Administration protects companies from creditor pressure, giving them a period of time to focus on restructuring or selling the business. By providing an automatic stay on any current or pending legal actions that can be taken against the company, administration gives businesses the breathing space that they need to focus on creating a practical path for moving forward. Administration is a temporary measure, and so you may be wondering how long can a company be in administration for? Let’s find out.
Why Would A Company Enter Administration?
In order to successfully answer the question of “how long can a company be in administration for”, it’s important to look at why the process is used in the first place. In order for a company to enter administration, they need to demonstrate that it is for one of the following purposes:
- To rescue the company on a going concern basis so that it returns to profitability
- To provide a better outcome to creditors than would have been the case if the company was placed into liquidation
- To provide a return to one or more secured or preferential creditors
As part of the overall strategy to achieve one of the above purposes, it may be possible to sell the business and its assets on a going concern basis (referred to as a pre-pack administration if negotiated before the Administrator is appointed)
As you can see, company administration is not a fixed procedure, but rather will vary in process from business to business. This plays a huge role in determining how long a company can be in administration for.
What Is The Timescale?
There is no set timescale when discussing the question of “how long can a company be in administration for”. This will depend on the circumstances of the business, specifically the scope of the company’s problems, the intended outcome of the process and the role of the licensed insolvency practitioner who is acting as administrator.
That being said, most administrations generally last for a period of 12 months. An automatic end will be made after 12 months, however the period can be extended for months or even years, depending on the requirements of the individual business. No two administrations will be the same, and this will be reflected in the differing timescales that are applied to every individual case.
How Is Administration Brought To An End?
When thinking about how long can a company be in administration for, it’s important to explain how and why the period of company administration is brought to an end. Again, this will depend on the individual business, however will be determined by one of the following factors:
Company Voluntary Arrangement (CVA)
One way in which a company administration is ended is if it is converted to a CVA. This is a binding contract between a company and its creditors that specifies a timeline for the repayment of debts. The advantage of a CVA is that it gives control of the business back to directors, who can then continue to trade.
Dissolution
If there is no money or assets to distribute to creditors then the Administrator may choose to dissolve the company rather than liquidate it. In this instance, the company will be closed and removed from the Companies House register.
Liquidation
In cases where there are still assets to be realised following administration, the company may be liquidated. This will involve winding the company up (either by way of a conversion to a voluntary liquidation, or petitioning for a compulsory liquidation), whilst repaying creditors through the liquidation of the remaining assets.
Automatic End
As detailed above, if the Administration is still ongoing after 12 months, and there has been no extension granted, the Administration will end. In this instance, the Administrator will be released from office and control of the company reverts back to the directors.
If you have any further queries regarding the question of “how long can a company be in administration for”, please don’t hesitate to get in touch with the team at Ballard Business Recovery. Equally, if your company is facing financial difficulty and you would like guidance on the options that are available to you, our experienced team of business rescue experts are on hand to offer confidential advice that’s tailored to your company’s individual requirements.
