Many big businesses have closed down in the UK after going into administration, with many retailers being victims of this.
Here’s all you need to know about administration and how businesses end up falling into it.
What does going into administration mean?
Going into administration basically means a company is not able to meet its expenses, debt obligations or other liabilities, according to SquareUp.com.
The Government website adds: “When a company goes into administration, they have entered a legal process (under the Insolvency Act 1986) with the aim of achieving one of the statutory objectives of an administration. This may be to rescue a viable business that is insolvent due to cashflow problems.
“An appointment of an administrator (a licensed insolvency practitioner) will be made by directors, a creditor or the court to fulfil the administration process.”
A company going into administration gives it “breathing space” that frees a company from creditor enforcement actions” and allows for financial restructuring plans to be drawn up.
This could take the form of a sale to another company but if it cannot be reasonably saved, the administrator will aim to achieve a better return for creditors than would be likely if the company were wound up.
For example, the company could continue to trade for a period, while seeking a sale of the business or assets or “administration can be used to simply liquidate assets and distribute the proceeds to secured or preferential creditors”.
The Government website adds: “Once in administration, a company can continue to trade. But daily management and control passes from the directors to the appointed administrator.
“Within 8 weeks it is the administrators’ role to formulate administration proposals. Creditors are then asked to vote by a decision procedure to approve the administrators’ proposals.
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“If the administration involves a sale of all or part of the company’s business, the proceeds (after the costs of the procedure) will be distributed to creditors in a statutory order of priority.”
Administration will end automatically after 12 months unless the administrator asks the court or creditors for an extension.
Through administration, the company may have been rescued and passed back to directors, or gone into liquidation or dissolved.
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