What does administration mean to a Company?

Finance, Limited Company,

One of the highest profile casualties of the challenges facing the UK high street was The Body Shop, which entered administration in February. From its position as a powerhouse of the high street of the eighties and nineties, when Anita Roddick was at the helm, it has struggled for some time.

Administration is a worrying time for employees as well as customers and suppliers. However, administration is not actually as serious as when a company immediately goes into liquidation. 

Let’s have a look at what it actually means…

When a company goes into administration, it’s placed under the management of licensed insolvency practitioners. These insolvency practitioners, known as administrators, help salvage the business or its assets. 

This process is typically started when a company is struggling financially and cannot pay its bills or other financial obligations.

During a period of administration, the appointed administrators take control of the company’s operations, finances and assets, with the goal of maximising returns for creditors. This may involve restructuring the business, selling off parts of it, or seeking new investment that will stabilise the company’s financial position.

There are benefits that come as a result of entering administration:

  • The change of status provides the company with protection from legal action by creditors, giving it breathing space to weigh up its options and find a solution. 
  • It can help to preserve jobs. 
  • It also allows for a more orderly resolution of the financial difficulties the company is facing, so the process helps to keep more value for the various stakeholders in the business.

Ultimately, the aim of administration is either to rehabilitate the company and return it to a solvent trading position, or to achieve a better outcome for creditors than would be possible through an immediate liquidation.

One negative impact of the appointment of administrators that shouldn’t be overlooked however is the size of the fee that may be levied by them to complete their work. This can be large and leave creditors with little by way of return. 

If you have concerns about your company’s financial position, please get in touch. We have insolvency practitioners in our network who are able to provide practical advice to help you make the right decisions for the future and are happy to share their details. 

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