Companies in Administration

In what circumstances does a company find itself in administration?

Financial difficulties can lead to a company being placed into administration. Whilst it is in administration, the company, along with its affairs and assets, are managed by a person (known as 'the administrator') who has been brought in for that purpose. It is essential that the person is a licensed insolvency practitioner. Their objective is to either rescue the business as a going concern or achieve a better result for the creditors than would be likely if the company were wound up without first being in administration. If neither of these options are practical, then the administrator will attempt to realise assets to make a distribution to secured or preferential creditors. This is often achieved by selling the company itself, or its assets. In many instances, the company in administration remains trading.

Where an agreement for the sale of the business or assets is put in place prior to administration and the sale happens at the same time as the administrator is appointed, the use of prepackaged administration may occur.

How can a company be placed into administration?

There are a number of ways by which a company can be placed into administration. A company can submit an application from its directors, one or more creditors, or, if it is in liquidation, its liquidator; without a court order. They can appoint an administrator directly or one of their creditors can do so, so long as he holds comprehensive security of a type which qualifies him to make such an appointment. Another method a business can be placed into administration is via a court order.

How can I buy a company in administration?

Buying a business out of administration is an excellent opportunity to make money as long as you know what you are doing!  Perhaps the owner is an ineffective manager, without the necessary skills to structure the business, the marketing skills to capitalise on sales opportunities or the discipline to manage inventory levels. An investor with sufficient financial resources and expertise could turn around such a company; and although capital is not exactly abundant at the moment, the cost of a deal is often a lot less now than it would have been just a couple of years ago. What is vital when considering such an investment is to be able to act quickly and carry out vigilant due diligence.

It is not just the balance sheet of the proposed acquisition that needs to be examined carefully. All financial records should be checked, plus anything else that is material to the sale. This means in essence that all aspects of the business need to be properly analysed.

UK companies entering administration higher overall in 2009

The latest corporate insolvency figures from Tenon show that the number of UK companies entering administration has started to fall.

Corporate insolvencies were down 4.7 per cent compared to the previous quarter with 4,716 compulsory liquidations, reports the Insolvency Service.

However, the number of companies going into liquidation in the third quarter of 2009 was 14.6 per cent higher than in the same period in 2008.

The head of business consultancy at Tenon Recovery, Carl Jackson, said that low interest rates, the reduced rate of VAT at 15%, low inflation and the Inland Revenues "Time to Pay Scheme" have allowed some firms a bit of breathing space, but there is a feeling that these initiatives are simply delaying inevitable failure. Once these are withdrawn, there may well be a flurry of failures.

According to Tenon, the total number of business failures so far in 2009 is up by 28.8 per cent over 2008. The firm expects some 5,000 more businesses will go into liquidation or administration during November and December.