What is administration?
Administration is the procedure where a company that is, or is likely to become, insolvent can be reorganised or have its assets sold for the benefit of creditors. When a company goes into administration, an insolvency practitioner takes over the control of the company’s affairs from its directors.
The main aim of administration is to rescue the company so that it can continue trading as a going concern. If this cannot be achieved, there are two other reasons why a company may go into administration:
- To achieve a better result for the company’s creditors than would be likely if the company was put into liquidation.
- To sell the company’s property to make a distribution to the company’s secured or preferential creditors
The administrator must be a qualified insolvency practitioner. Often more than one administrator is appointed to act jointly.
The administrator acts as an agent of the company and an officer of the court and therefore has a duty to act in good faith. They must also be, and be seen to be, independent in their management of the company.
What does administration mean for a creditor company?
As soon as a company is placed in administration, creditors are prevented from bringing or pursuing legal proceedings against the company.