What are the effects of Administration?

Implications for Directors

Once an administrator is appointed by the court, the directors effectively lose control of the company. The directors cannot make decisions which effect the operation of the business unless these are first agreed with the administrator.

If the decision is taken to continue to run the company, some or all of the directors may be retained. Once the company comes out of administration, control will be handed back to the directors.

If the company is to be closed, a liquidator will be appointed (often the same person as the administrator). One of the duties of the liquidator will be to investigate the directors of the company to ensure that they have not knowingly allowed the company to trade while insolvent.

If this were found to be the case, the directors could be at risk of being disqualified and becoming personally responsible for some or all of the company’s debt.

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Implications for Employees

The effect of administration on the company’s employees will depend on what the creditors agree should happen to the business. There are generally three outcomes:

• Business Continues to trade
  If the business continues to trade, it is likely that many of the employees will remain in their positions. While the company remains in administration, the salaries of the employees are guaranteed by the administrator.
  
  It is possible that some of the business will be restructured or sold. This could therefore result in some employees being made redundant.
• All or part of the business is sold
  If all or part of the business is sold, any employees must be transferred with the business under their same terms and conditions of employment.
  
  Employees are not necessarily protected from being made redundant by their new employer. However, this must be in accordance to employment law and taking account of full length of service rights.
• The business is closed
  If the business is closed, then all employees will be made redundant. Where there are sufficient funds to make redundancy payments these will be paid.
  
  If not, the liquidator will be responsible for paying up to £800 redundancy per employee. After that, any additional payments due will be treated as part of the company’s unsecured creditors.

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Implications for Creditors

Once an administrator is appointed, they will begin to work in the best interests of all the creditors.

Any petitions to wind up the company are stopped and the administrator will look to find the best way to return as much to the creditors as possible.

This may involve agreeing that the company should continue to trade but under a company voluntary arrangement so that the burden of debt is reduced.

Alternatively all or part of the business may be sold or liquidated if the administrator believes that it cannot be saved.

The recommendations of the administrator cannot be implemented until agreed by the creditors at a creditor’s meeting.

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