Company Administration

What is company administration?

Administration is a formal insolvency process which involves management of an insolvent – or contingently insolvent – company being transferred to a licensed insolvency practitioner acting as administrator. Administration gives an indebted company valuable time and legal protection to help steady the business, keeping it safe from creditor pressure and threats of winding-up action.

If your company is insolvent but the underlying business is still viable, company administration could give it the breathing space it needs to survive. Administration provides immediate legal protection from creditor action, including the threat of a winding up petition, while a licensed insolvency practitioner works to rescue the business or achieve the best possible outcome for creditors.

Administration is not the right solution for every struggling company, and it’s not a way to avoid debts indefinitely. But for businesses with genuine value that are being overwhelmed by creditor pressure, it can be the difference between survival and closure.

Understanding company administration

Company administration is a formal insolvency procedure under Schedule B1 of the Insolvency Act 1986. When a company enters administration, a licensed insolvency practitioner is appointed as administrator to take control of the company’s affairs, business, and assets.

The administrator has three statutory objectives, which they must pursue in order of priority:

• Objective 1: Rescue the company as a going concern. This means keeping the business trading and restoring it to a solvent state

• Objective 2: Achieve a better result for creditors as a whole than would be achieved if the company were wound up without first being placed in administration. This often involves selling the business or its assets as a going concern to a connected or unconnected party

• Objective 3: Realise the company’s assets to make a distribution to one or more secured or preferential creditors. This is the fallback position when rescue and a going-concern sale aren’t possible

The administrator must pursue Objective 1 unless they believe it’s not reasonably practicable, or that Objective 2 would produce a better outcome for creditors. Objective 3 is only pursued if neither of the first two is achievable.

What protection does administration provide?

One major benefit of administration is the moratorium that is provided. This is an automatic legal freeze on all creditor action against the company. Once the moratorium is in place:

• No creditor can begin or continue legal proceedings against the company
• No winding up petition can be presented or progressed
• Landlords cannot forfeit leases or exercise rights of re-entry without the administrator’s consent or court permission
• Bailiffs and enforcement agents cannot seize company assets
• Hire purchase and asset finance companies cannot repossess goods without consent

The moratorium begins when a Notice of Intention to Appoint Administrators is filed with the court, and continues for the duration of the administration. This breathing space is what makes administration such a powerful rescue tool.

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Is administration right for my company?

Administration is most appropriate when your company meets these criteria:

• The company is insolvent or likely to soon become insolvent
• The underlying business is fundamentally viable and has value, assets, revenue, or a customer base worth preserving
• Creditor pressure is growing
• The company needs time and breathing space to restructure, find a buyer, or negotiate terms with creditors

Administration is less likely to be suitable if:

• The company has few assets and no realistic prospect of rescue
• The company’s debts are manageable through a repayment arrangement and creditors are open to informal negotiation
• The company is solvent

A licensed insolvency practitioner can assess your company and advise whether administration, a CVL, a CVA, or another approach is the best fit.

How is an administrator appointed?

There are three ways to appoint an administrator:

1. Out-of-court appointment by directors
This is the most common route. The directors file a Notice of Intention to Appoint Administrators with the court, which triggers the interim moratorium. They then have 10 business days to file the notice of appointment. No court hearing is required, and no creditor or shareholder approval is needed. This route is only available if there is no outstanding winding up petition against the company.

2. In-court appointment by directors
If the company is not eligible for an out-of-court appointment, for example, because there is an outstanding winding up petition, or the company has been in administration or a failed CVA within the past 12 months, the directors can apply to the court for an administration order. This is typically a longer process as it requires a court hearing.

3. Appointment by a qualifying floating charge holder
A secured creditor holding a qualifying floating charge (typically a bank or major lender) can appoint an administrator directly without a court order. This route is sometimes used when a lender wants to protect its security by taking control of the company’s affairs.

If two directors disagree on whether administration is the right step, see our guide on whether one director can appoint administrators when the other opposes.

What happens during company administration?

Stage 1: Appointment and moratorium
Once the administrator is appointed, they take control of the company’s affairs. The moratorium takes effect immediately, halting all creditor action and litigation.

Stage 2: Assessment and proposals
The administrator assesses the company’s financial position and develops proposals for achieving the statutory objectives. A director must prepare a Statement of Affairs within 11 days of the appointment. The administrator’s proposals must be sent to creditors within eight weeks, with a creditors’ meeting held within 10 weeks.

