Administration Pros & Cons

If your business is facing financial difficulties, Company Administration could provide vital protection from credit pressure and legal action. This formal insolvency procedure offers an opportunity to restructure, recover, or, if rescue is not feasible, achieve a better outcome than liquidation. Acting swiftly is crucial to maximising your options and securing the best possible future for your business.

What is Administration?

Administration is a formal insolvency procedure designed to help struggling businesses by providing legal protection from creditors while exploring recovery options.

When a company enters administration, an appointed administrator (a licensed Insolvency Practitioner) takes control, aiming to restructure the business, find a buyer, or achieve the best possible outcome for creditors. If recovery is not viable, administration can facilitate an orderly wind-down, often resulting in a better outcome than liquidation. The process provides breathing space from legal action and creditor pressure, allowing time to assess the company’s long term viability.

What Happens when a company goes into administration?

If your business is struggling, Company Administration can provide breathing space from creditors while exploring recovery options. Once a company enters administration, it gains legal protection, meaning creditors cannot take legal action or enforce debts. This allows time to assess the best way forward.

Control of the business is transferred to the administrator, who takes charge of operations and financial decisions. Their role is to determine the most effective strategy, whether that involves rescuing, restructuring, or selling the business to achieve the best possible outcome.

Within eight weeks, the administrator will outline a plan for the company’s future. This could involve returning control to directors if recovery is possible, selling the business or its assets, entering a Company Voluntary Arrangement (CVA) to restructure debts, or, if no other option is viable, proceeding with liquidation.

The goal of administration is to maximise returns for creditors while giving the business the best chance of survival. Acting quickly is essential to keeping as many options open as possible.

Pros & Cons of Administration

Pros of Administration

• Provides short-term creditor protection while allowing trade to continue under an administrator.
• Opportunity to restructure, renegotiate contracts, and preserve business value for better creditor returns.
• Offers a quick solution via pre-pack administration and employees rights are protected.

Cons of Administration

• Critically, it triggers all personal guarantees, posing significant personal risk.
• Loss of control for directors and potential reputational damage.
• Costly, complex, and time-consuming with legal scrutiny and director investigations.
• Overdrawn Directors Loan Accounts (ODLA) will be triggered

Why Choose Bell & Company

During administration, our commitment is to keep costs down and being commercial. Administrators’ fees can be extortionate, and in many cases, formal administration may not be the most suitable solution for a company in financial distress.

We provide businesses with a clear, objective assessment before they engage an insolvency practitioner. Our team evaluates whether administration is necessary or if alternative measures can achieve similar outcomes, often in a more streamlined and cost-effective manner, particularly for SMEs.

While administration remains an option, it must be executed correctly. It is important to consider that administration will still trigger Overdrawn Directors’ Loan Accounts and Personal Guarantees, areas in which we specialise in.

Before speaking to an insolvency practitioner, consult Bell & Company first. We offer an impartial, comprehensive review of your company’s options, allowing you to make an informed decision with a clear understanding of all available solutions.