Keith Mack
Administration under UK law is a procedure in insolvency law that applies to companies or LLPs that are unable to pay their debts. It involves the appointment of an administrator, who takes control of the company's affairs and assets, to oversee the business and attempt to rescue it from liquidation. The administrator is typically a licensed insolvency practitioner appointed by the court, creditors, or the company directors, and their primary duty is to act in the best interests of the creditors. During administration, the company can continue to trade, but daily management passes from the directors to the administrator, who has the power to make decisions such as cancelling contracts or making employees redundant. The administrator's role is to formulate a restructuring proposal within eight weeks, which is then put to a creditor vote for approval. The aim of administration is to rescue a viable business, transfer it as a going concern, or, as a last resort, break up the business and distribute proceeds to creditors.
| Characteristics | Values |
|---|---|
| Definition | A legal process under the Insolvency Act 1986, where a company is unable to pay its debts |
| Purpose | To rescue a viable business, save the business, or get the best result possible |
| Who can apply? | Directors, creditors, or the court |
| Who is in control? | The administrator, who is a licensed insolvency practitioner |
| Administrator's duties | Rescue the company, transfer the business as a going concern, or break up the business and distribute proceeds to creditors |
| Administrator's powers | Cancel or renegotiate contracts, make employees redundant, sell off assets or parts of the business |
| Timeframe | Administrator has 8 weeks to write a statement explaining their plan |
| Outcome | Company may be rescued, or its debts paid off, or it may still be wound up |
| Costs | Administrator's fees are paid by the company |
| Other effects | Negative publicity, impact on trading and reputation |
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What You'll Learn
Insolvency law
Administration is the main procedure in UK insolvency law when a company is unable to pay its debts. Insolvency refers to a company's inability to repay debts. Insolvency proceedings are formal measures taken to deal with company debt.
Under UK law, a company is a separate legal entity from its investors. As such, investors' liability is limited to the amount of their investment. Insolvencies can occur whenever a company takes on debt, as frequently happens through contracts or other obligations.
When a company goes into administration, it enters a legal process under the Insolvency Act 1986. The aim is to achieve one of the statutory objectives of administration, such as rescuing a viable business that is insolvent due to cash flow problems. An administrator, who must be a licensed insolvency practitioner, is appointed by the directors, a creditor, or the court to fulfil the administration process. The administrator owes duties to the company and the court. Their core purpose is to rescue the company or, if impracticable, transfer the business as a going concern or, as a last resort, break up the business and distribute proceeds to creditors.
The administrator has broad powers to manage the company, including cancelling or renegotiating contracts and making employees redundant. They must act quickly, efficiently, and without unfairly harming creditors' interests. The administrator's first task is to design a restructuring proposal within eight weeks, followed by a creditor vote to approve the plans. The company can continue to trade during this period, and the administrator's fees are paid by the company.
Administration provides a "breathing space" from creditor enforcement actions, allowing time for financial restructuring or the realisation of assets to benefit creditors. It offers protection from legal action by creditors, and the company may not have to pay all its debts in full. However, the company can still be wound up, and creditors may have a preferential status in receiving proceeds.
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Administrator duties
Administration in UK law is a procedure under the insolvency laws that allows insolvent entities to continue running their business. It is an alternative to liquidation and is commenced by an administration order.
An administrator is a person appointed to manage the company's affairs, business and property. They are appointed by the directors, a creditor or the court to fulfil the administration process. The administrator has control over the business during administration and can cancel or renegotiate contracts and make employees redundant. They are personally liable for any debts incurred by the company during this process.
The administrator's first task is to design a restructuring proposal within eight weeks, which is then followed by a creditor vote to approve the plans. The administrator must act in the interests of all creditors and attempt to rescue the company as a going concern. If this is not possible, they must work to maximise the recovery of the creditors as a whole. They are subject to a duty to perform their functions as ''quickly and efficiently as is reasonably practicable' and must not act to 'unfairly harm' a creditor's interests.
