Company Administration: A Guide for Limited Company Directors
Company administration is a formal insolvency procedure that can protect a financially distressed company from creditor action while a licensed insolvency practitioner assesses whether the business can be rescued, sold or restructured.
It is generally used where there is still value worth protecting and administration is likely to achieve a better outcome than immediately placing the company into liquidation.
Once an administrator is appointed, they take control of the company’s affairs, business and property and must act in accordance with the statutory objectives of administration.
💡 Quick Answer
Company administration is a formal insolvency process designed to protect a financially distressed company while an insolvency practitioner considers the best outcome for creditors.
Administration can provide protection from most creditor action and may allow the company or its business to be rescued, restructured or sold.
If rescue is not achievable, administration may still be used where it can produce a better result for creditors than immediate liquidation.
What is Company Administration?
Administration places an insolvent or financially distressed company under the control of a licensed insolvency practitioner known as the administrator.
The administrator takes responsibility for managing the company’s affairs while deciding how best to deal with the business and its assets.
The process is designed around a statutory hierarchy of objectives.
The administrator must seek to:
- rescue the company as a going concern, where reasonably practicable;
- if that cannot be achieved, obtain a better result for creditors as a whole than would be likely through immediate liquidation; or
- if neither of those objectives is reasonably practicable, realise company property to make a distribution to secured or preferential creditors without unnecessarily harming creditors generally.
That means administration is not simply a way to delay creditors. There must be a realistic purpose behind entering the procedure.
When Might Administration Be Appropriate?
Administration may be considered where the company is under significant financial pressure but there is still something worth rescuing or protecting.
This could include a business with:
- a viable underlying trading operation;
- valuable contracts or customers;
- significant assets;
- employees whose jobs could potentially be preserved;
- a potential buyer for the business;
- serious creditor pressure;
- a winding-up threat;
- short-term cash-flow problems that have overwhelmed an otherwise viable company; or
- a realistic restructuring opportunity.
Administration is unlikely to be appropriate where there is no viable business, little value to protect and no prospect of achieving a better result than liquidation.
In that situation, a Creditors’ Voluntary Liquidation may be more appropriate.
What Happens When a Company Goes Into Administration?
Once an administrator is appointed, they take control of the company.
The directors normally lose their day-to-day management powers unless the administrator specifically allows them to exercise particular functions.
The administrator may:
- continue trading the business;
- sell some or all of the business or assets;
- negotiate with creditors;
- restructure operations;
- make employees redundant;
- renegotiate or terminate contracts;
- pursue a sale of the business as a going concern; or
- prepare the company for another insolvency procedure.
The administrator acts as agent of the company but must perform their duties in accordance with the objectives of administration.
Does Administration Stop Creditors Taking Action?
One of the main features of administration is the moratorium that protects the company from many forms of creditor action.
Once the company enters administration, creditors are generally prevented from beginning or continuing certain legal and enforcement proceedings without the administrator’s consent or permission from the court.
This can prevent an otherwise viable business from being dismantled by individual creditor action while the administrator assesses its future.
Administration therefore creates valuable breathing space, although the protection is not absolute and the precise effect will depend on the type of creditor and enforcement action involved.
Who Can Put a Company Into Administration?
An administrator can be appointed in several ways.
The process may be started by:
- the company itself;
- its directors;
- the holder of a qualifying floating charge; or
- a court following an application by an eligible party, which can include a creditor.
For directors considering administration voluntarily, an insolvency practitioner will normally assess whether the statutory purpose of administration is realistically achievable before proceeding.
What Does the Administrator Do?
The administrator is responsible for the company’s affairs while it remains in administration.
Shortly after appointment, the administrator will investigate the financial position and usually request information from the directors and other relevant people.
They must then formulate proposals explaining how the purpose of administration will be achieved.
These proposals must normally be produced within 8 weeks of the company entering administration and sent to creditors, employees and Companies House.
The proposals may involve:
- rescuing the company;
- restructuring debts;
- a Company Voluntary Arrangement;
- selling the business;
- selling assets;
- distributing funds to creditors; or
- moving the company into liquidation or dissolution.
Can a Company Continue Trading in Administration?
Yes.
A company can continue trading while in administration if the administrator believes doing so is appropriate.
Continuing to trade may help preserve:
- the value of the business;
- customer relationships;
- contracts;
- jobs;
- goodwill; and
- the prospects of achieving a successful sale.
However, trading is not guaranteed.
In some cases, the administrator may decide that an immediate or rapid sale produces the best outcome.
What Happens to Directors During Administration?
Once the administrator is appointed, the directors no longer control the company in the normal way.
The administrator takes over management and directors can only exercise management powers with the administrator’s consent.
Directors will usually be required to:
- provide company records;
- explain the company’s financial position;
- supply information about assets and liabilities;
- assist the administrator; and
- cooperate with investigations into the company’s affairs.
Entering administration does not automatically prevent someone from acting as a director of another company.
However, director conduct may be reviewed as part of the insolvency process, particularly where there are concerns about how the company was managed before administration.
What Happens to Employees in Administration?
Administration does not automatically mean every employee is made redundant.
Some or all employees may continue working if the administrator continues trading or intends to sell the business.
Alternatively, redundancies may be necessary where trading is reduced or stopped.
The administrator has broad powers to manage the company’s workforce while seeking to achieve the purpose of the administration.
Where a business is sold, employment rights can become more complex and professional advice may be required depending on the circumstances.
What Happens to Employees in Administration?
Administration does not simply erase the company’s debts.
