What are the advantages and disadvantages of an administration?
Administration is a formal insolvency procedure which must be carried out by a licensed insolvency practitioner. The process protects limited companies from creditor pressure, and can allow the continuation of normal business operations, giving your company the best chance of recovery and an opportunity to restructure.
The procedure has many benefits to you as director, shareholders, and creditors – but it is important to understand all its implications.
Purposes of administration
The process of Administration must achieve one of three statutory purposes.
- Rescuing the company as a going concern.
- Achieving better results for the company’s creditors as a whole, than would be possible if the company were wound up without first being in Administration.
- Realising property and assets to make a distribution to one or more secured or preferential creditors.
Advantages of an administration
By entering your company into administration, it can benefit from many of the proceses’ advantages, including but not limited to:
- Protection against creditors
Your company will be given an automatic moratorium when it enters administration, preventing creditors taking any further enforcement action such as obtaining County Court Judgements (CCJ), or issuing Winding-Up Petitions. This gives us as administrators and you as director time to regroup and look at the best course of action for all parties involved.
- Maximised return for creditors
It will be our role to ensure the creditors receive the best possible outcome from the process. A sale of the business or assets can be enhanced where there is continuity of trading, or alternatively the pre-packaged sale of the company can achieve better realisations than a sale after a cessation of trade, meaning administration can provide a better return to creditors than entering straight into a liquidation procedure such as a CVL.
- Company restructuring
Administration provides the opportunity for significant restructuring under the guidance of a licensed insolvency practitioner like ourselves,, enabling us to make the necessary changes to either save your business or make it more appealing to potential buyers. As administrators we have a duty to leave the business in an improved position, if working towards the statutory purpose to rescue the business as a going concern.
- Pre-pack administration
In some circumstances, your business can continue to trade through a newly registered or existing company. This will mean a pre-arranged sale of the business and its tangible assets to either a third party, or associated company, which is managed by the appointed administrator. This is a process known as a pre-pack administration and it enables you to keep control of the business and trade to continue uninterrupted.
- Preserves Jobs
Employees are able to keep their positions as the business is able to continue trading, and their jobs preserved in accordance with Transfer of Undertakings (Protection of Employment) (TUPE). Either under the same or different directorship of the new company. - Continuity
Pre-pack administration can ensure that assets are sold to the new company seamlessly, minimising disruption to the business and deterioration of the brand’s reputation. - Continuing company brand
A pre-pack administration may allow the new company to continue trading using the former premises and may even be able to keep the full use of its former trading name. However, there are restrictions and this should be considered carefully. - Directors retain control
A pre-pack administration allows directors to keep control of the company and continue trading until the sale of the business which will occur on the day the insolvent company enters into Administration.
- Preserves Jobs
- Exit strategy considerations
When your company is coming to an end, you should understand and consider the implications of the possible exit routes out of administration, which include.
- Continue to trade
If the company is deemed viable, and restructuring has been effective, the Administration will end and control will return to the directors, meaning that it can resume regular trading activities. - Company Voluntary Arrangement (CVA)
If the company is deemed viable, and restructuring has been effective, the Administration will end and control will return to the directors, meaning that it can resume regular trading activities. - Creditors Voluntary Liquidation (CVL)
A CVL will see the company exit from Administration and be formally wound up and closed, allowing the directors to walk away from the limited company, with all unsecured debts written off.
Find out more Company Voluntary Arrangements
Find out more about Creditors Voluntary Liquidation
The exit route the company takes will be determined by the individual circumstances of the company, its future viability and ability to make a distribution to its creditors.. In addition to the above exit options, the Company could also be placed into Compulsory Liquidation or be dissolved immediately following the end of the Administration period.
- Continue to trade
Disadvantages of administration
When considering an administration, it is important to understand the implications, including but not limited to:
- Publicity
Administrations are public procedures and clients can become aware that your company has entered into the process. However, this would be the case with any insolvency procedure that your company enters into.
