What Does It Mean When a Company Goes into Voluntary Administration?

Seeing the term ‘company administration’ in the press and hearing it in the news has certainly not been an uncommon occurrence in recent months.  Indeed, due to the COVID-19 pandemic and subsequent lockdowns, some big High Street names have been listed as ‘gone into administration’ including Debenhams, Jessops, Paperchase, New Look, the Arcadia Group, Dune, Jaeger, Moss Bros. and Hotter Shoes.

There are several aspects that all of these companies have in common – they are all insolvent and they have all entered a voluntary administration process.  But what exactly does the term administration mean for a company, and what is the process?

What is company administration?

Firstly, let’s clarify insolvency; just because a company owes money to creditors’ which is more than it has in cash and/or assets, it doesn’t necessarily mean the company has to liquidate, i.e. shut down.  As long as the company has sufficient funds to pay for essentials, such as employees, and their creditors are not demanding repayment, the business is able to continue trading.

If a company is basically viable but is struggling with cash flow, they will generally seek the help of an insolvency practitioner to identify their options, such as administration.  The main reasons for a company to enter a voluntary administration process are:

The company is struggling with severe cash flow issues; however the business is basically still viable.

The company is technically insolvent and needs to be sold as quickly as possible.

The company’s creditors have refused to agree to a company voluntary arrangement to pay back the arrears, or it is not possible to meet the time frame.