Exit from administration – what options are available?

A company can conclude company administration via a Company Voluntary Arrangement (CVA) if it owes money to creditors, opt for Creditors’ Voluntary Liquidation (CVL) if it is no longer sustainable, or persist in trading if the financial health of the business is revived.


What occurs to a company after administration?

For a company facing financial distress, several formal insolvency options can be utilised to rescue the business and shield creditors from additional losses. Placing the company into administration is one of these alternatives.


It gives a company breathing space

Administration is not a lasting remedy for a company’s issues; rather, it is a temporary measure employed to provide the company with the chance to reverse its fortunes or secure a more favourable return for outstanding creditors. 

A licensed insolvency practitioner is appointed as the administrator, taking control of the company. They will then evaluate future options for the business, whether that involves crafting a rescue plan or ensuring a more beneficial outcome for creditors if continued trading is unfeasible.


What are the objectives of the administration?

The objective of administration must be specific and not serve as a perpetual means to sustain a failing company. The Insolvency Act 1986 outlines three ‘statutory purposes’ of administration, one of which must be achievable for a limited company to enter administration. 

These objectives are:

  • Rescuing the company as a going concern, or
  • Achieving a superior outcome for the company’s creditors as a whole compared to winding up the company without prior administration, or
  • Realising the company’s property to distribute to one or more secured or preferential creditors

A company in administration is granted legal protection through a moratorium, preventing creditors from initiating legal action to recover owed money. This moratorium is a significant advantage for a struggling company, offering valuable time and space for implementing a rescue plan or a more advantageous realisation of assets.


Exiting from company administration

There is no fixed time limit for how long a company can stay in administration; however, the administrator is obligated to perform their duties as promptly as feasible, and eventually, the company will have to exit administration.

Various methods can facilitate this exit, with the most suitable option contingent on factors such as the company’s financial standing and its future viability.

A. Continuance of trade

The moratorium may offer ample time for the company to address its financial challenges through asset sales, securing additional funding, or reaching an informal agreement with creditors on repaying outstanding debts.

Should this prove successful, the administrator, content with the company’s stability, would relinquish control, allowing the directors to resume their regular operations. The company would continue its activities and would no longer be considered under insolvency proceedings.

Nevertheless, for many companies, administration serves as a preliminary step towards an alternative insolvency arrangement to address the company’s challenges.


B. Company Voluntary Arrangement (CVA)

In cases where a company grapples with the weight of substantial historical debts, yet demonstrates positive ongoing performance and a promising future, a Company Voluntary Arrangement (CVA) may be advisable.

As a formal rescue process, the goal of a CVA is to enable a struggling company to trade its way out of financial distress by utilising future profits to settle existing debts.

A CVA can be likened to a formal payment plan the company enters into with its outstanding creditors. A licensed insolvency practitioner formulates a payment schedule and presents it to the company’s creditors. For the CVA to be accepted and take effect, at least 75% (by value) of these creditors must agree to the proposal. Once this agreement is secured, the CVA becomes legally binding on all parties.

Consequently, the insolvent company must make the agreed payments punctually and in full. Simultaneously, creditors are obligated to honour the payment plan, refraining from demanding amounts beyond the agreed-upon sum or initiating legal action, provided the company adheres to the CVA terms.

In most CVAs, a proportion of the company’s outstanding debt is written off, and internal restructuring may occur to trim operating costs.


C. Creditors’ Voluntary Liquidation (CVL)

While administration is commonly used as a rescue measure, it can also serve as a precursor to placing the company into voluntary liquidation through a process called Creditors’ Voluntary Liquidation (CVL).

Liquidation may occur if, during the administration, it is determined that the company is no longer viable and has minimal chances of future profitability. Alternatively, the decision for eventual liquidation may have been made at the outset, with the strategic placement into administration to enhance creditor returns.

Liquidation following administration mirrors other CVLs, though, in these cases, the business’s assets may have already been sold as part of the administration process. If so, entering into CVL enables the distribution of the realised funds to creditors.


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Vanguard Insolvency can assist

If your company faces financial challenges, and you are contemplating administration, seek advice from a licensed insolvency practitioner promptly. Vanguard Insolvency boasts a nationwide network of offices and over 100+ licensed insolvency practitioners. Reach out to our expert team today for immediate assistance and advice or to schedule a complimentary initial consultation. 

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.