- Investigations
Just as with any other insolvency procedure, an administrator is obliged to examine the actions of the you, as director.
- Cost
The cost of an administration depends on the size and complexity of the job, and can be dependent on the amount of time your company is in administration for.
- Employee entitlements
Unfortunately, some employees could be made redundant. Even if you form a new company through a pre-pack administration, not all employees may be TUPE’d over to the new company.
How our services can help your company
If you’re concerned about your company’s financial position, our licensed insolvency practitioners are qualified to handle all insolvency procedures, including administration. Our experienced initial advisors can discuss your company and assess all the appropriate insolvency options available.
- Repay your company debts in a payment plan via a Company Voluntary Arrangement (CVA)
A CVA is a payment plan between a company and its creditors that allows you to restructure your company’s unsecured debts, while continuing to trade, by making affordable monthly payments over a fixed period. We start by assessing your company’s financial position, determining a realistic repayment amount. These terms are then proposed to your creditors and if approved, your company enters the repayment plan. When in place, all interest and charges are dropped and creditors in the arrangement cannot take further legal action. The process lasts for up to 5 years and on successful completion, any remaining unsecured debt in the arrangement is written off.
- Close your company down via a Creditors Voluntary Liquidation (CVL)
A CVL is a liquidation procedure for companies that are insolvent. The process will formally close and liquidate your company, ceasing its trading operations, realising any assets, and removing the threat of creditor legal action. If your company has employees, they can claim for redundancy and other statutory entitlements through the government’s Redundancy Payment Service (RPS). The process is final and irreversible. Once completed, your company’s unsecured debt will be written off and the company is dissolved, allowing you, the director, to move on.
- Close your company down and start again via a pre-pack liquidation
A pre-pack liquidation is a type of CVL where the sale of your company’s assets is arranged before liquidation, allowing business operations to continue seamlessly under the purchasing company. The company name may be reused, and employees can transfer under TUPE. Contracts and essential agreements can also be included as part of a sale, ensuring minimal disruption to your business operations. This process eliminates the unsecured debts of your previous company, providing a fresh start free from previous unsecured liabilities.
How to get in touch with us: The next steps
- Speak with our initial advisers
Make contact with our team, via phone, filling in a form, or online chat. We will assess your circumstances and, if suitable, arrange a free consultation with a consultant to discuss your company’s situation. - Initial assessment
During the consultation, we will advise if an insolvency procedure is the most appropriate route forward or whether alternative solutions better suit your company’s problems. - Formally engage with Wilson Field
If there is an appropriate insolvency solution, we will confirm the necessary steps to start the procedure and will issue you with the relevant documentation for you to formally engage us.
In summary
An Administration is a process that must be carried out by a licensed insolvency practitioner. The procedure aims to maximise a return to creditors while protecting your company from legal action and rescuing it as going concern. If recovery isn’t viable, we can help you explore the alternative insolvency options such as a formal liquidation, which will see your company wound-up with the sale of its assets, providing a return to creditors and giving you a chance to walk away from the company.
The process can have many positive outcomes, including but not limited to:
- Protection against creditors
- Maximised return for creditors
- Company restructuring
- Multiple rescue options
- Formal repayment plans
- Pre-packaged sale
Case Studies
Principal Packaging Ltd
Kelly Burton • Service Agency • Administration
Sheffield administrators Wilson Field has helped save all 14 jobs at a Lancashire packaging supplier and manufacturer after it was bought out of administration.
Administrators Kelly Burton and Joanne Wright from business turnaround experts Wilson Field were appointed joint administrators on 17 February after Principal Packaging Ltd suffered cash flow problems.
The company, based at Pit Hey Place in Skelmersdale, was one of the main independent providers of quality packaging for the retail food industry, and major food and dairy suppliers.
Directors Tracy and Richard Sharratt took early advice and the business was sold to new company Surepac Ltd as a going concern saving all 14 employees’ jobs.
Kelly Burton from Wilson Field said:
“Historically, the company offered a holding service to its customers. This meant that it held a significant amount of stock at any one time, which tied up a substantial amount of cash.
