Company administration aims to avoid liquidation and keep a business running while also achieving the best deal possible for creditors.
When companies get into financial difficulties, it can leave suppliers who are owed money in a tricky situation. As the saying goes, you can’t get blood out of a stone.
Experienced debt recovery professionals know how to maximize your chances of getting paid.
If one of your clients has mentioned ‘going into administration’ this guide will help you with the next steps.
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Table of Contents
What Does “Going Into Administration” Mean?
Going into administration means that the company is entering the administration process. Administration can be entered by company directors voluntarily, or it can be ordered by a court, usually following an application by creditors.
Once administration has been entered, a business is protected from any further action to recover debts, such as a winding-up petition. However, control of the company is taken out of its directors’ hands.
When a company goes into administration, a qualified insolvency practitioner is appointed as administrator to manage the business and resolve its outstanding debts. On Companies House, you will see the date the administrator was appointed.
What Causes Companies to Go Into Administration?
There will be two signs that a company may be on a path to administration:
- Cash flow problems: When a business doesn’t have ready money available to pay its debts on time. This is often temporary and can be resolved.
- Insolvency: When it can no longer pay its debts as they fall due or when its liabilities exceed its assets. At this point, the company may enter a formal insolvency procedure.
Once a company is insolvent, there are various procedures a company could go through:
- Company Voluntary Arrangement (CVAs): The company proposes a payment plan to creditors, typically spreading debts over 3-5 years. The company continues trading while making agreed payments.
- Company Administration: An insolvency practitioner (administrator) takes control of the company to do one of three things: rescue it as a going concern, achieve better results for creditors than immediate closure, or realize assets to pay secured creditors. The company continues trading during administration.
- Liquidation: The company is wound up, and its assets are sold to pay creditors. Liquidation can be compulsory (forced by creditors through court) or a creditors’ voluntary liquidation (directors initiate it when the company is insolvent). Once liquidation begins, the company stops trading, and you’ll need to submit proof of debt to claim any money owed.
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How Company Administration Works
Once a company goes into administration, the administrator’s first task is to assess how viable the company is as a going concern. This includes evaluating all relevant aspects, such as:
- Turnover
- Profitability
- Debt burden
- Number of employees
- Contracts with suppliers and clients
- Market value
Once this stage has been completed, the administrator must form a plan for settling outstanding debts and bringing the company out of administration. This may involve any combination of:
- Restructuring
- Finding a buyer to invest
- Selling off assets or liquidation.
Some procedures, known as Pre-Packaged Administrations, see the sale of a company or its assets agreed upon before administration is entered, fast-tracking the whole process.
What Does Administration Mean for Creditors?
Administration is intended to strike a fair balance between the needs of struggling companies and creditors.
If a client who owes you money goes into administration, you will be notified by the administrator. The most immediate effect this will have is that any legal proceedings related to debt recovery efforts will cease, and you will not be able to launch more.
However, the administrator is obliged to achieve the best possible outcome for creditors. They will write to you within 8 weeks outlining their proposed course of action, whether this involves sale of assets, restructuring, sale, or closure.
They may also recommend entering a CVA and invite you to start negotiations.
Ultimately, there is no guarantee that you will be able to recover the full value of your debts from a company in administration. But this also applies to liquidation – if the value of a company’s assets does not match its debt burden, creditors will not get all of their money back.
The advantage of administration is that it looks at all available options before closure and puts a trained professional in charge whose job is to get the best deal possible for everyone.
What Are the Warning Signs Your Client May Be Going Into Administration?
Spotting problems early gives you time to protect your position. In our experience, there are often warning signs that administration may be coming, and we have a list of late payment red flags you can read.
In particular, look for:
Payment changes. When a client starts to miss payment deadlines and debts mount up, it is natural to start to wonder – do they have the means to pay? Look out for:
- Late payments or unpaid invoices
- Persistent payment problems and mounting debts
- Requests to vary payment terms, like extending deadlines asking to pay in installments
- Cheques bouncing or direct debits failing
- Only paying enough to keep the account just within credit terms
Communication changes. Clients with cash flow problems may become evasive, ignoring late payment letters and avoiding phone calls. You may notice:
- Key contacts becoming difficult to reach
- Vague explanations about payment delays
- Promises to pay that aren’t kept
- Finance director or other senior staff departing suddenly
Operational signs: A company that is heading into administration may begin to scale down its orders. Watch out for:
- Reduced order volumes or cancelling regular orders
- Requesting smaller deliveries than normal
- Staff redundancies or office closures
- Suppliers or contractors visibly stopping work at their premises
Company information: Keep an eye on the client’s business credit report and follow the company on Companies House.
You can also set up a Google Alert on the company name.
You should look for:
- County Court Judgments (CCJs) appearing on their credit file
- Overdue accounts filed at Companies House or accounts showing losses
- Changes in directors, particularly the appointment of turnaround specialists
- Winding-up petitions published in The Gazette
What Should You Do If You Spot Signs of a Client Entering Administration?
If you find out that one of your clients is entering administration, reach out to a debt recovery agency as quickly as possible.
We understand insolvency procedures, know how to communicate effectively with administrators, and can often spot recovery opportunities you might miss.
Early advice – even just a conversation about your options – can make a significant difference to what you ultimately recover.
In the first 24-48 hours, you should also:
- Check what you’re owed – Gather your invoices, delivery notes, contracts, and correspondence. Calculate the exact amount you’re owed using our free late payment calculator.
- Stop supplying – Unless you are a supplier of essential supplies, that is to say a supplier of services specifically listed in sections 233 and 372 of the Insolvency Act 1986 you’re under no obligation to continue providing goods or services once administration begins. You should only continue if the administrator specifically requests it and agrees to pay further fees directly.
Managing some of these processes requires specialist knowledge. We can assess whether any alternative routes are worth pursuing in your specific situation.
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What NOT to Do If You Spot Signs of a Client Entering Administration
If your client is entering administration, don’t expect quick answers from the administrator. Don’t offset debts or take back any goods.
Additionally, don’t rush into an agreement with a debt collection agency. Read our guide to the hidden risks in some no-win, no fee debt collection services.
Instead, contact Safe Collections immediately for a free review of your claim. Since 1984, we’ve been successfully collecting unpaid debts for businesses in the UK and have 10,000+ satisfied clients.
