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Administration

What is Administration? 

Administration is a legal process used to facilitate the ‘rescue’ of an insolvent company, which involves the appointment of an administrator.

The administrator is appointed to manage the company’s affairs, business and property and a company is deemed to be ‘in administration’ while the appointment of the administrator has effect. 

Purpose of Administration 

The administration of a company must achieve one of the following objectives:

The rescue of the company (as distinct from the business carried on by the company) as a going concern (the primary objective) 

The achievement of a better result for the company's creditors as a whole than would be likely if the company were wound up (without first being in administration) (the second objective) 

The realisation of some or all of the company's property to make a distribution to one or more secured or preferential creditors (the third objective) 

Why Use Administration? 

Perhaps you are a director of a company that is encountering severe financial difficulty. Where a company is unable to pay its debts and as a result an insolvency procedure is inevitable, administration may be an appropriate measure to deal with these difficulties. Administration has many advantages such as providing the company with some breathing space due to the benefit of a statutory moratorium.  This moratorium restricts the ability of third parties (e.g. your creditors)  to enforce their rights against the company, without the prior consent of the administrator or the consent of the court. It also prevents the commencement of alternative insolvency procedures in respect of the company.

It can also be a relatively cheap process as well as flexible. 

What happens during Administration? 

When a company enters administration, an insolvency practitioner is appointed as the company's administrator. The administrator takes over the control of the company's business and assets from the company's directors, in order to achieve one of the statutory purposes of administration.