If a Company Goes Into Administration, Do I Have to Pay Them?
Envisage this scenario: you’re just about to pay a company some funds, perhaps for some goods or supplies, and you find out they’ve gone into administration.
You scratch your head thinking, “do I still need to pay them?”.
The chances are that the administrators who have taken over the insolvent company will want any money owed to them paid back.
Just because a company has become insolvent, doesn’t mean your debts are automatically wiped out.
In this blog post, we’ll look at administration through to liquidation, why it’s vital that you still pay back any invoices or debts owed, as well as whether there are any exceptions to this.
First, though, it’s critical to define exactly what administration is.
What is administration?
Administration is the process whereby a company or limited liability partnership (LLP) becomes insolvent. Said company is then put under the supervision of Insolvency Practitioners (IPs).
Administration typically occurs when a business is in significant debt, with the Insolvency Practitioners coming in to assess whether the company is salvageable, or whether it will have to be liquidated.
If you want to discover more about the liquidation process, you can read about it in our
guide to the different types of liquidation.
It’s important to note that liquidation is often seen as the last resort, and whilst many IPs will offer liquidation as a service, they’ll invariably look for other, less-damaging alternatives in the first instance.
Is administration the same as insolvency?
Although operating in similar spheres, the two terms aren’t interchangeable.
That’s because, while administration is indeed a form of the insolvency process, not all insolvency processes revolve around administration.
Besides administration, other insolvency processes include: Creditors’ Voluntary Liquidation, Winding Up Petitions and Time-to-Pay Arrangements, to name just a few.
What’s more, the primary difference between ‘administration’ and ‘insolvency’ is that insolvency is the term used wherein a company (or individual) is unable to pay the debts they owe, and a process (such as administration) is used as a solution to that debt status.
Put another way, insolvency can be thought of as ‘illness’, whilst administration is amongst one of several ‘cures’.
Do I still need to pay a company in administration?
Unfortunately for you, the answer is yes. Debts owed to a company at the time it goes into administration are still required to be paid.
In many cases, debtors are the first parties to be called upon by administrators to pay what’s owed to a company as a means of reviving said company’s cash flow once more.
There are no exceptions to this, save for if the company in administration directly contacts you to let you know they’ve wiped any debts owed.
What happens if I don’t pay what’s owed?
If you don’t pay the debts you owe, be that a loan, an invoice or anything else, then you’re liable to the same penalties and punishments that you would be were the company solvent.
That’s to say, late (or non-existent) payments can lead to a negative impact on your credit score
This, in turn, makes it more challenging to take out loans, mortgages or other credit-based options.
At its most extreme, a failure to pay off your debts to a company can even result in you or your company being taken to court or being subject to the creditor’s debt collection processes.
It’s worth noting that this is usually only in instances where significantly large sums of money are owed.
Regardless of the amount owed, however, the point is that you still have to pay it back, even if a company has been taken over by administrators.
What happens if a loan company goes into insolvency?
If the company in question going into insolvency is a loan company, then you might think any existing loan payments might also be wiped.
Again, however, this isn’t the case, and your schedule of loan repayments should continue as normal.
You still have the responsibility as a debtor to pay back any funds borrowed.
When you borrow money from a loan company you enter into a legal contract, one that needs to be obliged regardless of whether the company is solvent or insolvent.
Because any debts/loans are considered assets, the administrators might well decide to sell those assets to another lender.
However, this doesn’t alter the requirement to make those loan repayments.
Many credit and loan agreements contain a transfer clause explicitly detailing the need for repayments to continue should the issuing lender have to transfer their loans/assets.
Getting help with debts you owe
If you were banking on the debts you owed being wiped as a result of a company going into administration because you weren’t able to pay them anyway, then don’t panic at finding out that you still owe that money.
Here at Hudson Weir, we offer a wide tranche of personal debt support services.
Contact us to find out more about our personal debt advice and support, as well as our debt management plan.
Final thoughts: if a company goes into administration, do I have to pay them?
So, do you have to pay a company that’s gone into administration if you are indebted to them? Yes.
When it comes to insolvency, prevention is always preferable to cure.
Our team of Insolvency Practitioners are always on hand to provide practical insolvency solutions for struggling companies.
Get in touch with Hudson Weir today for a free, no-obligation chat – we look forward to hearing from you.
