When a Debtor goes into Administration
Even with diligent credit control and robust Debt Recovery, it cannot prevent a customer from going into Administration.
Fortunately, it only happens with a small minority but it can still pay to be aware of the facts relating to administration. You may also still get some money back so all is not lost. It may just be a fraction of what you are owed but when Administration is involved, it is simply a case of damage limitation.
Administration is usually applicable to Limited Companies and does not apply to Sole Traders etc
When will a Business go into Administration?
Usually if they are insolvent or facing severe financial difficulties. If the company is placed into administration then their affairs are then managed by a third party. An Administrator is a licensed insolvency practitioner.
When is a Business placed into Administration?
A Business can be put into administration without court approval. This is usually done by the company, its Directors or by the anybody holding a floating charge over the Business.
What is the objective of Administration?
The objective of the appointed Administrator is to essentially act in the best interests of the company’s creditors. They will initially investigate ways to rescue the company and operate it as a going concern. This tends to involve cutting costs, selling off parts of the company or indeed selling the whole operation.
The Administrator has a year to formally construct a rescue. If this is not practical then the Administrator will liquidate the business. All assets and property would be sold off, with the proceeds distributed amongst its creditors.
What powers does a Administrator have?
The Administrator is deemed to be an Officer of the Courts and they have various powers. They include the authority to liquidate a company’s assets and/or operate the business as a going concern.
“I have heard a customer has gone into administration”
Try to contact your customer first and find out the facts. Alternatively, search on Companies House using their company registration number. These two options will usually confirm whether or not this is true. If it is true, companies house will normally have details of the appointed administrators are.
In the case that they are in administration, you will need to contact the appointed Administrators as soon as possible. Advise them that you are a creditor and they will send you a form to complete.
Where you have ‘retention of title’ over goods supplied as per your terms of service, you should be able to reclaim your goods. Simply advise the administrators immediately with a copy of the terms on which the goods were provided.
How much can I expect back?
Obviously it depends on the size of the debt and the debtor company. Each administration is different for obvious reasons.
There are varying levels of creditors and some take priority over others. There is 4 main different types of creditors in rank order as follows:
Secured Creditors – These have securities registered at companies house. If they have a fixed charge over certain assets then they will be paid from the liquidising of those particular assets.
Preferential creditors – These are usually employees and staff of the company. Sums owing will usually be for unpaid wages, holidays etc
Unsecured creditors – These are non preferential creditors. Consisting of normal trade creditors, normally with unsecured debts.
Shareholders – Shareholders would only receive some kind of payment once all other types of creditor have been paid in full.
Regrettably, the process of Administration is quite a lengthy process. The chances of receiving all the monies owed to you are very slim however it does happen. This is another reason why very late payment of invoices should not be tolerated. Taking a swift action to recover them using a Professional Business Debt Recovery service will ensure you maximise your profits and minimise risk.