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Thursday, 5 June 2014

What does 'going into administration' mean?

We often get asked this question by customers or employees of a company.

Unfortunately for them, it is usually bad news. If a company goes into administration, the unsecured creditors are unlikely to receive much, if anything back from the administrator. Secured creditors such as banks and lenders are at the top of the list when it comes to priority.

Any recovery of money is usually very little or nothing at all. Very rarely do the assets and the business generate sufficient realisations to pay the secured creditors in full. There is also administration costs.

What about employees? Well the harsh truth is it may be bad news but every situation is different and not set in stone. The administrators have to take on the employee's rights after 14 days of being in office (as administrator), therefore you will often see adverts for "immediate offers for the assets of ABC Ltd". The general aim is to get the business sold as fast as possible before the administrator has to take on that risk.

The administrators will carefully assess what parts of the business can continue and what parts can't. Then they may need to make some employees redundant as quickly as possible. Retained employees are generally transferred to any buyer under TUPE. This protects them during the transfer.

If you're a concerned employee and you think you may be made redundant, visit our page on employee rights.

Administrations are difficult and stressful situation for creditors, suppliers and employees, however insolvency practitioners work hard to ensure the best outcome for all parties and will take legal advice when and where they need to.

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