Company administration is a formal procedure in which an insolvency practitioner is appointed to act as the administrator of an insolvent company with the goal of bringing about a recovery and is available to both insolvent limited companies and partnerships.
Liquidation is often perceived as ‘pulling the plug’ on a company, whereas administration and company voluntary arrangements often has less reputational risk. This is often very important for public interest companies, for example Football Clubs and Highstreet stores.
Is my company eligible for Administration?
An Insolvency Practitioner can act as Administrator if the underlying business, despite its financial difficulties, remains potentially viable and the procedure is in the best interests of creditors generally.
The administration must have one of the following purposes:
- Rescuing the company as a going concern, or
- Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being administrated)
- Realising property in order to make a distribution to one or more secured or preferential creditors.
How do I enter my company into Administration?
Administration can be entered into very quickly by simply filing documents in court however an order will only be made if the court is satisfied that the company is or is likely to be unable to pay its debts, and the administration order is likely to achieve the purpose of the administration.
What will the Administrator do once appointed?
- Once appointed, control of the business passes from the directors to the Administrator in order to facilitate the rescue of all, or part, of a business, or to simply maximise the recovery for creditors.
- Automatically, the administrator’s appointment ends after 12 months from date of appointment however this can be extended.
Company Voluntary Arrangement (CVA)
If your limited company is insolvent, a Company Voluntary Arrangement (CVA) is one of several statutory insolvency procedures to enable the company to pay all or part of the debt over a fixed period. If creditors agree, your limited company can continue trading and the directors stay in charge.
A CVA is an agreement between a company and its creditors to repay debts over an extended time period. Creditors generally agree to write off a portion of their debt and receive payment over a set period of time.
How do I enter my company into a CVA?
- A Proposal is prepared by the directors with the assistance of an Insolvency Practitioner and is then put forward to all creditors of the company. The proposal will detail the level of return the creditors can expect to receive, and also the length of time it should take for them to receive it.
- A meeting is set for at least three weeks after the proposal is issued, giving unsecured creditors a final date to submit their votes.
- In order for a CVA proposal to be approved, there must be a vote of at least 75% of creditors in debt value (50% when excluding connected creditors), voting in a favour of the proposal.
What happens once my company enters a CVA?
- Once approved, all existing debt incurred up to the date of approval is bound by the arrangement and creditors cannot take legal or enforcement action against the company.
- Following the successful completion of a CVA, the Supervisor’s role is relinquished, and the company continues to trade as normal.
- However, if the CVA fails, the debt is no longer bound to the agreement and will start accumulating interest again. Upon termination of the CVA, the Supervisor of the arrangement will write to your creditors to inform them that the arrangement has failed. This may lead to the company entering a subsequent insolvency procedure such as liquidation.
In June 2020, the Corporate Insolvency and Governance Act 2020 was introduced.
The Bill introduced a new moratorium (or breathing space) to give struggling companies a 20-business day opportunity to consider a rescue plan. This is an automatic right without then need make an application to court for approval. This timeframe can be extended for a further 20 business days, or with the consent of creditors up to a year.
The process must be monitored by a licensed Insolvency Practitioner who will need to file notices with Companies House during the moratorium, however the company remains under the control of its directors.
A moratorium can give struggling companies a chance to consider their options and implement a business rescue strategy. The moratorium is often used to negotiate a CVA or to prepare for administration or liquidation.