The administration procedure may also take the form of a pre-packaged administration, where the company directors negotiate with a prospective administrator for the sale of the business to take place immediately after entering administration. This can keep the business running and employees in their jobs, but it may also leave unsecured creditors behind.
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Appointing an administrator
In the United Kingdom, administration is a legal procedure under the insolvency laws, similar to bankruptcy in the United States. It serves as a rescue mechanism for insolvent entities, allowing them to continue operating their business. The process, colloquially known as "being under administration", involves appointing an administrator to oversee the company's affairs, business, and property.
The administrator, a licensed insolvency practitioner, is appointed by the company's directors, a creditor, or the court. They assume control of the company, including daily management and decision-making, with the primary goal of rescuing the company or maximising the return for creditors if the company cannot be saved.
The appointment of an administrator offers a "breathing space" by freezing any legal proceedings against the company, protecting it from creditor enforcement actions. During this period, the administrator has broad powers and discretion to manage the company's affairs, renegotiate contracts, make redundancies, and develop a restructuring proposal to ensure the company's survival.
The administrator has specific duties and responsibilities, including acting in the best interests of all creditors and exercising good business judgment. They must perform their functions efficiently and avoid unfairly harming the interests of any single creditor.
The process of appointing an administrator can be done voluntarily by the company or its directors, or it may be involuntary, decided by a judicial court. In the UK, the administration regime is primarily governed by the Insolvency Act 1986, as amended by the Enterprise Act 2002, providing a flexible and informal alternative to liquidation.
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Administrator powers
In the UK, a company can go into administration when it is unable to pay its debts. This is a legal process under the Insolvency Act 1986, which aims to rescue the business, save it, or get the best result possible. The administrator, a licensed insolvency practitioner, is appointed by the directors, a creditor, or the court.
Administrators have wide-ranging powers and control over the business during the administration process. They act as the company's agent and have the same general powers as the company and/or its directors. They can make decisions and take actions without seeking approval from creditors or directors, such as disposing of company assets.
- Formulate restructuring proposals within 8 weeks and present them to creditors for approval. If creditors do not approve, the court may make an order.
- Request utility services (gas, electricity, water, and telecommunication) during administration without paying outstanding charges, but they may need to provide a personal guarantee for future charges.
- Take control of the company's property, including books, papers, and records.
- Enquire into the company's dealings and request information from company officers, who must cooperate.
- Remove or appoint directors and call meetings of members or creditors.
- Apply to the court for directions in connection with their functions.
- Make distributions to secured and preferential creditors without court permission, but they need court approval to pay other creditors.
- Cancel or renegotiate contracts, make employees redundant, and take other actions necessary for the management of the company's affairs.
- Sell the business, which often happens in pre-packaged administration, where the sale is negotiated before administration and takes place immediately after.
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Liquidation
Liquidators must be authorised insolvency practitioners. They are responsible for sending a report on the conduct of all directors who were in office in the last 3 years of the company's trading to the Secretary of State for Business, Energy & Industrial Strategy. The Secretary of State must then decide whether it is in the public interest to seek a disqualification order against a director.
An administrative receiver is a receiver or manager of the whole, or substantially the whole, of a company's property. They are appointed by, or on behalf of, the holders of any debentures of the company secured by a floating charge. They have the power to sell the assets covered by the floating charge and apply the proceeds to the debt owed to the charge holder.
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Frequently asked questions
Administration is a procedure in UK insolvency law that applies when a company is unable to pay its debts.
An administrator is a person or persons appointed to manage a company's affairs, business and property. They are usually licensed insolvency practitioners.
An administrator's duties include designing a restructuring proposal, writing to creditors and Companies House about their appointment, and formulating a rescue plan for the company. They also have the power to cancel or renegotiate contracts and make employees redundant.
The administration process can take several months and is often expensive.
A company can be put into administration by its directors, a creditor or the court.
