Administrators juggling balls…

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 3 minutes

When an administrator is appointed to handle a company’s administration process, they will have to manage most of the company’s financial obligations and make sure creditors receive more than if the company was liquidated.

It can be a complicated process which could be likened to a juggling act, and there are many balls that administrators have to juggle. Insolvency practitioners, have to consider multiple aspects of the company from the personal responsibilities of staff, to the debt owed to creditors and the potential knock-on effects that could be having to their company and staff. There are many processes and ways of handling an administration procedure, but generally, the administrators are working on multiple fronts doing a variety of different jobs.

Retaining employees and contracts

Retaining employees means that the administrators have the burden of their remuneration and will be reluctant to do this if there is no benefit. They will often reduce the workforce to a skeleton staff, contracts will transfer if the company is sold as a going concern, and the purchasers may attempt to clip the price to reflect the burden of inheriting employee liabilities.

Director interests

Directors fall into two categories – those who want the company to continue, saving employees’ jobs, and those who have their own interests at heart.

The latter may want to purchase the company themselves and may even jeopardise the sales process by withholding information from the administrator or put the potential purchasers off. A judgement call is needed early on whether to retain directors or remove them from the scene.

Secured creditors

Secured creditors generally leave you to get on with your business and may even finance the working capital for trading.

Although occasionally, the secured creditor might not be so patient, and some will try to interfere with the administrator’s decisions. The administrator will aim to get the highest realisations for all creditors, and as the secured creditor is at the top of the list, they will benefit from this. Yet some will try to force administrators to accept the quickest way out rather than the best solution.

Unsecured Creditors

Unsecured creditors are the stakeholders usually responsible for taking up a lot of the administrator’s time. They will try any method to recover their monies, including Retention of Title (ROT) claims, Lien claims, and refusing to supply to the administrators unless their balance is paid to name a few. Claims over title of assets need dealing with early on and are generally straight forward; sometimes commercial judgements need making.

Key suppliers and hauliers sometimes threaten to interrupt the supply of the goods or services to make demands or increase prices. Sometimes, utility suppliers fall into this category too. As a result, their blinkered view can halt the whole trading process and force the company to break up. So, they often need reminding of the opportunities that continued trade may have to them.

Trading a company

While an administrator’s primary role is to restructure an insolvent company to keep it trading, administrators may decide to trade a company if they see an opportunity to sell the company’s assets or to maximise realisation from them.

When doing this, they face the conflicting interests of many of the stakeholders of the company.

In summary

Administrators have a lot of duties associated with restructuring a company. These duties include deciding which employees, contractors, and in some cases, even which directors to keep on. They must also deal with the creditors, both secured and unsecured, and decide if there’s more potential realisation from trading the company.

Even though managing an administration can be like a juggling act, our insolvency practitioners and staff will always find time to guide you through the process. We specialise in business turnaround, and we’re always on hand to offer a fresh perspective.

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