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

Catering Butchers

Kelly Burton • Leisure & Hospitality • Administration

A previously successful, family-owned and managed catering butchers saw its turnover eradicated by the Covid 19 outbreak.

Following a review of all the options with the team at Wilson Field, the directors decided to appoint WF as Administrators.

Kelly Burton, director and insolvency practitioner at Wilson Field added:

“Like many over the pandemic, unfortunately there were some difficulties encountered as the business struggled to keep up its strong sales. However, we are continuing ro release the assets for the benefit of the creditors.”

Due to a lack of funding, the business unfortunately ceased to trade, however, the Administrators have managed to secure the debtor ledger and a sale of the remaining tangible assets, for the benefit of creditors.

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.

K2 Technologies Ltd and K2 Thermal Imaging Ltd

Kelly Burton • Service Agency • Administration

Wilson Field has helped secure the sale of two related North East businesses, which developed and manufactured thermal imaging equipment, as a going concern to Cenergem Limited backed by a group of local investors not associated with the current management.

Kelly Burton and Joanne Wright from Sheffield-based insolvency specialists Wilson Field were appointed joint administrators of Darlington-based K2 Technologies Ltd and K2 Thermal Imaging Ltd on 25 July 2016.

The two companies had experienced cash flow problems following to a sharp decline in the demand for their products due to increased global competition in the market over the last 18 months.

The sale, which resulted in six of the current eight jobs being saved, was achieved by Wilson Field, working alongside valuers and asset management consultants Charterfields, who handled a number of inquiries and Mark Wilkinson, insolvency partner at Shulmans Solicitors in Leeds.

Kelly Burton, director and licensed insolvency practitioner at Wilson Field said:

“During the past 12 to 18 months K2 had begun to experience increased competition in the market. Competitors had started to manufacture and sell similar products at a lower price, meaning the company had seen a sharp decline in the demand of products and a resultant shortage of cash flow.

“Our job was to realise a sale of K2 as a going concern to achieve the best return for the company’s creditors. There was significant interest by a number of parties. The resultant sale has also saved six of the eight jobs.”

K2 Thermal Imaging Ltd and its predecessors were involved in the development of three products establishing the company as a lead pioneer in thermal imaging.

The company designed and engineered three main product ranges for extensive use in the marine, firefighting and industrial sectors, allowing operators to enter smoke-filled environments to detect and rescue people with a hands-free application, therefore improving success rates in recovery.

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