Good Morning Late Wednesday Birds.
ChatterBank0 min ago
Down the pan
What is the difference when companys go
a)into administration
b)bankrupt
c)insolvent
d)receivership
a)into administration
b)bankrupt
c)insolvent
d)receivership
Answers
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Insolvency is a general term meaning that a company (or individual) is unable to meet their debts.
It's illegal for a company to continue trading as normal while insolvent, so the company might go into administration. This offers the company short term protection from actions by its creditors, while the administrator tries to determine the best course of action. Under some circumstances an administrator might decide that it's possible for a company to return to normal trading (i.e. to 'come out of administration') if it sells some of its assets, and/or cuts back on expenditure (e.g. by reducing staffing), and/or gets its creditor to accept reduced payments.
For example, Ipswich Town FC went into administration. The administrator sold off players, cut back on ancillary staff (such as their commissionaire) and convened a meeting of the creditors where it was agreed that ITFC only had to pay a percentage of their debts.
Insolvency is a general term meaning that a company (or individual) is unable to meet their debts.
It's illegal for a company to continue trading as normal while insolvent, so the company might go into administration. This offers the company short term protection from actions by its creditors, while the administrator tries to determine the best course of action. Under some circumstances an administrator might decide that it's possible for a company to return to normal trading (i.e. to 'come out of administration') if it sells some of its assets, and/or cuts back on expenditure (e.g. by reducing staffing), and/or gets its creditor to accept reduced payments.
For example, Ipswich Town FC went into administration. The administrator sold off players, cut back on ancillary staff (such as their commissionaire) and convened a meeting of the creditors where it was agreed that ITFC only had to pay a percentage of their debts.
In other circumstances, an administrator might decide that the only option is for a firm to go into receivership. The company immediately (and permanently) ceases trading and all of the company's assets pass to the receiver, who then uses them to pay back as much as possible to the creditor. (In many cases that might only be, say, 1p or 2p in the pound).
Sometimes a company will recognise that there's no point in going into administration, and go directly into receivership.
In the UK the term bankruptcy only officially applies to individuals who are insolvent and who hand over their assets to the Official Receiver in order to wipe out their debts. However, the term is used colloquially to refer to a company going into receivership. (In the USA the rough equivalent of 'administration' is 'Chapter 11 bankruptcy', with '(full) bankruptcy' being akin to 'receivership' in the UK).
Chris
Sometimes a company will recognise that there's no point in going into administration, and go directly into receivership.
In the UK the term bankruptcy only officially applies to individuals who are insolvent and who hand over their assets to the Official Receiver in order to wipe out their debts. However, the term is used colloquially to refer to a company going into receivership. (In the USA the rough equivalent of 'administration' is 'Chapter 11 bankruptcy', with '(full) bankruptcy' being akin to 'receivership' in the UK).
Chris
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