Administration
outline-administration-process
An outline of the administration process
The decision to enter into administration is usually taken due to pressure from creditors. Administration can safeguard you from this to a great extent and provide the time to come up with a workable ...

The decision to enter into administration is usually taken due to pressure from creditors. Administration can safeguard you from this to a great extent and provide the time to come up with a workable solution. However, it should be noted that the main aim of administration is to act for the benefit of creditors which may involve selling assets or even the company itself.

The process begins with the appointment of an administrator. This might be at the instigation of the directors, or it could be forced upon them by the holder of a floating charge (usually a bank). Following their appointment, the administrator – who must be a licensed insolvency practitioner – has eight weeks to send formal proposals to all floating charge debenture holders. However, they must first establish that administration is indeed the most appropriate course of action. It may be that alternative recommendations are made, such as creditors’ voluntary liquidation.

Should they decide to proceed with administration, an application must be made to the court and a hearing will subsequently be held for which a report may be produced in order that the presiding judge can understand why this course of action is necessary. It is important to note that once the application has been filed, legal proceedings cannot commence against the firm without the leave of the court, even though the hearing may not yet have been held.

The decision to make the administrative order is the presiding judge’s alone. If it is not seen to be the most appropriate course of action, other decisions might be made, such as for the company to be wound up.

Having entered into administration, the insolvency practitioner will request a statement of the company’s affairs detailing all assets and liabilities. This statement of affairs needs to be sent to creditors to back up proposals and this proposal can then be accepted at a creditors’ meeting held at a later date.

Each creditor must be given at least 14 days’ notice of a formal creditors’ meeting and it must also be held within 10 weeks of having entered administration (although the court can extend these deadlines, if it sees fit). Email and telephone calls are sufficient to constitute the meeting, although if more than 10 per cent of creditors wish to meet in person, then a physical meeting must be held. There is also the option for creditors to form a three to five person committee to act on their behalf.

From this point onwards, progress reports must be sent every six months to creditors, the court and the registrar of companies until the firm is no longer in administration.

It is increasingly common to use administration as a tool when restructuring a company as it buys some time which can be used to deal with lingering difficulties which may be preventing the company from progressing. The protection provided by an administrative order allows for either a survival plan to be created or for affairs to be wound down, if that is deemed to be the most appropriate solution.

 

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The-City-London
Some ‘golden rules’ for companies struggling with debt
Cash flow problems can cripple businesses leaving many unable to fund future recovery. Problems with cash float and debt affects many small to medium-sized businesses. In 2012 the Business Distress Mo ...

Cash flow problems can cripple businesses leaving many unable to fund future recovery. Problems with cash float and debt affects many small to medium-sized businesses. In 2012 the Business Distress Monitor revealed that as many as one in four British businesses were struggling to pay debts.

Knowing that you are far from alone if your business is being negatively affected by debt may offer some minor comfort but if your company is beleaguered with debt and heading towards insolvency, don’t delay in seeking advice.

Take a look at some ‘golden rules’ for companies struggling with debt.

1- Don’t ignore the problem

Unfortunately debt doesn’t just go away and the longer you leave it the worse it will get. Seek professional advice sooner rather than later.

2- Prioritise company debt

Tackling priority debts first and foremost may help prevent your business from going into insolvency. For example, if one debt could mean closing the business, aim to pay that particular creditor back first.

3- Get in touch with creditors

Don’t underestimate the power of communication and get in touch with your creditors immediately to explain your business’s situation and difficulties. Aim to reach an agreement with your creditors that offers relief for both your business and them.

4- Seek advice about borrowing money to pay off debts

It may be tempting to take out another loan or even re-mortgage your home in order to pay off your company’s debt. Avoid doing anything like this unless you have considered it extremely carefully. If you are thinking about borrowing money to pay off corporate debt, get advice first, as this kind of borrowing can escalate problems in the long-term.

5- Slash your budget

Of course one of the most effective ways to sort company financial problems out is to reduce your spending. Taking various steps such as giving up an expensive city centre office for a home office and an army of remote workers, could be one step to help you slash your budget and avoid the beckoning finger of insolvency.

 

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right-decisions
How to make the right decisions when your firm is in financial difficulties
Few things are more challenging than being one of the directors of a company experiencing financial problems. Every decision must be carefully weighed, but it is difficult to strike that balance betwe ...

Few things are more challenging than being one of the directors of a company experiencing financial problems. Every decision must be carefully weighed, but it is difficult to strike that balance between undue caution and making rash moves.

This is especially true when it comes to the big decisions, such as putting the firm into voluntary liquidation or going into administrative receivership. Insolvency doesn’t clarify the picture. It brings new problems and your responsibilities remain as great.

Go into liquidation prematurely and this can actually prove more damaging to members and creditors than persisting in the face of great odds. But how can you weigh up the situation? How can you remain objective and identify when you are being unduly optimistic or unnecessarily defeatist?

Be clear on the firm’s financial position

The first thing you must do is ensure you are dealing in facts. In order for this to happen, you must constantly review your firm’s financial status. Without this information, you cannot possibly hope to make the right decisions. Look at accurate figures and it may be that the situation is far better – or worse – than you imagine.

It will be the finance director’s responsibility to inform the board about the past and current performance of the company as well as to make cash flow projections. The other directors can then establish with confidence the company’s ability to pay both creditors and staff. This alone may be sufficient to prevent further, potentially debilitating, debt.

The measure of solvency or insolvency is basically whether the company can afford to pay its debts. However, factor in assets and future liabilities and it can be hard to establish a firm’s status with confidence. With this in mind, it is worth speaking to financial specialists, because if nothing else, this decision alone provides you with a degree of protection in the event of a subsequent court hearing. Deciding to take expert opinion will reflect well on the directors and any subsequent decisions are unlikely to be questioned.

