HomeFWJ TakeawayCompany rescueBusiness recovery and rescueWhat is the purpose of an administration order?

We are often asked – What does going into administration mean and what is its purpose?

A company administration order is intended to provide a moratorium to facilitate a rescue of a financially distressed business with a three-tiered statutory purpose in mind.

What is the three-tiered purpose of administration?

It is important to understand what happens if a company goes into administration.

  • firstly, the administrators must consider rescuing the company as a going concern following the administration order. A distinction must be drawn between the company and its business, and the first part of the purpose is to keep the company as a legal entity trading its business (as opposed to selling its business to a new entity).
  • should trading the company and improving the position of the company’s creditors through its ongoing trading not be viable, then the second part of the purpose is to achieve a better result for the company’s creditors as a whole than would be likely if the company was wound up. Often the company via its administrators will seek to sell its trading business to a new company as a trading business has more value as a going concern than if the business ceased trading and the assets sold piecemeal which is more likely to happen in a winding up of the company.
  • in the event that neither of the first two parts of the purpose are likely then the third part is to realise (sell) property in order to make a distribution to one or more secured or preferential creditors (a statutory class of creditors who rank above ordinary unsecured creditors).

For any type of administration order or company rescue advice whatsoever, please contact one of our expert team who would be delighted to help you today.

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