In order for a company to go through company administration the company must be: of a reasonable size and have a reasonably predictable cash flow, however, this does depend on the kind of business in question. The company must also be able to predict their own profitability through both a quarterly and yearly figure set and the directors must also think that a hostile creditor will seriously affect the future trading possibilities; this is usually the landlord or the crown creditors.
The company administration process requires a licensed insolvency practitioner, also known as an IP, who will act as the administrator appointed by the court. This administrator then takes over the management of the company and also takes responsibility for the reorganization of the company or business. If the company has few assets, a poor cash flow and no profitable future then a creditor’s voluntary liquidation will more than likely be the best route for the business to take, as opposed to company administration.
When going into company administration it can usually last up to 1 year, however, this amount of time can be extended by the courts if they think it is needed. The administrator who is then appointed is required to do everything a business should do in order to return it to a profitable business and pay off its creditors. With this however, there is a time-limit, the appointed administrator has eight weeks in which he must create his proposals for what he plans to do to meet his objective. In his proposals he must not only give full details on the process which led him to be appointed but also how he expects the administration process will end.
Two weeks after this the creditors will need to meet; this meeting can be done by a correspondence. The objectives the appointed administrator makes can then be held to vote and if the majority agree then it will go forward, if not it will need to be modified to their liking and must report the refusal to the court. After the first meeting all additional meetings require the administrator to send out a report about the meeting and what took place directly to the court as well as to the registrar of companies for it to be put on public file. The last stage is the lengthy one where the administrator then carries out his objectives, however, he must also create reports that are to be sent off to the court for review to ensure that all that can be done is being done.
As you can tell the company administration process is not a quick one nor is it the most desirable situation for a business to be in. However, although the process is rather tedious, it does usually mean that if the business fails it can fail knowing that there was no possible way for it have survived. At least in knowing that, there will be no regrets and usually the creditors will feel less cheated than claiming bankruptcy and opening up under a new name, which is very unethical and a bad business practice.
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