When a company becomes insolvent and can no longer pay its debts, it is placed under administration by an insolvency practitioner. This protects the business from legal action by creditors who want to recover their money.
A business may go into administration for a variety of reasons, but it is important to take steps to avoid it. If you find your business going into administration, there is help available. However, you should also be aware of the reasons why this happens. This will help you avoid any unwanted stress and keep the business running.
Financial Difficulties
Financial difficulties happen for many reasons, some of which are completely out of a business’s control. This can include sudden, unexpected changes in the market that result in a substantial drop in sales.
If a business can’t keep up with its bills, it is likely to go into administration. This can be a good way to save your business, as it gives the administrator the time, they need to get everything in order and restructure as much as possible.
Changes In The Market
There are several reasons that a business might find itself in administration, the most common being a change of ownership. A business could also be put into administration if a court finds that it is not fit for purpose.
Depending on the circumstances, an administrator might take over the reins of the business, liquidate it or sell it to the highest bidder. Regardless of the reason(s) for your company to be in administration, there are a few things you can do to mitigate the consequences.
Unexpected Events
When businesses go into administration it is usually due to unexpected events. This can be due to financial difficulties, changes in the market or simply because the business cannot make money any longer.
It is a very common scenario in the world of business and it happens to companies big and small every year. However, it is important to understand that this does not necessarily mean it is a bad thing for the business and there are often ways to resolve the problem without putting the company into liquidation.
Redundancy
One of the main reasons that businesses go into administration is redundancy. This is when the company doesn’t have enough employees to run the business effectively.
The company may be unable to pay staff their full statutory redundancy pay and notice payments, or they might not have enough money to cover the costs of redeployment. When this happens, the employer can’t afford to keep workers and it will have to let them go.
If the company is bought out by a new business, the buying company can take over the contracts of the existing staff and they will continue to receive their employment rights under the TUPE regulations.