Administration is the process that a company will go through when they are in severe financial difficulty and insolvent but the directors still wish to continue in business or there is a future for the Company without the present Directors. The administrator can be appointed through 3 different means:
- The courts – upon an application from a creditor or directors.
- The holder of a qualifying floating charge over the assets of the business (usually a bank or finance company).
- The company or its directors.
Once an administrator is appointed, it is their primary goal to rescue the company and if possible, get it trading again.
- Once a company is placed in administration, no legal action from any creditor will be allowed by the court and also any ongoing legal action will be ceased. This is to give the company and the administrator effectively a bit of thinking time to devise the best solution for the company’s current problems.
- If it were to become apparent that the company could not be saved, then it would be up to the administrator to get a better result from a creditors point of view, than if the company were to go through a different insolvency process such as liquidation. Any insolvency practitioner has a statutory duty to maximise realisations for the benefit of creditors.
- If neither outcome is possible for the administrator, then the final objective for them would be just to realise all of the assets and distribute the funds to the secured and/or preferential creditors.
Unless a company applies for an administration to be extended, the appointment will last for 12 months.