There is no set time limit a company can stay in administration, it usually can last up-to 12 months with possible extensions of up to 6 months with the constant of the court.
Businesses that are experiencing significant financial distress, with creditor pressure or a threat of a winding up petition it may be recommended that the company is placed into administration. The company administration process is a powerful form of corporate insolvency procedure which gives a struggling business both space and time to turn its fortunes around.
Administration is not a solution in itself, nor is it a permanent state for a company to be in. It main function is more like a holding stage, while a more route forward for the company is planned.
Once an administration process has been activated, the courts afforded legal protection in the form of a moratorium. This prevents creditors initiating legal proceedings against the company to recover money owed.
Now the business is safe from the threat of any type of litigation, the company is able to formulate a workable plan and make informed decisions regarding its future direction
What role does the administrator play?
Once the company enters administration, control of the business is handed over to the appointed administrator. This person must be a licensed insolvency practitioner.
Administrators work both the company’s shareholders and also its creditors, they do this in order to achieve the best outcome for the company and whether it is likely to have a viable future as a trading entity.
The company may be allowed in the short-term to continue trading while it is in administration. In some cases, it may be decided that ceasing trade is the more appropriate option in order to protect creditors from further losses. This will be assessed on a case by case basis by the appointed administrator.
How long can a company remain in administration?
Time frames for companies in administration is based on a case by case basis, as each appointment is different and depending on the scale of the problems. The future viability of the company, with differing levels of professional input that maybe be required to achieve this.
The administration process typically don’t last longer than 12 months, although in cases where more time is required, the administrator will apply for an extension from the court. The administrator will need to demonstrate why they require more time in order to obtain the best result for the company and its creditors.
While not particularly significant the length of time a company spends in administration, the most important factor is that the administration achieves one of the three statutory purposes as set out in the Insolvency Act 1986.
These statutory purposes are:
- To rescue the company as a going concern, or
- Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration), or
- Realising property in order to make a distribution to one or more secured or preferential creditors.
Should one of these be achieved, then the company will leave administration via an appropriate exit route.
This could mean the company continues to trade. It could continues to trade while under an alternative insolvency procedure such as a CVA, or ceases trade completely before entering a formal CVL procedure.
Considering administration?
If your company is experiencing financial pressure from creditors, you maybe considering the possibility of placing it into voluntary administration. Directors and shareholder should ensure that you take professional advice at the earliest possible opportunity.
Would would welcome you to have a free consultation with a licensed insolvency practitioner. We will help direct you via the most appropriate way for your business, which may be company administration.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.