Most people worry that when a business goes into company administration, it is usually the start of the end. Customers can lose confidence in the business, suppliers may stop supplying goods and services to the business, and employees can lose their jobs. But can a company survive after administration?
Company administration is a formal insolvency procedure whereby a company becomes subject to the control of a qualified insolvency practitioner. When an administrator is appointed, they will initially review the position of the business and decide what would be in the best interest of the creditors of the company, whilst attempting to rescue the business at all times.
The aim of company administrations is always to try to rescue the company as a ‘going concern’. That is, if there is potential for the business to trade again in a way that secures the best interest of its creditors, then the administrator will do everything he/she can to enable this to happen. By entering into a company administration process, the company gains temporary respite from creditor legal action and therefore has sufficient time to restructure both financially and with regard to how it operates.
Can A Company Survive After Administration?
There are plenty of examples of many businesses being rescued through company administration. Typically, this is done by either cost reduction, negotiating with suppliers/contractors, securing new investment, or restructuring existing debt obligations. Sometimes parts of the business can be sold off so that you can preserve the core and continue to trade and protect jobs, as well as protect your own reputation.
However, as previously stated, administration does not succeed in all instances. Some businesses are placed into administration when they have reached a point where their financial issues cannot be resolved. Other businesses operate in industries/marketplaces where demand has irreversibly declined, or the original business model is no longer viable. Ultimately, administrations in such scenarios can result in asset sales or liquidation.
How To Get The Best Chance Of Rescuing The Business
One of the most important factors in determining whether a company can survive company administration is how quickly action is taken. Businesses that seek professional advice at the first signs of financial difficulty generally have far more options available to them than those that wait until creditor pressure becomes overwhelming. Early intervention gives directors and insolvency practitioners time to assess the company’s position, explore restructuring opportunities, secure funding where appropriate, and develop a realistic recovery strategy.
Ultimately, it is the viability of the business which is paramount. If a business has a reasonable possibility of continuing to exist post-administration, then administration affords them with the framework, protective elements and professional expertise required to reverse the current financial crisis. While there is no guarantee that this will occur in each case, it represents perhaps the most effective tool available for assisting distressed businesses. If you have any questions, then you can check out our earlier blog on 7 Things A Director Of A Company In Administration Needs To Know, or get in touch with our team of business rescue experts today.
