To provide the directors with time to restructure the business without the pressures of unmanageable debt.
What happens when a company is in Administration?
Administration was introduced by the Insolvency Act 1986 as a procedure aimed at rescuing companies in crisis. When in Administration, the company finances and property will be managed by a person appointed for that purpose, known as the Administrator.
- Rescuing the company as a going concern, or
- Achieving a better result for the company's creditors as a whole than would be likely if the company were wound up (without first being in Administration), or
- Realising property in order to make a more advantageous distribution to secured or preferential creditors.
The Administrator must perform the first function unless he or she thinks that it is not reasonably practicable to achieve it, or that the second objective would achieve a better result for the company's creditors as a whole.
The Administrator may work towards the third objective only if it is thought that it is not reasonably practicable to achieve either of the first two objectives, and it is not likely to harm the interests of the creditors of the company as a whole.
Once the company is in administration a moratorium is put in place to protect it from creditors who may seek to recover any assets.