Administration is a procedure available to a company that is insolvent, or is likely to become so, which places the company under the control of an insolvency practitioner and the protection of the court with the following objectives:
- Rescuing the company as a going concern
- Achieving a better result for the creditors as a whole than would be likely if the company were wound up without first being in administration
- Realising property in order to make a distribution to secured or preferential creditors
Whilst a company is in administration creditors are prevented from taking any actions against it except with the permission of the court.
An administrator may be appointed:
- By an order of the court, on application by the company, its directors, one or more creditors, or, if it is in liquidation, its liquidator
- Without a court order, by direct appointment by the company, its director or a creditor who holds comprehensive security of a type which qualifies him to make such an appointment
- A secured creditor who is qualified to make an appointment may also intervene in the process. This means that the secured creditor's choice of administrator will prevail
An administrator's powers are wide ranging. They include powers to carry on the company's business and realise its assets. The administrator displaces the company's board of directors from its management function and has the power to remove or appoint directors. The administrator must prepare proposals for approval by the creditors setting out how he intends to achieve the purpose of administration.
There is a one year time limit within which the administration must be concluded, but this period can be extended with the agreement of the creditors or the permission of the court if more time is needed to achieve the purpose of administration. The administration may also come to an end if the administrator thinks the purpose of administration has been achieved or cannot be achieved.
On conclusion of an administration:
- The company may be returned to the control of its directors and management
- The company may go into liquidation
- The company may be dissolved (if there are no funds for distribution to unsecured creditors)
- The company may enter a Company Voluntary Arrangement