What is an Administration Order?
An administration order comes into force when a company is under severe financial difficulties requiring an administrator to either protect and assist in the running of a business or ensure enhanced realisations are generated from any business/asset sale.
The reasons for the administration are varied and must be reviewed professionally to establish that it is indeed the correct procedure to adopt.
When a company does enters administration, a licensed insolvency practitioner acting as administrator will be appointed to manage the day to day running of the business and implement the proposals. The administrator acts under the terms of the order granted by the court following strict guidelines.
The company must be insolvent or contingent insolvent deemed to be a risk and requiring the protection of the court from creditor demands. In respect of any future trading the cash flow must be predictable showing ideally a profitable position. In the event that a company does not meet these criteria a creditors’ voluntary liquidation may provide a better alternative.
Advantages of administration
- All legal action undertaken against a company will be stayed whilst the administration order is in force
- The administrator can trade the business whilst in administration with a view to finding a buyer to purchase the business as a going concern
- All actions undertaken by the administrator are carried out with the best interests of both the company and creditors, ensuring the financial position does not worsen
- Enables the administrator to communicate with creditors on proposals and asset realisations. In the event a sale is agreed this can lead to the continuity of elements of the business retaining some or all of the employees