November 15th, - Posted by Touch Financial to Blog. This followed hard on the heels of builder Rok, who went into administration on Monday.
Chairman Graham Parr was reported by the BBC as saying that the business was profitable and that the administration had been forced on them because their bank had withdrawn its rolling credit facility. So what does going into administration really mean and why do some businesses emerge from it apparently intact while others disappear? The purpose of administration is to enable the company to be rescued as a going concern.
Through being in administration an insolvent company is protected from its creditors and given time to restructure itself in a way that will allow it to survive. The company directors might choose to go into administration, or it could be forced on them by creditors or their bank.
The process of going into administration involves the appointment of an insolvency practitioner, often an accountancy firm, to run the business. They have a statutory duty to work on behalf of all the creditors and they will investigate what actions are available to save the business.
At the same time they will do what they can to keep the business operating as normal, although sections that are clearly losing money will be shut down very quickly. They will do what they can to cut operating costs, which is why a round of redundancies often occurs shortly after their appointment. A period of administration can last for as long as a year, sometimes longer. However, the administrator will want to resolve the situation as quickly as possible.
A successful administration results in the company being rescued and continuing to operate. It may be in a different form, with some elements having been sold off, and it may have different owners. Good examples of businesses that survive administration are football clubs. Over the years a number of clubs have entered administration and the club has survived, although the ownership and legal structures may have changed.
An unsuccessful administration sees the company going into liquidation while its assets and business are sold off. Google Plus Business Finance Community! Or be a pioneer on our Facebook page! Apply now and one of our consultants will help to find you the best invoice finance facility for your business, free of charge.
Why companies go into administration The purpose of administration is to enable the company to be rescued as a going concern. How companies come out of administration A period of administration can last for as long as a year, sometimes longer. Find this article useful? Join us on social media in one click. With TouchFinancial Or be a pioneer on our Facebook page! Twitter Feeds Tweets by TouchFinancial.
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