When a company goes into administration, it means that it has become insolvent and is put under the control of licensed insolvency practitioners. The appointed insolvency practitioner will immediately assume control of the company in their role as administrator. They will assess whether the company has a viable future, and if so, they will determine how this can be achieved. The administrator has control over the business during administration, and they can cancel or renegotiate any contracts the company has. The administration process can be initiated by the directors or shareholders of a business experiencing financial or operational difficulties, or by any qualifying floating charge holder, such as a bank or other secured lender.
During administration, the company must hand over control of everything it owns to the administrator. The administrator will try to stop the company from being wound up and will try to pay as much of the companys debts as possible from its assets. The administrator has eight weeks to write a statement explaining what they plan to do, and they must send a copy to creditors, employees, and Companies House and invite them to approve or amend the plans at a meeting.
Administration is not a long-term solution in itself, instead, it provides a company with breathing space during which time various options for the future direction of the business can be explored. If the company cannot be saved, the administrator will aim to achieve a better return for creditors than would be likely if the company were wound up. The company may continue to trade for a period while seeking a sale of the business or assets. Administration can be a positive outcome that sees the company continue in whole or in part as a new going concern.
