Entering into company administration can seem like a major worry, but entering into it does not always indicate the end of the business. As an insolvency procedure, company administration is intended to shield a company from creditor actions while an appointed administrator evaluates the company and identifies the best course of action to follow. The initial stages of this process are critical. So, what happens in administration during its first thirty days?
Day 1: The Administrator Assumes Control
Upon entry into company administration, a licensed insolvency practitioner is appointed as the company’s administrator. At this juncture, the administrator assumes responsibility for the company’s matters, including its business, properties, etc. The existing directors of the company retain their directorships; however, their managerial authority is essentially suspended until the administrator consents to grant specific authority to the directors.
An additional significant development upon the appointment of the administrator is the application of a moratorium. This creates a protective environment around the company, enabling the administrator sufficient time to evaluate the company and its prospects without creditors taking legal action.
First Several Days: Evaluation Of The Company
A preliminary requirement of the administrator is to clearly define the status of the company. To do so, during the first days of company administration, the administrator will examine the company’s assets, liabilities, cash flows, agreements/contracts, employee base, outstanding debt and operational status. Additionally, the administrator will analyse why the company became insolvent and whether there exists a viable underlying business that could potentially be saved.
Where possible and beneficial, the company may operate during this timeframe. Continuing to operate will serve to preserve the value of the business, assist in maintaining customer relationships and provide time to investigate a potential sale. Nevertheless, such continuation of trading should only occur in instances where the administrator feels it is in the best interests of the creditors.
First Week: Employee, Customer & Supplier Relationships
Additionally, during this timeframe, the administrator will require consideration of the relationship between the company and its employees, customers and suppliers. When a company enters into company administration, employees are not immediately placed on redundancy notice. Where applicable, certain employees may continue in their positions. Conversely, redundancies may be required if the company seeks to reduce costs or portions of its operations cannot continue.
Similarly, suppliers may be contacted by the administrator to confirm whether they will continue to supply goods/services to the company. Furthermore, the administrator will review any outstanding customer orders, contracts and/or other commitments.
Weeks 1-3: Investigation Of Rescue/Sale Alternatives
As soon as practical and based on their analysis of the company’s financial status, attention will shift to determining what will happen next. The primary goal of company administration is to save the company as a going concern where it is reasonably feasible and provides a better outcome for creditors than would be available via immediate liquidation or the sale of assets. This could include restructuring the company, negotiating terms with creditors or selling all or a portion of the business.
In limited cases, before entering administration, arrangements for a sale may have already been made. Such arrangements are referred to as pre-pack administrations and enable the underlying business to be sold rapidly to a new owner.
30 Days: A More Defined Path Forward
At the conclusion of the first thirty days, the administrator will have identified a viable plan to rescue the company, engaged in negotiations related to an impending sale or determined that an alternative form of insolvency process will eventually be necessary.
Additionally, as required under law, the administrator must prepare formal proposals outlining their intentions in relation to achieving the objectives associated with administration. While submission deadlines for these formal proposals extend beyond thirty days post-entry into company administration, their preparation commences during these earliest weeks.
Seeking Advice Regarding Company Administration?
It is essential for companies experiencing financial difficulties to seek guidance from a licensed insolvency practitioner at an early stage. The earlier you get professional advice on your options in relation to the company administration process, the more opportunity there may be for considering alternatives prior to facing overwhelming creditor pressures. You can get in touch with us today for advice.