Stage 3: Implementation
Once the proposals are approved, the administrator implements the plan. This might involve restructuring the business, selling it as a going concern, negotiating with creditors, or a pre-pack administration where the business is sold immediately upon appointment. The administrator must send six-monthly progress reports to creditors, the court, and Companies House while the administration is ongoing.

Stage 4: Exit from administration
Administration automatically ends after 12 months (with court extensions possible). The exit routes from administration include:

• The company is restructured and returned to its directors as a going concern
• The company moves into a CVL if rescue is not possible
• The company is sold
• A CVA is proposed as a longer-term repayment solution

What is a pre-pack administration?

A pre-pack administration is a specific type of administration where the sale of the business is arranged before the administrator is formally appointed. As soon as the appointment takes effect, the sale is completed immediately. This preserves going-concern value, protects jobs, and maximises returns for creditors.

Pre-packs can be controversial when existing directors buy the business back, however, there are specific rules and disclosure requirements around connected-party pre-packs, and the administrator must demonstrate the sale achieves a better result for creditors than the alternatives.

One of the advantages of a pre-pack administration is the often-seamless transition between old and new owners which can be achieved. This is because a sale has already been agreed ahead of time, meaning disruption to ongoing trade, customers, and employees is minimised.

Following the completion of the sale via the pre-pack process, the oldco is typically liquidated soon after, where a distribution can be made to unsecured creditors.

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What happens to employees during administration?

When a company enters administration, the administrator automatically adopts the employment contracts of all employees after 14 days. If the business is sold as a going concern, employees’ rights are protected under TUPE and their contracts, terms, and length of service are automatically transferred to the new owner.

If the company cannot be rescued, employees will be made redundant. Eligible employees can claim statutory entitlements through the Redundancy Payments Service. For more detail, see our guide to employee rights in company administration.

What happens to directors during administration?

When an administrator is appointed, the directors’ powers are suspended. The administrator takes control, and directors cannot exercise management powers without consent. However, directors are not removed from office as the administrator will often need their cooperation in preparing the Statement of Affairs and providing business information.

Directors are not personally liable for company debts simply because it enters administration. However, the administrator may investigate conduct, and if they find evidence of wrongful trading or other misconduct, further action could follow. For more, see our guide to what happens to directors of an insolvent company.

What are creditors' rights during administration?

The administrator has a duty to act in the best interests of creditors as a whole. Creditors have the right to receive the administrator’s proposals within eight weeks, vote on whether to accept them, form a creditors’ committee, receive six-monthly progress reports, and challenge the administrator’s conduct through the court if they believe they are acting unfairly.

Administration vs other insolvency options

Administration vs CVL
Administration aims to rescue the business while a CVL closes it. If there’s a realistic prospect of saving the business, administration should be considered first. If rescue isn’t viable, a CVL is more straightforward and cost-effective. See our detailed administration vs CVL comparison.

Administration vs CVA
A CVA allows the company's directors to continue trading while repaying creditors over time without handing control to an administrator. A CVA is more suitable when creditor pressure is manageable and they are open to negotiation. Administration is more appropriate when the company needs the immediate legal protection provided by a moratorium.

Administration vs restructuring plan
A restructuring plan under Part 26A of the Companies Act 2006 can impose a compromise on dissenting creditor classes. It is more flexible than a CVA but involves a court process and is typically used by larger or more complex businesses.

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How much does company administration cost?

Administration is more expensive than a CVL or CVA, due to the added complexity and the administrator’s wider responsibilities. Costs vary depending on the size and complexity of the company, and are made up of a combination of the insolvency practitioner's fees, legal costs, and any costs associated with marketing and selling the business.

The administrator’s fees are paid from the company’s assets and are subject to creditor approval. Directors do not usually need to fund the process personally. We’ll provide a clear estimate of likely costs before any appointment is made.

What should I do next?

If your company is under creditor pressure and you want to explore the option of company administration, getting expert insolvency advice quickly is essential. At BTG Begbies Traynor, we deal with company administrations every day and can give you an honest assessment of whether administration is a viable option, and if it isn’t, we’ll tell you what is.

Call our team of licensed insolvency practitioners today for immediate help and advice.