What is company administration?

Administration is the rescue procedure most people have heard of, often through a well-known retailer “going into administration”. This guide explains what actually happens: the moratorium that buys time, who the administrator is, and the strict order of objectives they must work through.

The moratorium — breathing space

The defining feature of administration is the moratorium: a legal pause on most creditor action. Once a company enters administration, creditors generally cannot start or continue legal proceedings, enforce their security, repossess goods supplied under retention of title, or present or proceed with a winding-up petition without the administrator’s consent or the court’s permission. This breathing space is the single most valuable thing administration offers. It stops a panicking creditor from dismantling the business while a rescue is being explored, and it gives the administrator the time and stability to assess the company, talk to buyers, and pursue the best outcome in an orderly way rather than a fire sale.

The administrator’s statutory objectives

An administrator is an officer of the court and must act in the interests of the creditors as a whole, not for the directors or any single creditor. They are bound to work through a strict hierarchy of objectives set out in Schedule B1 to the Insolvency Act 1986, and they can only move down to a lower objective where the one above it is not reasonably practicable.

In practice the first objective — saving the company itself — is often not achievable, because the company carries too much debt. Far more common is the second: selling the business and assets as a going concern, frequently to a new owner, so that creditors recover more than they would from an immediate liquidation and jobs are preserved. The third objective, simply realising assets for secured and preferential creditors, is the fallback where neither rescue nor a going-concern sale is possible.

How a company enters administration

• Out-of-court route — the company, its directors, or a qualifying floating charge holder files the prescribed documents at court.
• Court order — a creditor or the company applies to court for an administration order, which a judge grants.
• Effect — an administrator is appointed and the moratorium takes effect immediately on appointment.

What happens during and at the end

During administration the administrator reviews the company’s position, continues or stops trading as appropriate, and puts proposals to creditors setting out how they intend to achieve the chosen objective. Creditors are kept informed and usually vote on those proposals. Administration is not meant to be permanent: it automatically ends after twelve months unless extended by creditor consent or a court order. It can exit in several ways — a return to solvent trading, a company voluntary arrangement, a sale of the business, or a move into liquidation to distribute the proceeds and wind the company up.

What administration is not

Administration is not the same as liquidation, although it can lead to it. Where liquidation winds a company up and brings it to an end, administration is designed first to try to save the business or to get a better result for creditors than an immediate winding up would. It is a tool of rescue and value preservation, not just closure. A sale that is negotiated before the administrator is appointed and completed immediately afterwards is a pre-pack administration, which has its own disclosure rules. For how administration compares with the other routes a struggling company can take, see liquidation vs administration vs CVA.

Frequently asked questions

Sources & further reading

• Insolvency Act 1986 — Schedule B1 (administration)
• GOV.UK — Put your company into administration
• The Insolvency Service — guidance for company directors
• Insolvency (England and Wales) Rules 2016

This guide is general information, not formal insolvency advice. Your situation must be assessed by a licensed insolvency practitioner before you act.