Insolvency: company administration

Insolvency arises when a company has insufficient assets to cover its debts or is unable to pay its debts as and when they fall due. The company administration procedure is set out in the Insolvency Act 1986 (IA 1986), the procedure was extensively reformed by the Enterprise Act 2002 with the aim of making it a more accessible.  

Administration is an insolvency process by which a company is placed under the control of a licensed insolvency practitioner, the “administrator”, who must try to achieve certain statutory objectives. At its heart, administration is a company rescue procedure. When an administration order is in place, a moratorium (often described as a “protective cloak”) is placed around the company to protect it from legal actions whilst a survival plan is being formed. If the rescue of the company is impossible, the administrator must aim to achieve a better result for the company’s creditors as a whole than would be likely if the company were put into liquidation through an orderly wind down of the company’s affairs. If this is impossible, the administrator must realise the company’s property to make a distribution to the company’s secured or preferential creditors.

In recent years, administration has been in the “limelight” due to the large number of high-profile administrations on the high street. This Commons briefing paper provides an outline of the main characteristics and objectives of the administration process, including pre-packaged administrations (known as “pre-packs”), and the distinctive role of the administrator. It also highlights why, in certain circumstances, administration can be an important company rescue insolvency procedure. This paper applies to England, Wales and Scotland.