Administration is a formal insolvency process designed to give struggling businesses breathing space while a licensed insolvency practitioner works on a recovery plan.
When your company goes into administration, day-to-day control passes from you as the director to an appointed administrator. The administrator must be a licensed insolvency practitioner. Their legal duty is to act in the best interests of creditors as a whole, not the directors or shareholders.
The administrator’s goals usually follow this order of priority:
- Rescue the company as a going concern – ideally keeping the business trading and saving jobs.
- Achieve a better result for creditors than would be possible through liquidation.
- Realise assets to pay secured or preferential creditors if neither of the above is achievable.
How does administration protect a company?
The most important feature of administration is the statutory moratorium. This gives your company breathing space by preventing creditors from:
- Enforcing security, such as appointing a receiver
- Starting or continuing legal proceedings
- Petitioning for winding up
- Sending bailiffs to seize assets
This protection applies automatically once the administration is approved by the court or formally filed.
When is administration used?
Administration isn’t suitable for every insolvent business. It’s generally used when the company still has value worth protecting, such as:
- Contracts, property leases or intellectual property
- A workforce and brand that make it attractive for sale
- The potential to return to profitability with restructuring
It’s often seen in industries like retail, hospitality or manufacturing, where companies employ staff, hold long-term leases and supply chains depend on continuity.
Administration vs Liquidation
Liquidation – through Creditors’ Voluntary Liquidation – is about closing down a company and selling off assets to pay creditors. Administration, by contrast, aims to rescue or sell some or all of the business, to get it back on track.
That said, Administration can still lead to liquidation if saving the business isn’t viable. In some cases, the administrator will sell the assets through what’s known as a “pre-pack administration” – where a buyer (sometimes even the existing directors, under strict rules) takes over quickly to protect jobs and contracts.
The role of directors in Administration
Once your company enters Administration, you no longer control day-to-day operations. However, you still have important responsibilities:
- Providing the administrator with full financial records and cooperation
- Staying compliant with your director duties under the Insolvency Act
- Assisting in finding the best possible outcome for creditors
If you’ve acted responsibly, administration is not usually a risk to your personal position. But wrongful trading, preferential transactions or misuse of company funds before insolvency can be investigated.
Alternatives to Administration
Not every struggling company needs Administration. Other insolvency and rescue options include:
- Company Voluntary Arrangement (CVA): A formal repayment plan allowing you to continue trading under director control, provided creditors agree.
- Time To Pay arrangement (TTP) with HMRC: A short-term fix for tax debts, though it won’t protect against other creditors.
- Creditors’ Voluntary Liquidation (CVL): A structured way to close your company and write off debts if recovery isn’t realistic.
An insolvency practitioner can help you decide which option fits your company’s circumstances.
Key takeaways: what is Administration?
- Administration is a formal insolvency process led by a licensed insolvency practitioner.
- It protects your company from creditor action through a statutory moratorium.
- The goal is usually to rescue the business but it also aims to achieve a better return for creditors.
- Administration is only suitable if the business still has value to preserve.
- Alternatives like CVAs or liquidation may be more appropriate if recovery isn’t realistic.
