Administration is a formal insolvency procedure and a company is deemed to be ‘in administration’ while the appointment of an administrator of the company has effect.
A person may be appointed as administrator of a company,
- By an administration order of the Court
- By a holder of a qualifying floating charge
- By the company or its directors
The administrator of a company must perform his functions with the objective of,
- Rescuing the company as a going concern
- 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)
- Realising property in order to make a distribution to one or more secured or preferential creditors
Administration is very much a rescue procedure and the role of the administrator is to facilitate that rescue despite the common perception that it is an administrator’s job to close down the company. Closure of a company is really a last resort. The administrator’s job is to immediately review the business to establish if the company can continue trading whether that be for a matter of days or, in some circumstances, months. Whilst the company is trading most administrators are effectively running a marketing operation to search for a buyer and keeping the business going creates the time in which to find one. Frequently however, keeping the business trading is difficult due to the costs of doing so, so the pressure is on for the administrator to achieve an early sale.
If the company can’t be kept as a going concern, in most cases the main task of the administrator is to maximize the value of the assets for the benefit of the creditors. In almost every case the best way to do that is to try to sell the business for the best possible price in a reasonably short time scale. Frequently this can involve what is known as a ‘pre-pack sale’.