When a company cannot meet its liabilities as and when they fall due, that company is considered to be insolvent. However, this does not mean the end of the road for that business entity. Instead, through the process of company insolvency administration (CIA), an insolvent company can continue to trade, pay its creditors in honest installments over time, and keep the business running as usual.
In short, the administration process is designed to provide time for a business to restructure and once again become profitable, or where this is not possible for it to be sold or to be wound up and liquidated.
In all cases, the company administrator must be a registered insolvency practitioner.
What are the Purpose and Process of Company Insolvency Administration?
The fundamental purpose of CIA is to ensure that all creditors are able to recover the money they are owed. This is done by appointing an administrator who has the power to sell the business, sell any stock or to take the company down a CVA (Company Voluntary Arrangement).
One way an administrator can save a company is to negotiate a repayment plan with the company’s creditors that allows them to receive, over time, as much of their money as possible, perhaps via a CVA as mentioned above.
In other instances the administrator will also try to maximize the return on the company’s assets in order to repay its debts, this either being through its sale or the sale of its stock.
In short, the administration process is designed to provide time for a business to restructure and once again become profitable, or where this is not possible for it to be sold or to be wound up and liquidated.
Conditions for Commencing Company Insolvency Administration
Before the process can start, the business must meet two basic criteria:-
First, the company must be considered as being insolvent, whilst also being able to achieve a specific statutory purpose as laid down by current insolvency legislation.
And
There should be significant creditor pressure, which means in effect that the act of entering into administration is a means to prevent compulsory liquidation.
Company Continues to Operate During Company Insolvency Administration
The company continues to operate during CIA. Its property, rights and obligations are not affected. The administrator is in charge of managing the company’s assets during CIA. The administrator is also responsible for managing the company’s employees.
In short, the abilities of the company’s directors are severely curtailed as they cannot exercise any management powers unless they have been given permission by the Administrator.
Note, if the company exits the administration process, all powers are restored to the directors.
Objectives of Company Insolvency Administration
The administrator is responsible for protecting the company’s assets during CIA. This includes taking appropriate steps to prevent the company’s assets from being misused or destroyed. The administrator must take over the company’s assets and manage them as if they were his own. The administrator must be ready to surrender the company’s assets to its creditors as soon as the company’s insolvency terminates. The administrator is also responsible for gathering information about the company’s assets and liabilities. He is also responsible for negotiating a repayment plan with the company’s creditors. The administrator is also responsible for finding a way to maximize the return on the company’s assets so that the company’s creditors can be paid as much as possible.
Company Continuation During Company Insolvency Administration
The fact that a company has entered CIA does not mean that the company has ceased to exist. Instead, the company continues to exist and continues to be liable for any debts and obligations that it has incurred. The company’s property is not affected by CIA. The administrator does not become the owner of the company’s assets. Instead, he takes over the company’s assets without becoming their owner. The company is still liable for any obligations and debts that it has incurred. This includes any taxes or social security contributions that the company has failed to pay. The company’s name is still valid. The administrator does not have the right to change the company’s name.
The Role of the Court-appointed Administrator in CIA
The administrator is normally appointed by a Commercial Court. This court determines that the company is insolvent and enters CIA. The administrator is responsible for managing the company’s assets and negotiating a repayment plan with the company’s creditors. The administrator has the powers of a legal representative. He can make decisions and take actions on behalf of the company. The administrator is the representative of the creditors when negotiating the repayment plan with the company’s creditors. The administrator can also enter into a contract with a third party for the benefit of the creditors.
Conclusion
The purpose of the company insolvency administration process is to keep the company in business and retain its assets, with the aim of maximizing the return on the company’s assets so that creditors can be paid as much as possible. While the company is in CIA, the administrator is responsible for managing the company’s assets and managing the company’s employees. The administrator is also responsible for trying to sell the company, negotiating a repayment plan with the company’s creditors, and managing the company’s assets, with the aim of maximising the return on the company’s assets so that the company’s creditors can be paid as much as possible.
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