What happens when a company goes into administration?

The company administration procedure which will lead to an administration order being made can have many advantages for a business in financial difficulties. A business under administration enjoys protection from its creditors by way of a moratorium (or ban) on legal proceedings against the firm in administration during the process of the company administration. This can often provide valuable breathing space to allow for a rescue of the business or the parts of the business that are viable.

A firm in administration or a business going into administration will appoint an administrator over the firm in administration who has certain powers and duties under company insolvency legislation. The core of the administrator’s role is to achieve one of the purposes of the administration set out in company insolvency legislation.  The administrator is an officer of the court and must comply with duties applicable to officers of the court. They are not instructed by the directors to act on their behalf. The administrator is an independent person.

What is the administrator’s role?

The administrator acts as an agent for the company under administration. They therefore do not take any personal liability for any contracts they enter into, which these remain a liability of the firm in administration.

The company administrator will manage the business under administration’s affairs in accordance with proposals approved by the company’s creditors who agreed the purpose of the company administration. The administrator will then work to achieve the purpose of the company administration, which could be to rescue the business under administration as a going concern, or to achieve a better result for the creditors of the firm in administration as a whole than would be likely if the firm in administration were wound up.

What is the directors’ role once the administration order is granted?

The administrator in a company administration may remove or appoint directors during the company administration procedure. Directors of a company in administration can no longer exercise any management functions over the company under administration without the administrator’s consent once the administration order has been made. In practice the administrator of the company under administration will usually maintain a bare minimum of directors in order to ensure the administration succeeds. However, this will be very much dependent on the circumstances at the time and the type of business under administration. The directors’ role therefore will be limited, but their duties when acting is to act for the benefit of the creditors as a whole, not the shareholder, or any specific class of creditor.

Contact the company administration experts today

Our friendly legal experts at Francis Wilks & Jones have a wide range of experience in advising directors on their responsibilities and duties while a business is under administration and in working with directors to look at the best procedure for their company insolvency issues to ensure that the best route is taken. Call us to discuss your situation and we can run through the best options with you.