing insolvency law

Insolvency laws have been put in place in order to provide proper legal regulation for businesses which are faced with the prospect of liquidation and even bankruptcy.

Introducing the insolvency register

The UK insolvency service has a register of all current and recent individual insolvency cases. It is a criminal offence for any insolvent individual to do business with another or borrow money without disclosing their bankruptcy.