When a company goes into administration, the management of the company is taken over by an administrator (who is a licensed insolvency practitioner). During a ‘moratorium’, the company is afforded protection from creditors demanding payments of debts.
The administrator is obliged to act in the best interests of the company’s creditors as a whole. The administrator will try to rescue the company as a going concern but, failing that, he/she will try to achieve a better outcome than the winding up of the company. If neither of these objectives are achievable, the administrator will try to realise the assets of the company and distribute them to creditors.
There are two ways to enter into administration:
It is possible for a company to enter into administration without applying to the court for an administration order. The administration comes into effect as soon as the relevant papers are filed at court. This option is available to the company, its directors and qualifying floating charge holders.
A director, shareholder and/or creditor can apply to court for an administration order. This will be necessary where there is a dispute between shareholders and the board or where a creditor has already issued a winding-up petition against the company.
There will be a hearing in which the court will assess whether the company is insolvent and whether it is it is in its best interests to enter into administration. If so, the court will grant an administration order.
If you would like more information on the administration process or on the other options available, speak to an expert in insolvency law.
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