The cost of an administration process for a company will depend on a variety of factors, including the size and nature of the company, the amount of time the company is in administration, and any costs incurred for the realization of assets.
It is difficult to provide a specific cost for an administration as it will vary depending on the specific circumstances of each case.
Insolvency practitioners typically charge an hourly rate for their services, and the overall cost of the administration process will depend on the amount of time and resources required to manage the process.
Importantly for companies is that they need to be aware that the costs associated with an administration process can be significant and may include fees for the insolvency practitioner, legal fees, and other costs such as accounting and valuation services.
It is important for companies to carefully consider the potential costs of an administration process before pursuing it.
What is the cost of an Administration?
The cost of an administration depends on the size and complexity of the job, and can be dependent on the amount of time the company is in administration for.
The fees for an administration will vary depending on the circumstances surrounding the company. The level of debts the company has, number of creditors, the assets and liabilities of the company, including any contingent liabilities and assets which are subject to a fixed or floating charge.
Some insolvency practitioners may require an up-front fee for any advice on administrations, we require no such payment and can provide free confidential advice. After the company directors have discussed the options available via a cost-free consultation with one of our advisors and if we are chosen to act as administrators, it is at this point the arrangement commences and the appropriate costs will apply.
Ensuring that it is professionals advising you on an administration and the costs involved, is essentially to the cost and validity of the process.
Determining the Administrator’s fee
When a company enters Administration, it’s often assumed that the owner of the insolvent company will pay the administrator’s costs/fees, but that isn’t the case. The costs of Administration, including the Administrator’s fees, are paid out of the company’s assets before anything is paid to creditors. This is why creditors have a valid interest in the Administrator’s remuneration.
Once appointed the administrator is obliged to put forward a proposal to creditors for achieving the purpose of the administration. The administrator must outline why an administration is being used as a potential rescue and recovery tool. They must also outline why an administration will provide a better return for creditors, as opposed to other insolvency solutions.
Creditors would be invited to a meeting to discuss the proposal and the Administrator must get approval for their fees and costs. The fees must be clear in the proposal and creditors could request modifications before they approve them.
How is an administration paid for?
Administration is paid for with fees that are realised throughout the process of an administration, these can be covered in several different ways.
The company temporarily continues trading
The Company may continue to trade under the control of the Administrators and costs may be covered from any profits generated during its time of trading.
Sale of company assets
The sale of company assets realise funds that could be sufficient to cover the costs incurred by the IP that is acting and carrying out the administration
Why would I want to use an administration?
There are a number of reasons why a business in the UK might consider using an insolvency administration process. A business may be struggling to pay its debts as they become due due to financial challenges such as declining sales, increased expenses, or mismanagement of finances. The insolvency administration process can provide a way for the business to reorganize its finances and come up with a plan to pay off its debts over time, or potentially have some of its debts forgiven.
It can also provide a way for the business to restructure its operations in order to become financially viable again. Additionally, the insolvency administration process can provide protection for the business against creditors taking legal action to recover their debts. It is important to note that the insolvency administration process can have negative consequences, such as damage to the business’s reputation and the potential loss of assets, so it should be carefully considered before pursuing it.
Protection from creditors
An insolvency administration process for a business, such as administration can offer protection to the business from creditors by placing a temporary stay on most collection activities and legal proceedings. This means that creditors are not able to take action to recover their debts, such as garnishing wages or seizing assets, while the insolvency administration process is ongoing.
The insolvency administration process provides a way for the business to reorganise its finances and come up with a plan to pay off its debts over time, or potentially have some of its debts forgiven. The goal of the insolvency administration process is to allow the business to get back on track financially, and the protection from creditors can help to provide the necessary time and space to do so. It is important to note that the insolvency administration process can have negative consequences, such as damage to the business’s reputation and the potential loss of assets, so it should be carefully considered before pursuing it.
The company can be restructured
An administration process for a company in financial distress can provide the opportunity for the business to be rescued and restructured. The protection from creditors that is provided by the administration process allows insolvency practitioners the time and space to assess the business’s financial situation and come up with a plan to turn the company around. This may involve restructuring the business’s operations, negotiating with creditors, and potentially selling off certain assets in order to pay off debts.
With the advantage of time and protection from creditors, the company has a greater chance of avoiding being wound up and can work towards becoming financially viable again. It is important to note that the administration process does not guarantee the success of the business and there is a risk of the company being liquidated if it is not able to recover.
Creditors get the best return
Insolvency practitioners are responsible for managing the insolvency administration process for a company and ensuring that the company’s assets are used to pay off its debts to the greatest extent possible. One of the main goals of the insolvency administration process is to maximize the return to the company’s creditors, as these are the individuals or businesses to whom the company owes money.
An administration process can provide a great opportunity for this, as it allows the insolvency practitioners to assess the financial situation of the company and determine whether it is possible for the company to continue trading. If the company is able to continue trading, it may be able to generate revenue that can be used to pay off its debts, resulting in a greater return to creditors. It is important to note that the insolvency administration process does not guarantee a successful outcome and the ultimate return to creditors may depend on a variety of factors, including the value of the company’s assets and the amount of its debts.
Employees can continue
If a company is able to continue trading as a result of an insolvency administration process, it can provide the opportunity for some or all of the company’s employees to continue working and receiving their salary. This can be beneficial for both the employees and the company, as it allows the employees to maintain their livelihood and provides the company with a source of labor to continue its operations. Restructuring the company in a manner that allows it to continue trading, either in the short-term or long-term, can be a key goal of the insolvency administration process.
This may involve negotiating with creditors, selling off certain assets, or reorganizing the company’s operations in order to make it financially viable again. It is important to note that the outcome of the insolvency administration process may not always result in the company being able to continue trading, and there is a risk that some or all employees may lose their jobs if the company is unable to recover.
Read more: Pre pack administration guide
Company administration is a formal procedure that must be carried out by a licensed insolvency practitioner in the UK. It enables the insolvency practitioner to take control of the company and gives the company protection against creditors while a plan is developed for the best way forward for the business.
The costs associated with an administration process will depend on the size and nature of the company, as well as the amount of time the company is in administration and any costs incurred for the realization of assets. Although an upfront fee is not typically required to carry out an administration, it is important for companies to be aware of the potential costs involved in the process.
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.