When going into administration is the best option for an agent

In the third part of this mini-series on what happens when agents hit trouble, we look at alternatives to voluntary and compulsory liquidation for those trading as limited companies.

If you do not go into liquidation, an option is to go into administration. As with liquidation, there are two types of procedure.

The first is called a pre-pack administration. Again, this would happen after calling in an insolvency specialist, who could advise on whether this is the best course.

The object here is to sell the agency after the assets have been valued and agreed with the directors. The purchaser is commonly the existing director or directors, but possibly the business could be sold to another firm of agents.

Once the funds are in place, the liquidators are appointed and immediately sell the business. If selling to the existing directors, the proceeds go back to the old company. The advantages are that there is no break in trade and good will is preserved.

The key to this type of procedure is how much value there is residually in the business.

This is even more the case in the other form of administration, whereby an administrator is appointed to run the trade himself while looking for a buyer.

However, insolvency expert Catherine Matthews, a partner in Tomlinsons, does not believe such an arrangement is currently viable in the estate agency sector, as there are currently few buyers for businesses with severe cash shortfalls.

There is one important point with limited companies. The point about being a limited company is that liability for debts goes no further than the company itself – the directors are not personally responsible.

However, there is one exception, if you have had to make personal guarantees to your bank. If this is the case, it will be vital that you tell the licensed insolvency practitioner you appoint.

Not all agents trade as limited companies, and in the next article in this mini-series, out on Friday, we will be looking at the options for sole traders or partnerships which hit financial problems.