The rise in company administrations – what do I need to know?

July 18, 2023

The rise in company administrations – what do I need to know?

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By Mark Rostron

The number of companies going into administration is rising, with business experts predicting a further rise in company administrations by the end of the year.

But what could this mean for your company?  This article sets out all you need to know about administration in light of the recent surge.

Why is there a surge in company administrations?

It is of no real surprise with the soaring inflation rates, and the Bank of England’s predictions of a long recession to come, that companies are struggling to stay afloat and are worried about their futures.  So much so that companies are now looking for lifelines from outside of their companies, with many asking Administrators to take the reign and try and save their company or if that is not reasonably practicable or improve recovery for creditors.

This year alone, there has been a 36 per cent increase in administrations, compared with last year, with the total expected to increase again by the end of the year.  So, what are administrators, and how can they help save your business?

What does company administration mean?

If you find that your company assets don’t cover your debts, or if your company can’t pay its debts when they become due, then your company may be facing insolvency.  In such circumstances, you do have a few options, one of which is to appoint an Administrator to take your company into administration.

Administration is when a licenced insolvency practitioner is appointed to take control of decisions and the day to day running of your company. The insolvency practitioner will be referred to as the Administrator, and they are usually appointed by the directors when your company is facing serious cashflow problems, is nearing insolvency or has received threats from various creditors.

Why do companies go into administration?

Going into administration gives your company time to do one of three things:

• rescue the company as a going concern or rescue is not reasonably practicable;
• achieve a better result for the company’s creditors as a whole than would be likely if the company were wound up; or
• realise property in order to make a distribution to one or more secured or preferential creditors.

In all cases, the administrator’s aim will be to work with you and your company to try and recover as much money and assets as possible. Going into administration will also mean that no other creditor can then bring legal action to wind up your company. You will essentially be shielded from any other claim whilst the Administrator tries to save you company, whether or not it actually can be saved.

Who appoints Administrators?

There are three routes into administration:

• by court order;
• appointment by a qualifying floating charge holder; or
• appointment by your company or your directors.

It will usually be the company directors that appoint an Administrator to take over by calling for a board meeting and voting on it. However, a qualifying floating charge holder can also do so, such as a bank or building society.

If you have concerns that your company may not be able to cover its debts or are uncertain about your company’s future and need any help or advice on any of the above, please contact Mark Rostron on mrostron@darwingray.com / 02920 829 129 or Kate Heaney on kheaney@darwingray.com / 02920 829 121 for a free initial chat to see how we can help you.