Administration

Administration is a process whereby an insolvent company is placed under the control of an insolvency practitioner to achieve one of the following objectives:

1. To rescue the business as a going concern (i.e., to allow it to return to solvent trading);
2. If rescue is not possible, to achieve a better result for the company’s creditors as a whole than would be likely if the company were put into liquidation;
3. If objectives (1) and (2) above are not possible, to realise the company’s property to make a distribution to its secured or preferential creditors.

Administration can provide a fast and cost-efficient route into formal insolvency and is often utilised when the company (or a part of its business) is ultimately profitable. The administrator’s power to continue trading the company allows them to achieve a better price for assets such as goodwill, intellectual property, equipment, customer databases, or websites, than would be possible in a liquidation process. While the directors may continue to assist the administrator during this time, the daily management and control of the company passes to the administrator upon their appointment.

To improve the chances of a company returning to solvency, the Insolvency Act imposes a moratorium to prevent creditors and other third parties from taking legal action, including enforcement action, against the company while it is in administration.

Upon the sale of any assets, the proceeds (after payment of the costs of the administration) will usually be distributed to creditors in accordance with the statutory order of priority.

There are specific rules regarding distributions, but generally secured creditors will be paid first and from the recoveries made on secured assets, followed by preferential creditors, unsecured creditors, and finally shareholders or members.