When a company is insolvent and facing serious threats from creditors it may enter into administration. Licensed insolvency practitioners such as ourselves are appointed by either the company, the directors, or a third party, or by a direct application to the court (see below for more detail). During this process, the company is protected from creditor action.

What is administration?

Administration is a process available to insolvent companies to provide protection from its creditors. It involves a licensed insolvency practitioner (IP) being appointed to take control of the company and look into its financial situation. Administration provides the IP with breathing space to formulate a plan outlining how to restructure or sell the company and its assets. Protection from creditors is particularly useful and necessary in a situation where a company is being proactively or aggressively pursued for debt repayment. A common reason for a company to enter administration is if creditors are threatening, or have issued a winding-up petition. Otherwise, creditors may be pursuing the company through the courts.

More about creditor pressure on limited companies

Once placed into administration, then under paragraph 3 (1) of Schedule B1 of the Insolvency Act 1986, the administrator of a company must carry out their duties.

Purpose of an administration

A company administration can only go ahead if one of three statutory purposes exist. The three statutory purposes (required outcomes) are set out in Paragraph 3 to schedule B1 of The Insolvency Act 1986.

The three statutory purposes are:

• 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

How does a company enter into administration?

A limited company is only able to enter into administration in one of two ways. If a licensed insolvency practitioner such as ourselves is appointed by the company directors or through a direct application to the court. A holder of a floating charge over assets of a limited company can also force the appointment of an administrator over a company if it fails to uphold the conditions of a debenture agreement.

More on the duties of an insolvency practitioner

Before an administration can go ahead, it needs to be established if the company is solvent or insolvent. Administration is not a procedure available to every insolvent company, the process would only be able to go ahead if one of the above three purposes could be achieved. Administration can either be quick and simple or a more protracted and complicated process. It depends on the circumstances surrounding the company. It is, however, a transitionary process for the company and not a long-term solution.

Process of Administration

Our company administration process.

Take advice regarding the Company’s financial position

• Have a free consultation with a qualified and licensed IP to understand the options available to you.
• Any proposed Administrator will need to be satisfied that they can achieve one of the three statutory purposes of an Administration (outlined above), prior to accepting the appointment.

Appoint an Administrator

• The appointment can be made by the Directors, the court or via the holder of a qualifying floating charge.

The powers of the Directors cease

• Following their appointment, the Administrators become responsible for the company.

Creditors are notified

• Administrators notify creditors of their appointment as soon as practicable.

The Administrators assess the Company

• The Administrators will then pull together a plan for the business.
• This may include continuing to trade the business to enable the completion of contracts and the generation of additional income; the restructuring of the business to make it more profitable and attractive to purchasers, or the marketing and subsequent sale of the business.

Implementation

• The Administrators will implement the preferred strategy to ensure one of the statutory purposes of administration can be achieved.

Reporting the outcome

• The Administrators provide a report to creditors within eight weeks of appointment (the Administrator’s proposals), outlining their future strategy and the steps already taken since appointment.
• A progress report is provided to creditors every six months, which summarises the realisations achieved, and provides details of any potential return to each class of creditor.

Advantages and disadvantages of administration

For insolvent companies, there are many advantages to entering administration. It gives the company breathing space to plan for survival. It can also prevent one creditor taking action which could be to the detriment to other creditors or indeed threaten the very future existence of the company.

An administration will protect the company from creditors whilst the process is ongoing, giving the company respite from creditor pressure. Administration is also an opportunity for the company to potentially be restructured, at the same time removing inefficient or non-profitable parts of the business.

Whilst the positives are there to be seen, advertising that a company has entered into administration can be damaging to a business, it shows that the company is insolvent. Directors also lose control of the day to day workings of the business, with the administrators taking temporary charge.

Alternative solutions

Although administration is a powerful tool that can save a company, whether it’s the best option for your company will depend on its own circumstances. Fortunately, there are other solutions available to help you either recover your business or close the doors.

A formal payment plan; a CVA

If you want to continue trading while repaying your creditors, you can explore applying for a Company Voluntary Arrangement (CVA). CVAs are formal arrangements allowing you to make affordable monthly payments to your creditors, stopping them from taking further action against the company. CVAs usually last five years, after which time, all remaining debt is written off, allowing you to continue unburdened by your old liabilities.

Find out more about a CVA

Company closure

Sometimes it might not be viable to keep the company open; the volume of debt and creditor pressure could be too burdensome for recovery to be a reasonable option. In these circumstances, you may be better off closing the company via a Creditors Voluntary Liquidation (CVL) before your creditors apply to wind-up your company through compulsory liquidation.

Read more about company closure

In summary

Company administration is a formal procedure which must be carried out by a licensed insolvency practitioner. It enables an IP to have control of the company and giving it protection against creditors, and plan the best way forward for the business. This could be through saving the company completely perhaps by entering a CVA, selling parts of the business or liquidating the company and realising assets.

