What is insolvency administration?

    When a company is no longer able to pay its debts or running costs, it becomes “insolvent”. Administration is a term used to describe the process whereby an insolvent business is taken over and run by an external company for a period of time.

    During this time, the external team – or administration company – will be responsible for assessing the assets of the insolvent company and working out whether they are sufficient to pay off creditors.

    This process is also known as going into administration and usually takes place in a set time frame, commonly 12 months.

    Administrators will assess: solvency or bankruptcy?

    On arriving at an insolvent business, the administrators must work out how much money is needed to service the company’s debt and keep it running. It is up to the administrators to work out whether the asset base of a company is big enough to pay any creditors.

    If the company has enough assets to pay off creditors and continue running, then it may be restored to solvency.

    If the company does not have enough assets to cover its debts and has no other lenders willing to step in and inject capital funds into the business, the administrators are likely to declare the company bankrupt. At this point, the business may face liquidation, which ultimately results in closure.