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Where a company reaches a point that it defaults on its debts or liabilities, it will be considered to be insolvent. At this time, there will be a high degree of uncertainty for directors, employees and shareholders, and creditors may wish to minimise their losses by seeking expedient court action for amounts owed to them.

One of the means of putting a temporary hold on creditor’s claims and instilling some certainty on the future of a business is to enter administration. During an administration period, a temporary hold is placed on creditors’ attempts to recover amounts owed through court action, and the directors of a company will relinquish control to external, officially appointed administrators. A company will further appoint an insolvency solicitor to act as an office holder during the administration process.

What is the process of entering administration?

There are three ways a company can enter into administration:

  1. The company itself or board of directors may appoint external administrators to whom they voluntarily relinquish control.
  2. A qualifying creditor, such as a floating charge holder, may appoint administrators.
  3. A court may move to intervene in the appointment of administrators.

What are the priorities of administration?

The principal function of the administrators is to secure the best outcome for the company’s creditors. However, where administrators take control of a company, they will first attempt to rescue the company through sale as an ongoing concern. This is achieved through two methods, the first being a sale on the open market, the second being via a “pre-packaged” sale.

If the administrators see potential for recovery and return of profits, the business can be advertised for sale on the open market. This method aims to obtain quick cash returns for creditors and ensure continuity for employees.

In anticipation of insolvency, a company can arrange a “pre-pack” sale where assets are professionally valued prior to the appointment of administrators. Often the current directors and shareholders will purchase the company’s assets and form a new company out of the previous one.

Where a formal agreement cannot be reached with a company’s creditors that entails the survival of the company, the company may be liquidated and its assets sold off. It remains favourable to all parties to seek an administration period prior to liquidation so that losses can be stemmed, and business operations are streamlined so as to mitigate effects on shareholders and employees.

Contact our Specialists Insolvency Solicitors in London

An insolvency solicitor is paramount for protecting the interests of the company, including the directors, who in the event a company in insolvency cannot be rescued may be subject to sanctions such as a ban from future directorship.

Lewis Nedas Law’s Insolvency Team has served a wide range of clients with their financial affairs during difficult times, including directors in insolvency and stakeholders such as banks, sponsors and landlords. We have provided expert advice on salvaging company prospects, including reorganising and restructuring of debts.

For further information or to speak to our expert Restricting and Reorganising Solicitors (including corporate recovery and insolvency) please call us on 02073872032 or complete our online enquiry form.

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