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 process’s 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 Judgments (CCJ), or issuing Winding-Up Petitions. This gives us as administrators, and you as a 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 an associated company, which is managed by the appointed administrator. This is a process known as a pre-pack administration and it enables you to retain control of the business while trading continues 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). This may be 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 from administration, which include:
- 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 about 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.
- Company Voluntary Arrangement (CVA)
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 your actions as a 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 advisers 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 Payments 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, online form, or live 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 a 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
Oldham Precision
Kelly Burton • Construction & Engineering • Administration
Machining engineers Oldham Precision, has been bought out of administration, saving all 12 jobs.
The company’s principal activity was the subcontract manufacture of large volume batch precision machined components for clients across a wide range of industries including aerospace, paper converting, printing, coatings, electronics and valve construction.
Administrators Kelly Burton and Lisa Hogg from Sheffield business turnaround experts Wilson Field were appointed joint administrators on 17 January after the company suffered cash flow problems.
Originally established in 1982, the company, based at Red Rose Business Park on Shaw Rd in Royton, offered subcontract engineering including CNC milling, grinding and turning.
After advice from Wilson Field, the business was sold to the existing management team as a going concern, saving all 12 employees’ jobs.
Kelly Burton, director in the Leeds office at Wilson Field said:
“Following discussions with the director, the business was sold as a going concern, safeguarding all 12 employees’ jobs and offering a better return for the company’s creditors than alternative options.
“The new company will be under the same management offering the same standards of service to its customers.”
Principal Packaging Ltd
Kelly Burton • Service Agency • Administration
Administrators at Wilson Field, Sheffield, have 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. Serving 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.
Print On Solutions Limited
Kelly Burton • Service Agency • Administration
A Leeds print company has been bought out of administration, saving all 54 jobs.
Print On Solutions Limited was set up in 1999 and went from start-up business to the largest envelope overprinter in the UK with offices in Leeds and Bury, 12 litho presses and six digital presses.
Administrators Kelly Burton and Joanne Wright from Sheffield business turnaround experts Wilson Field were appointed joint administrators on 11 April after the company, based in Century House, Holbeck, ran into financial difficulties following an ongoing dispute relating to a significant contract.
The directors took early advice and the business was sold to new company WEPOS Limited as a going concern saving all 54 employees’ jobs.
Kelly Burton from Wilson Field said:
“Following discussions with the directors, the business was sold to WEPOS Limited as a going concern, safeguarding all 54 employees’ jobs. The new company will offer the same service and standards and will operate under the same management team.”
In 2003 Print On expanded by moving to a 12,000 sq ft, purpose-built factory in Leeds, designed to offer the business a state-of-the-art platform for growth.
The expansion of the group was through strategic acquisitions and mergers of envelope manufacturers. Tower Envelopes in Bury merged with Print On in 2010 and became the Lancashire division.
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