Top 10 FAQs for directors: Administrations

1. When should I put my company in administration?  When it is insolvent and there is a benefit in taking advantage of the statutory moratorium.  For example if there is need to continue trading to complete work in progress or keep financed assets in situ so they can be sold with the business and assets as a going concern.
2. What is a pre-pack?  It is a type of administration where a sale of the business and assets is lined up before the appointment and completed by the administrator immediately or soon after he/she is appointed.  The benefit is that the business can be sold intact and undamaged by a lengthy insolvency process.  Approximately 50% of all administrations are pre-packs.
3. Why have pre-packs got a bad name?  Creditors are suspicious that a cosy deal has been done behind closed doors, often back to the company's former management.  In recent years the regulations around this have been tightened and pre-packs are a useful option in the right circumstances.
4. Can a bank or other lender appoint an administrator?  Yes if they have a debenture with a qualifying rebating charge.  If your company is in breach of its banking covenants and cannot meet a demand for repayment then it can file a Notice of Appointment in Court and the job is done.  But so called hostile bank appointments are very rare and in most cases the directors make the appointment.
5. Is administration expensive?  Yes.  An administrator has greater reporting requirements than a liquidator and there is usually additional trading by the company whilst trying to sell the business and assets as a going concern.
6. Can the directors appoint an administrator?  Yes.  Most administration appointments are made by boards of directors using an "out of court" procedure.  There is also an "in court" procedure which is mostly used where boards are unable to agree.  If there is a debenture holder the directors have to give five days' notice during which it can appoint an administrator of their own choice.
7. Are there any disadvantages to administration?  The main disadvantage is that historic employee liabilities transfer with the business and assets.  In a company with 20 employees with long service this can amount to £200,000 plus.  There is a way round this - if you want to know what it is call us on 0800 331 7417
8. How long does administration last?  Statute says no longer than 12 months unless extended by creditors or the Court.
9. What happens after Administration?  If there are funds to distribute to unsecured creditors then the company can go into liquidation.  If there are no funds it can move direct into dissolution.
10. Can I be disqualified from acting as a director?  Only if you have not acted properly.  Acting on professional advice is usually a complete 'get out of jail card'.  The most common grounds on which directors are disqualified: 
    
    - Trading to the detriment of HMRC
    -  Not treating creditors equally
    -  Recklessing incurring credit

Get in touch with our expert team of business rescue specialists for more information on 0800 331 7417