Company Administration
Administration uses a court procedure to protect a company's business and assets for the benefit of creditors and employees (including directors). The procedure is intended mainly for situations where a sudden cessation of trade would be problematic and where the Court protection has the possibility of salvaging at least some aspects of the business. The outcome for creditors should be better than would arise from liquidation. The procedure is increasingly been used to assist the sale of businesses where the company selling is insolvent.
Administrative Receiverships of companies are less common following on from implementation of the Enterprise Act 2002. They tend to result from bank appointments where there is appropriate security dated prior to 15 September 2003. Banks with security are now able to appoint administrators.
Pros and Cons to Company Administration
Pros
- Allows orderly sale of business/assets
- Simple application to Court
- Comprehensive protection
- Various exit routes
- Reduced directors' risk of wrongful/fraudulent trading
- Possibility of returning control to directors
Cons
- More expensive than voluntary liquidation
- Must have possibility of better outcome than liquidation
- Administrator assumes control from directors
- 12 months limit (creditors may approve extra 6 months)
- Directors' conduct investigated