How we can help

If you’re worried about your company being insolvent or have creditors constantly breathing down your neck, it’s crucial to act as quickly as possible. Administration is only suitable for certain companies, depending on their situation. If you think it might be right for you, we can help guide you through the process and if it would suit your company. We offer free face-to-face consultations nationwide.

Case Studies

Berks Healthcare Services Limited

Kelly Burton • Healthcare • Administration

Wilson Field has advised on the sale of a Slough-nursing agency which was bought out of administration saving all 7 jobs.

Berks Healthcare Services Limited, which traded as Enchor Healthcare Services, specialised in providing healthcare professionals for the public and private sector.

It supplied registered general and mental health nursing staff, together with unqualified support and ancillary staff, to private hospitals and care homes in the areas local to the company’s offices in Slough, Portsmouth, Birmingham and Luton.

The company, headed up by healthcare professionals, called in administrators from Wilson Field after suffering from a fall in turnover, which left it struggling to meet unsustainable historic legacy debt. It had also been issued a winding-up petition from HMRC.

Kelly Burton and Emma Bower were appointed as joint administrators on 14 June 2018 and concluded the sale of the business and assets for an undisclosed sum to an unconnected company Connect Care & Support Limited, also based in Slough.

Kelly Burton, director and licensed insolvency practitioner at Wilson Field said: “The company had a turnover in the region of £2.9m per annum in 2017. However this is a very competitive marketplace, which is primarily price driven and recent minimum wage legislation changes had also impacted on the company’s potential profit margins.

“As administrators, we sought a purchaser for the business.

“This pre-packaged sale to Connect Care & Support Ltd saved seven permanent jobs as well as numerous temporary agency staff.

“It has also mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay in lieu of notice estimated to total £29,576 as the liabilities have transferred to the successor business under the TUPE regulations.

“This means the business has a new future moving forward.”

Berks Healthcare Services Ltd was incorporated in January 2015, but can be traced back to February 2007. Enchor Health Care was recognised and registered as Recruitment Consultants providing both permanent & temporary staffing solutions to many different Health and Social Care settings. It also had supported living and rehabilitation centres.

JS Security

Kelly Burton • Other • Administration

All 42 jobs have been saved at a Cheltenham security firm after it was bought out of administration.

Joint administrators Kelly Burton and Lisa Hogg of insolvency and business turnaround specialist Wilson Field were appointed to JS Security on 10 February after HMRC threatened to wind-up the company because of accumulated tax arrears.

The company, which operated from Old Station Drive in Cheltenham, has now been bought out of administration by existing, and associated company, JS Facilities Group Limited of Cheltenham, saving all 42 jobs.

The business will be operated by the existing management team lead by managing director John Search. The total value of the deal is undisclosed but it includes the business and the assets of the Cheltenham based company.

Kelly Burton, director and insolvency practitioner at Wilson Field, which has bases in Leeds and Sheffield, said;

“Unfortunately, the security services sector is very competitive which leads to hourly rate discounting and small margins.

“JS Security accumulated tax arrears which threatened its existence. After discussing the situation with the director, I am pleased that we have found a solution which will see the business continue to trade and also all 42 employees’ jobs transferred to the new company.”

JS Security was appointed the official security provider at Gloucester Rugby in June 2013 for two-years and also won the contract to provide matchday security for the four Rugby World Cup matches at Kingsholm Stadium in September 2015.

The contracts covered match day security, including the hospitality areas, car park security and any additional security requirements.

JS Facilities Group Limited has been running for 15 years and operates throughout Gloucestershire specialising in security services for sectors including commercial, logistics security, construction, events, key holding and alarm response.

Services include remote video monitoring, control room services, lone working monitoring, security guarding, door supervisors, mobile security patrols, event security and first aid training.

Aristocrat Pet Supplies

Kelly Burton • Retail • Administration

The business and assets belonging to a Sheffield online pet supplies company are up for sale. Aristocrat Pet Supplies, a family owned and run business, milled its own feed and seed on-site in Sheffield and has been trading for over 25 years selling agricultural raw materials, livestock, textile raw materials and semi-finished goods.

Sheffield-based insolvency specialists Wilson Field were called into the firm after it experienced increasing pressure and competition online. Andy Wood and Lisa Hogg were appointed as joint administrators for the company on January 26.

Wilson Field is trading the business in the short term with a view to finding a potential buyer for the company based on Holbrook Green Industrial Estate near Sheffield.

Andy Wood, associate director and insolvency practitioner at Wilson Field said:

“The business has encountered increased competition in recent years, principally from discount stores which have reduced margins.

“It has been on the market for several months but has not attracted any significant interest so far. As administrators, Wilson Field is trading the business in the short term to maximise realisations on a reduced staff base of seven.”

Aristocrat, which employed 19 staff, offered a range of pet supplies including dog and cat treats, chews, small animal bedding, wild bird supplies, poultry and aquatic food.

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