Administration Advantages and Disadvantages

An important part of deciding whether Administration is right for your company is considering the Advantages and Disadvantages. Generally speaking these will be more or less relevant depending on the nature of the business. You will need to take expert advice before making the decision to put your company into Administration.

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Advantages of Compant Administration

1. Legal protection from Creditor Action
Once the Administration starts all legal actions against the company are suspended. Even a Winding Up Petition from HMRC must be stopped. This gives breathing space to formulate and implement a recovery or restructuring package.

2. Maximum possible returns for Creditors
The administrator is working for the benefit of the creditors. The solutions proposed and implemented must be likely to generate a better return for them than simply Liquidating the company.

3. Restructuring can take place
Administration gives the opportunity for company restructuring. Non profitable parts of the business can be disposed of. Parts that have a future can be streamlined. This gives the best possible chance of debt repayment and sustaining employment into the future.

Disadvantages of Company Administration

1. Directors lose control
Once an Administrator is appointed the directors lose the power to run the company. They must only act under the authorisation of the Administrator. Restructuring of the company may lead to the Director’s removal.

2. Publicity may make trading difficult
Administration is a public event. All correspondence from the company must highlight clearly that the business is in Administration. This may seriously affect the company’s ability to continue to trade with key suppliers unless sufficient cash can be generated.

3. Generally an expensive process
The cost of Administration is generally high. As such the solution will normally only suitable for larger companies.

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