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Institute of Chartererd Accountants


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Your Questions on Administrations

What’s an Administration?
A company in administration has Court protection from creditors whilst the Administrator assesses the company’s options, and implements a rescue plan. 

What’s the objective of Administration?
The Administrator of a company has to perform his duties with the following objectives in mind: 
A). Rescuing the company as a going concern, or 
B). Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up, or 
C). Realising Company assets in order to make a distribution to one or more secured or preferential creditors. 

Who can appoint an Administrator?

An Administrator can be appointed either by the company, its directors, one or more of its creditors by way of an application to court. Alternatively, a Bank or the directors or the company can appoint an Administrator “out of court.” 

How quickly can an Administration be instigated?
Administration can be instigated very quickly, by the directors resolving to place the Company into administration. However, if a Bank is involved, then that bank must be given five clear days’ notice of the company’s intention to appoint an Administrator. The Bank can then either consent to the administration but over-rule the company’s choice of Administrator and appoint its own choice of Administrator. 

A Bank can also appoint an Administrator, if there has been a material breach of a loan/overdraft/facility agreement by the Company. If you think you are in default of your banking facilities (for example, you are not making scheduled loan repayments to the bank) you should take immediate advice from us.

What are the powers of an Administrator?
Fairly broad and include the power to sell or trade the business. The Administrator in essence replaces the Board of Directors.

How long does an Administration normally last?
By law an administration lasts no longer than one year. However, an administration can be extended by a further six months with creditor approval. Beyond this period, a company must go to court to obtain any further extension. 

Is the Administrator bound by contracts entered into by the Company prior to his appointment?
The Administrator has a general duty to the Company and has the power to either continue the contracts or disclaim.

Can a creditor take action against a company in Administration?
Once a company enters into administration, creditors are unable to commence any action against the company without the consent of the court or the administrator.

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