With news every week that companies of all shapes and sizes are ending up in administration, there has never been a better time in the last 10 years to invest in company administrations.
Why Company Administrations Occur
Of course the primary reason companies are forced into administration is due to financial distress. At the moment many banks are forcing company administration as they try desperately to balance their overburdened balance sheets.
The company and all its affairs and assets are managed by a person (known as ‘the administrator.’) They are brought in for that sole purpose. The administrator must be a licensed insolvency practitioner.
Rescuing the business as a ‘going concern’ is their main priority, but they also decide if the creditors and investors will get better result if the company were wound up without first going into administration. Sometimes the administrator would find that selling the assets to secured or preferential creditors is the best option instead. This could mean selling the company itself, or its assets. This is the point where you can invest in company administrations. It is possible for some companies in administration remains trading throughout the process.
If an agreement for the sale of the business or assets is made prior to administration and the sale happens at the same time as the administrator is appointed, the use of prepackaged administration may occur.
How A company Is Placed Into Administration
There are a few different ways that a company administration can happen. A company can submit an application from its directors, one or more creditors, or, if it is in liquidation, its liquidator; without a court order. In other words, the company can appoint an administrator directly.
Another way is for one of their creditors to force the administration, assuming they hold a big enough security of a type which qualifies them able to do so. Lastly, a court order can be made which forces a business or company administration.
How To Invest In Company Administrations
There can be a big opportunity to make money by buying a business out of administration. A lot depends on the state of the business. Often a business can be a great idea but the management is poor or because of lack of skills. Often companies buy too much stock and can’t sell it quick enough, hence not having any liquid cash to run the business.
Investors with access to good funding or their own financial resources and expertise can often turn around a company from bad to good. In recession times, the cost of a deal is often much lower than in buoyant times. It’s very important that the investor can act quickly to take control and is experienced with due diligence matters.
Before considering such a move to invest in company administrations, financial records and all aspects of the business need to be properly analysed and checked for accuracy.