The appointment of an administrator provides immediate protection from creditor action and time to consider and implement the best solution for addressing the company’s financial problems. Typically this could be by way of refinancing, restructuring or a sale of all or a part of the business, possibly to the existing management (a ‘prepack’). Mercer & Hole have the knowledge and expertise to advise on all aspects of Administration and can provide hands on guidance throughout the process.
What is Administration?
There are three entry routes into Administration:
- Appointment by the company or its directors
- Appointment by a qualifying floating charge holder
- By an order of the court.
The administration must have a purpose and the administrators must perform their functions with the objective of:
- Rescuing the company as a going concern; or
- Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up; or
- Realising property in order to make a distribution to one or more secured or preferential creditors.
Mercer & Hole can assess and advise on the appropriate route and liaise with key stakeholders such as landlords, banks, floating charge holders and suppliers as necessary.
Effect of appointment of an Administration
Once an administrator has been appointed creditors are prevented from taking any action to recover existing debts unless they have either the administrators’ or court’s approval. This includes enforcing any security or repossessing goods under hire purchase agreements, a landlord exercising a right of forfeiture by peaceable re-entry or pursuing any other legal proceedings or processes.
The administrator has broad powers and can do whatever is necessary to manage the affairs, business and property of the company. This includes removing and appointing directors and selling property subject to security with court approval. It is common for the company to continue to trade (subject to funding being available) whilst in Administration to allow the administrator time to negotiate a potential sale of the business and assets. Mercer & Hole can assist with the preparation of a short term trading cash flow forecast and assist with sourcing trading finance if required.
Exit from Administration
The appropriate exit from Administration within 12 months (unless extended with court approval or otherwise for up to six months with the consent of creditors) will depend on the purpose of the administration and whether the objective has been achieved. Possible exit routes are:
- To return control of the company to its directors where it can be shown the company is both solvent and viable as a going concern.
- To restructure the company’s debts by way of a Company Voluntary Arrangement (CVA) which would allow the company to continue to trade with a longer term payment plan, and return control of the company to its directors.
- Move to a Creditors‘ Voluntary Liquidation (CVL) or Compulsory Liquidation in order to make a distribution to unsecured creditors.
- Move straight to dissolution if there are no remaining funds to distribute.
Administration is the key insolvency process for the rescue and survival of a business. Our Partners and Directors are Licensed Insolvency Practitioners with many years of experience and expertise in dealing with all aspects of Administrations.
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