Business rescue specialists

With up-to-date financial information to hand, you and a financial advisor can work to see what the best solution might be. It may be that trading can continue following a degree of restructuring for which a period in administration may or may not be necessary.

However, there are many possible outcomes and it is important to acknowledge that making use of insolvency specialists doesn’t mean that is the only possible outcome. Rather, the aim will always be to do what is best for the business.

This may mean liquidation, but it might entail selling off just some of the firm’s assets, or cutting overheads in some way. A firm’s financial situation might even be greatly improved through the simple measure of converting short-term debt into long-term debt or through reaching some sort of agreement with major creditors.

There are plenty of possible outcomes. However, the important first step is to seek professional advice to ensure impartiality and calm reasoning at a time which is likely to be highly stressful and where poor conditions could prove incredibly costly.

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administration-liquidation
Are administration and liquidation the only options?
No-one founds a company in the expectation that it will fail and no-one deliberately runs a firm in such a way that it is likely to encounter financial difficulties. However, circumstances change. The ...

No-one founds a company in the expectation that it will fail and no-one deliberately runs a firm in such a way that it is likely to encounter financial difficulties. However, circumstances change. The market may become fragmented or a general economic downtown may have an impact on business. Indeed, it is not uncommon for short-term problems to derail companies which would otherwise have endured in the long-term.

If you’re in charge of an ailing firm, you may have reached the point where administration and liquidation seem like your only options. However, before committing to one or the other, it is vital that you speak to an independent financial expert who can help evaluate the situation properly and with a degree of detachment.

Before deciding to enter either administration or liquidation, it may be possible to put together a strategy that will restore the firm’s financial position without having to resort to such drastic measures. Alternatively, it may be that administration can serve as a tool to buy some time in which a workable plan can be put into practice.

A plan of action might incorporate many different things. A change in trading strategy alone might be sufficient for the firm to recover, or it might be that certain sacrifices have to be made. Certain assets could be sold off in order to get through short or medium-term difficulties or there may be means of cutting overheads.

Other options might include gaining further financing from a bank or raising equity through seeking new investors. It may also be possible to convert short-term debt into long-term debt which might be sufficient to reverse a deteriorating financial situation. This debt restructuring can even be achieved through reaching informal agreements with creditors rather than seeking out new finance options.

Whichever route you decide to go down, your recommendations will carry more weight if supported by a financial advisor. If the board considers the plans viable, you can then go ahead, but monitor progress carefully, reviewing the firm’s financial situation at intervals to ensure progress is being made and that there aren’t alternative courses of action which could or should be taken.

When times are tough, it can be tempting to take drastic action in a bid to solve problems with one big gamble. However, this is rarely the best approach. Nor is it sensible to sit tight and hope that things sort themselves out. Action must be taken, but neither rash nor fearful.

Outside help can help you retain perspective at a time when that may prove difficult. It is easy to focus on either administration or liquidation as being an inevitably that you must sooner or later embrace, but actually it might be unwise to take such options prematurely. If you consider the various alternatives listed above, a combination of them could be better for both members and shareholders and could ultimately lead to a resurgence. Responsible business practices involve taking the most logical decisions, not simply being brave enough to embrace difficult ones and you can only deduce what to do through reasoned analysis of the company’s performance and prospects.

 

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The three main options for companies struggling to pay creditors
If your firm is struggling to pay creditors, the situation can quickly become out of control. If there isn’t sufficient cash available, you can find yourself in constant fire-fighting mode, paying o ...

If your firm is struggling to pay creditors, the situation can quickly become out of control. If there isn’t sufficient cash available, you can find yourself in constant fire-fighting mode, paying off who you can with little planning or forethought. However, there are options which can ensure a better managed approach. The three main options are a company voluntary arrangement (CVA), administration and liquidation.

CVA

A CVA is a means by which a company in financial difficulties can reach agreement with its creditors in order to pay off all or just part of its debts over an agreed period. It is basically the business equivalent of an individual voluntary agreement, a common financial tool for people who have found themselves in debt.

In order that you may benefit from a CVA, you will need the process to be overseen by a licensed insolvency practitioner. They will help draft the proposals and once these have been drawn up, meetings will be arranged with creditors in order that they can consider and hopefully approve them. If 75 per cent vote in favour, the CVA will be approved and once the term has concluded, the firm’s debts will be cleared.

Administration

Administration is another means of rescuing a firm that finds itself in financial difficulties. It brings a measure of control when a company is facing threats from creditors through stopping all legal actions.

One of the main aims of administration is to work out what to do with the firm and it may be that you end up organising a CVA. However, the insolvency practitioner is in control of the firm during the administrative process so it is not simply a means of keeping creditors at bay. The aim is to come up with a feasible plan for what to do with the business and this may end up being liquidation.

Liquidation

To liquidate a company means to sell off its assets in order to pay debts with the remaining money going to shareholders. There are two main types of voluntary liquidation – creditors’ voluntary liquidation and members’ voluntary liquidation. The latter is where your company is solvent but you want to close it anyway and so doesn’t really pertain to this article.

Creditors’ voluntary liquidation is an option when a firm cannot pay its debts. It involves selling off assets in order to pay creditors. In order to do this, shareholders will have to vote and pass a special resolution to stop trading.

If you feel it is necessary to place your firm into creditors’ voluntary liquidation, you will need to contact insolvency practitioners for advice and assistance throughout the process. You will then need to hold three meetings.

At the board meeting, the directors will conclude that the firm can no longer meet its liabilities and must therefore be wound up. An extraordinary general meeting (EGM) is then called in order that members can consider these conclusions and agree to creditors’ voluntary liquidation. A creditors’ meeting is then held in order to appoint a liquidator and to provide information which may be of use during the liquidation process.

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