What does it mean when a business goes into administration? What will happen? 

This is a freeview 'At a glance' guide to the essential features of administration.

At a glance

Following the enactment of the 2002 Enterprise Act, there are two main ways of trying to rescue or save all or part of a company that is in financial difficulties. These are by Company Voluntary Arrangement (CVA) or Administration.

What is a CVA?

Under a CVA the directors make a proposal to the company’s creditors to enable the company to be saved by accepting less than they are owed. If the company agrees by a majority, and 75% of the creditors agree, the proposal is binding on all the creditors. See Company Voluntary Arrangement (CVA) 

What is Administration?

The purpose of administration, in order of priority, is:

  1. To rescue the company as a going concern.
  2. If that is not possible to achieve a better result for the creditors as a whole as compared to a liquidation, failing that:
  3. To realise the company’s property in order to make a distribution to the company’s secured or preferential creditors.

A company is placed into administration on the appointment of an administrator. This can be done without a court hearing, by the directors, the company, or by the holder of floating charge over the company's assets. It cannot be done if the company has already been subject to a CVA in the past 12 months or is subject to insolvency proceedings.

Alternatively, a creditor can apply to the court for an appointment.

The holder of a floating charge is allowed five days notice of any appointment, to give them the opportunity to appoint an administrator of their choice if they prefer.

Once appointed the administrator, who must be a licensed insolvency practitioner, has lots of powers, including 14 days to decide whether to retain employees and the ability to appoint or remove directors. They must report to creditors within eight weeks. The directors must give them a statement of the company's affairs within 21 days. See also Insolvency FAQs for directors.

Once in administration, a company is protected from insolvency proceedings from its creditors.

In order to rescue the company, an administrator may consider a Pre-pack. A pre-pack is short for a pre-packaged sale agreement made by an administrator (a licensed insolvency practitioner) to dispose of a business or parts of a business, generally as a going concern. This will allow for the disposal of the business and then the company will be dissolved, or placed into Liquidation.