What is “administration”?

September 30, 2021

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2 min read

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Origins

Administration as we know it today started out as “administrative receivership”. If a company owed a debt that it couldn’t pay, the person or company it owed the debt to would appoint a person, known as an administrative receiver, to take control of the company. The administrative receiver usually sold the company’s assets, to make as much money as possible for the creditor. This typically led to the winding up of the company.

In 1982, the Cork Committee found that many companies were being wound up unnecessarily because of the administrative receivership procedure. Acting on this, the Enterprise Act 2002 was passed, introducing modern administration which focuses more on rescuing companies.

Overview

Administration is a process that a company can go through if it is, or is likely to become, insolvent and has debts it can’t pay.

The company itself, its directors or its creditors can put the company into administration proceedings. Traditionally, this was done by seeking a court order. Now, it can also be done out of court by appointing an administrator. 

Once in administration, the administrator runs the company. They can do “anything necessary or expedient for the management” of the company, including appointing or removing directors, and meeting with shareholders and creditors. If possible, the administrator’s goal must be to rescue the company. They usually try to raise capital, negotiate with creditors, and establish restructuring plans for the future. 

Whilst under administration, the company is also protected by a moratorium which prevents anyone from bringing legal action against them to have the company wound up.

Administration ends after 12 months, unless extended by the court or creditors. At this point, the company is liquidated and wound up, or it enters into a rescue agreement with its creditors[CT1] . Rescue agreements usually take the form of Company Voluntary Agreements (CVAs), whereby 75% of the company’s creditors and 50% of its shareholders (by value) agree on a payment plan.

Verdict

The administration procedure offers companies a good opportunity to get back on their feet, deal with their debts and establish a restructuring plan for the future.

There are also downsides. There is no guarantee that the company can be rescued, administrators’ fees can be very expensive, and going into administration can often harm a company’s reputation which may damage its business even further.

Overall, however, because of the legal protection afforded by the moratorium and the administrator’s obligation to rescue the company if possible, administration is one of the most promising routes for a struggling company with a viable business model.

Report written by Catrin Trefor

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