Administration

Administration Orders were introduced by the Insolvency Act 1986 as a means for the protection of companies from creditor action while a restructuring is carried out. The original Administration procedure was significantly changed after the introduction of the Enterprise Act 2002, the main effect of which was to streamline the process and thus assist companies in financial difficulty.

An application for an Administration Orders is lodged with the court and application can be made by the company, its Directors or one of the creditors.

This technique can be very powerful where the company has a very aggressive creditor or creditors and needs to protect itself from them whilst a rescue plan can be worked out. A company in administration may continue to trade (under the control of an Administrator) whilst a strategy is devised to accomplish on of three statutory aims:

1. The rescue of the company as a going concern. This may be achieved by the sale of the company or, in many cases, by a proposal for a Company Voluntary Arrangement

2. To achieve a better result for the company’s creditors as a whole than would likely be achieved if the company were wound up without first being in Administration. Simply stated, this means trying to sell the business for more than a liquidation would raise

3. The realisation of assets for the benefit of one or more secured or preferential creditors

Advantages of an Administration Order

• Once your or your company is in administration, its creditors cannot take any further action against you.

• Any visits from debt collectors or letters or phone calls from your creditors should stop once the  administration process has begun.

• The administration process can save you time and effort as the court deals with your debts or your  company’s debts on your behalf.

• Any interest that was being added onto the debts are stopped.

• Any other charges that were being added onto the debts are stopped.

• Your fees covering the administration process are deducted by the court/your administrator on  your behalf from the payments you make to court/your administrator, so you don’t have to pay a  fee upfront.

• There is now an option for businesses to appoint an administrator through an out-of-court process, which is cheaper than process involving a court application. 

Disadvantages of an Administration Order

• The court charges you for this service, and the fee can be anything up to 10% of the debt.

• You will need enough regular income to make monthly repayments.

• You can only apply for a personal Administration Order if you owe less than £5,000 and have a County Court Judgement.

• If you miss a personal Administration Order payment, the Order could be cancelled and you could  face bankruptcy.

• If a business has entered into process to be rescued as a going concern, and the process fails,  the business could end up being liquidated.