Creditors submit claims and the administrator deals with the company’s assets and liabilities according to insolvency law and the approved administration strategy.
The eventual return to creditors will depend on:
- the assets available;
- secured lending;
- preferential claims;
- administration expenses;
- whether the business can be sold;
- whether trading continues; and
- the eventual outcome of the process.
Some creditors may receive only part of what they are owed.
Can HMRC Put a Company Into Administration?
HMRC can apply to court as a creditor in appropriate circumstances, although HMRC enforcement against companies more commonly involves other recovery routes.
If HMRC arrears are the main financial problem, administration may or may not be the most suitable solution.
A company with manageable historic tax debt may have other options, including an HMRC Time to Pay arrangement or a Company Voluntary Arrangement.
For a broader explanation, see our HMRC Tax Debt guide.
What Is Pre-Pack Administration?
A pre-pack administration involves arranging the sale of a company’s business or assets before the administrator is formally appointed, with the sale completing shortly after appointment.
This can allow a viable business to be transferred quickly and may help preserve jobs, contracts and goodwill.
However, pre-pack sales are subject to specific regulatory requirements and scrutiny, particularly where the purchaser is connected to the existing directors or shareholders.
See our full guide to Pre-Pack Administration for more information.
Administration vs CVA
Administration and a Company Voluntary Arrangement are both potential rescue procedures, but they work differently.
With a CVA, directors normally remain in control of the company while it trades and makes payments under an agreed restructuring proposal.
In administration, control passes to the administrator.
Administration also provides stronger statutory protection while the administrator determines the company’s future.
For a detailed comparison, see our guide to CVA vs Administration.
Administration vs Liquidation
Administration is generally focused on protecting value and attempting to rescue the company, business or assets.
Liquidation is primarily a closure process.
In a Creditors’ Voluntary Liquidation, the company’s trading activities normally cease, assets are realised and the company is eventually dissolved.
Administration may ultimately lead to liquidation where rescue or sale does not allow the company itself to continue.
See our full comparison of CVL vs Administration.
Can Administration Lead to a Company Voluntary Arrangement?
Yes.
One possible outcome of administration is a CVA.
The administrator may determine that the underlying company is viable but needs its debts restructured before it can trade successfully again.
If an appropriate CVA proposal is approved, administration can end and control of the company may return to its directors.
Can a Business Be Sold During Administration?
Yes.
Selling the business as a going concern is a common potential outcome where rescuing the actual company is not feasible.
The buyer may acquire:
- assets;
- customer relationships;
- intellectual property;
- stock;
- contracts; and
- parts of the workforce.
The original company may later move into liquidation or dissolution after the sale has completed.
This distinction is important: saving the business does not necessarily mean saving the original company.
How Long Does Company Administration Last?
Administration normally ends automatically after 12 months, although it can finish earlier where its purpose has been achieved.
The period can also be extended where necessary.
Many administrations therefore last less than a year, particularly where a sale or restructuring can be completed quickly.
More complex cases can take longer.
How Long Does Company Administration Last?
Administration may end in several ways.
Depending on the outcome, the company may:
- continue trading after being rescued;
- enter a CVA;
- be sold;
- move into a Creditors’ Voluntary Liquidation;
- be dissolved; or
- enter another appropriate insolvency process.
The right exit depends on what the administrator is able to achieve.
Advantages of Administration
Potential advantages include:
- protection from many forms of creditor action;
- breathing space to assess rescue options;
- the possibility of preserving the business;
- greater opportunity to protect jobs and goodwill;
- the ability to sell the business as a going concern;
- potentially better returns for creditors than immediate liquidation.
Disadvantages of Administration
Possible disadvantages include:
- directors lose control of the company;
- administration can be expensive;
- the process becomes public;
- rescue is not guaranteed;
- employees may still lose their jobs;
- shareholders may receive nothing;
- the company may still ultimately be liquidated.
Administration should therefore only be considered where there is a realistic benefit from using the procedure.
Get Help With Company Administration
Administration can be a powerful rescue procedure where a company is under serious creditor pressure but there is still a viable business or valuable assets worth protecting.
It is not suitable for every insolvent company, and timing can make a significant difference to the options available.
Business Helpline provides free, confidential initial advice to limited company directors considering administration, restructuring or liquidation.
We can help you understand whether administration is likely to be appropriate or whether another route such as a CVA or CVL may provide a better outcome.
Call our free 24-hour helpline on 0800 088 2142 or request a confidential call back.
Company Administration FAQs
What does it mean when a company is in administration?
It means a licensed insolvency practitioner has been appointed as administrator and has taken control of the company’s affairs while attempting to achieve one of the statutory purposes of administration.
Does administration mean a company is closing?
Not necessarily.
Administration may result in the company being rescued, the business being sold or the debts being restructured. However, some companies ultimately enter liquidation or are dissolved.
Can directors put their own company into administration?
Yes. A company or its directors can appoint an administrator using the appropriate statutory procedure, provided the requirements for administration are met.
Can creditors still chase a company in administration?
Administration provides a statutory moratorium restricting many forms of creditor enforcement and legal action. Some actions may still be possible with the administrator’s consent or permission from the court.
How long does administration normally last?
Administration normally ends automatically after 12 months unless it finishes earlier or the period is extended.
Who runs a company during administration?
The administrator takes control of the company and manages its business and affairs for the duration of the appointment.
Can a company survive administration?
Yes. Rescuing the company as a going concern is the first statutory objective where that is reasonably practicable. However, in many cases the business may instead be sold while the original company later closes.
