How to Get Out of Administration
Administration is one of the avenues available to a company that’s become insolvent. Recent statistics reveal that across a large part of the UK, registered company insolvency in February 2023 was 17% higher than the same month last year and 33% higher than pre-pandemic numbers registered in 2020.
With insolvency rising and administration potentially offering a lifeline to insolvent companies, the questions arise: ‘can a company recover from administration’ and ‘how to get out of administration?’
As grave as the administration process may appear, the good news is administration is not necessarily a death knell for a company. Can a company survive administration? In many cases, yes. In fact, administration could be the very process that enables a company to recover from insolvency and become a profitable business once more.
How Long Can You Be in Administration?
To understand how to get out of administration, we need to be aware that administration is not an event or outcome. Administration is a process that follows several discrete steps, leading towards the final step, which is exiting administration.
With this in mind, you may wonder how long can you be in administration.
While each circumstance may be different depending on the complexity of the matter, United Kingdom insolvency legislation requires that: ‘The administrator must perform their functions as quickly and efficiently as reasonably practicable in the best interests of the creditors as a whole.’
In practical terms, this could range anywhere from a few weeks to over a year depending on the complexity and preferred outcome. If more than a year is required for administration, an extension of up to six months must first be applied for and granted by the court.
Can a Company Come Out of Administration?
For an insolvent company, administration could be key to turning around financial distress. But once a company enters administration can a company come out of administration? Unlike liquidation, which results in the cessation of the company, administration affords the company further opportunity to repay creditors, recover from insolvency and become profitable once more.
Once the administrator has completed the accepted administrative proposal, a company can come out of administration through the chosen exit strategy.
How to Exit Company Administration
One of the questions the administrator must answer for all company stakeholders very early in the administration process, is how to get out of administration. After examining all the existing information on the company´s financial position, the administrator sends an administrative proposal to all creditors. This proposal not only includes the current statement of affairs and the administrator’s plan to address that, but also the desired outcome and the exit strategy detailing how to get out of administration once the process is complete.
As detailed below, there are three main ways for a company to exit administration.
During the administration process, if the administrator has determined that the company has recovered its profitability and can pay off its debts, one way to get out of administration is by entering a company voluntary arrangement (CVA).
A CVA is a positive outcome of administration for both the company and the creditors, whereby the administrator’s proposal for the CVA is accepted, and the company exits administration and is handed back to the directors.
Another possible outcome of administration is a pre-pack administration, which is a fast yet complex option suitable in certain company insolvency circumstances. In this scenario, before an administrator is appointed, all or part of the business or its assets are agreed to be sold to a previously determined buyer. The sale is completed immediately following the appointment of the administrator. The buyer of the business or assets can then re-establish the business under a new name.
While it’s certainly possible in many instances for a company to recover from administration, it is not always the case. Once the administrator has actioned the proposed internal changes, if it is clear the company cannot be restored to profitability, the company can be dissolved.
If there are remaining assets that can be sold to release funds to creditors, the company can enter voluntary liquidation. If there are no remaining assets, the company can be dissolved without liquidation. In each case, the company exits administration.
Can a Company Survive Administration?
In order to answer the question ‘can a company survive administration?’ we can consider the two primary objectives of the administration process. The first is to pay off debts owed to creditors, and the second seeking to regain profitability and rescue the insolvent company. Inherent in these objectives is the recovery and financial viability of the company. That may not always be achieved but it is a primary objective of the administration process with the administrator working to the end that creditors can be repaid, and the company has the best opportunity to recover financially.
Can a Company Recover from Administration?
With a professional licensed insolvency practitioner leading the charge, it is possible to recover from administration and regain profitability.
Our experienced team is here to guide you through the process of dealing with company administrations. We offer clear and impartial advice designed to bring speedy solutions to complex problems, including how to get your company out of administration. Let Irwin & Company be your partner in finding a path to financial recovery. Contact us now.