Administration can be a cost effective way of preserving even small businesses. Companies can be placed into Administration by interested parties, usually the directors, but on occassion by creditors. The Administrator must be a licensed Insolvency Practitioner.
Once a company is in Administration its creditors are frozen and they cannot take action to recover old debts. In the right circumstances, the company will then continue to trade although in these circumstances the Administrator controls the direction of the company. The directors only have powers that are delegated to them.
It is possible for the management to buy the business back through a pre-packaged sale, although the Insolvency Practitioner will want to ensure that the business is properly exposed to the market and the highest price is achieved. However, in practice the Administrator and the directors will work together to preserve the business and/or maximise realisations for creditors.
Administration can also be used to protect the company in the short term whilst a Company Voluntary Arrangement is proposed, to preserve the business pending a sale or simply to maximise realisations.
Once the Administration is completed the company will move into liquidation if there are surplus funds to distribute to non-preferential creditors. If there are not then it is likely to be dissolved.
This note is meant as a brief overview of Administration. It is not a detailed review and further detailed advice should be taken before coming to any decision. No responsibility can be accepted by Campbell Crossley and Davis, its partners or employees for any loss occasioned by any person or persons acting or refraining from action as a result of material contained in this note.