When a company goes into administration, stakeholders will be understandably concerned. While it is often internal stakeholders like employees and directors that are thought of first when any administration process gets underway, external stakeholders are as equally affected.
Creditors in particular will be concerned about what may happen to the money they are owed, as administration indicates that a business cannot pay their debts when they are otherwise supposed to. Read on to find out what happens to creditors when a company goes into administration.
Legal Action Is Not Allowed
Whether administration is ordered by the courts or initiated by company directors, legal action against the company is suspended unless specific permission is granted by the administrators or English Court. This can initially seem concerning for creditors, who may worry that they will not be able to recover the money without being able to take appropriate legal action. However, the pause on legal action during the administration process is designed to facilitate the sale of the business and/or its assets which should ultimately lead to a fair outcome for creditors.
Interests Of Creditors Are Put First
As soon as administration begins, control of the company is passed from current directors to a licensed insolvency practitioner. The insolvency practitioner must put the interests of creditors first and recover debts as quickly as possible. If business rescue is not achievable, the aim of administration is generally to give creditors a better outcome than would be the case were the company to be liquidated. Creditors affected by a company going into administration should therefore be reassured by the fact that the process exists to protect their best interests.
Creditors Can Be Involved
Although the insolvency practitioner’s primary role is to smoothly oversee the administration process, they will also check that administration is actually the best method of recovery or action for the business. Alternatives to administration may be discussed with creditors, such as a company voluntary arrangement which is a contract between the company and creditors that stipulates when liabilities will be paid back. This type of agreement can help creditors to ensure that they will get an outcome they are satisfied with when a company is facing financial difficulties.
Ultimately, the administration process is designed to help creditors as much as it is designed to ensure businesses navigate insolvency in the appropriate way. If you are concerned about the current financial state of your business or want to enter into formal discussions with your creditors, the expert insolvency practitioners here at Ballard Business Recovery can help. Contact us today to discuss the position of your business and sensible next steps. Our team can also provide trustworthy guidance to creditors looking to recover funds in the most efficient way.