“This created cash flow problems and was exacerbated in the early part of 2016 when the amount available on the company’s funding facility was reduced.
“Directors took early advice from Wilson Field with the business sold to Surepac Ltd as a going concern, safeguarding all 14 employees’ jobs. The new company will offer the same service and standards and will operate under the same management team”.
Principal Packaging, started in 2006, served packaging needs for meat, fish, horticulture and poultry sectors throughout the United Kingdom and Ireland and traded successfully in the early years.
It gained a reputation for being one of the most professional, yet affordable, companies in a competitive market with its high-quality paper, plastic or board packaging, custom print services and high customer service levels.
Designer Recliners Limited
Kelly Burton • Manufacturing • Administration, Company Voluntary Arrangement (CVA)
A Sheffield furniture manufacturer and upholster has relaunched offering a smaller, more specialised range of products.
Anico Interiors Limited, which included reclining chairs for the elderly, had suffered cash flow problems and issues with profitability.
Designer Recliners Limited, managed by director Nick Wall, has purchased the assets and business of Anico saving all 11 jobs.
Andy Wood and Robert Dymond from Sheffield business turnaround experts Wilson Field were appointed joint liquidators on 8 June and advised on the sale of the 14-year-old company, based on Orgreave Crescent at Orgreave Industrial Estate, as a going concern.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Historically, the company offered a wide range of products but has now streamlined its offer to customers and cut out some unprofitable lines, as well as re-vamped its web site.
“Directors took advice from Wilson Field with the business sold to new company Designer Recliners Limited as a going concern, safeguarding all 11 employees’ jobs. The new company will offer the same service and standards under the same management team but focus on a smaller range of specialised products.”
The company employs skilled staff including upholsterers, seamstresses and cutters and was set up in 2002 by Nick Wall.
National Videogame Arcade
Kelly Burton • Leisure & Hospitality • Administration
Image from GameCity.org [http://gamecity.org/]
The National Videogame Arcade is a unique national centre which is dedicated to history and development of computer and video games. The museum itself contains many rare and original videogames and consoles as well as a Toast Bar which serves a wide array of toast-based snacks.
Over its time, it has also been involved in working in collaboration with Arts Council England, Times Educational Supplement, Wellcome Trust and the British Library to name a few. These projects and collaborations focused on developing the role of videogames in culture and education.
Home of the acclaimed GameCity festival, The National Videogame Arcade in Nottingham, sadly fell into cash flow difficulties earlier this year despite an increase in its footfall. An eleventh hour investment by a director-led consortium, led by director Iain Simons, saved all 40 jobs at the increasingly popular tourist attraction and museum.
The cash flow difficulties led to the destination being taken into administration, Wilson Field’s Andy Wood and Lisa Hogg were appointed as joint administrators on 19th August 2016.
Andy Wood, an insolvency practitioner at business turnaround and insolvency specialist, Wilson Field, said;
“The investment story behind the consortium is based on the passion that Iain Simons and his staff have for the GameCity project.
“We were appointed as administrators after the company fell into financial difficulties, despite growing in popularity. The consortium of investors could clearly see the potential to turn the business around and with support from the staff, GameCity has a new future.”
Director of GameCity and investment consortium leader, Iain Simons, was very happy with securing the last minute investment and the service he received from ourselves; “The NVA is like no other facility within the UK and is rapidly growing in popularity. It was devastating to us when we realised that the business was in financial difficulty, but we knew it could be overcome.
“I have to give all credit to the staff here who volunteered to work without pay when we announced that the business was in trouble and this undoubtedly allowed us the time to pull together a consortium of investors to give the facility a bright new future and secure those jobs.
“GameCity is rapidly picking up pace and the Toast Bar, National Videogame Arcade and our collaborations with new partners in the UK and beyond are proving to be just as popular as we’d hoped.”
For more information on GameCity visit http://gamecity.org and for further information about our insolvency procedures, call us on 0800 901 2475.
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