Administration has three statutory objectives (set out in Schedule B1 of the Insolvency Act 1986). The administrator has to pursue them in order of priority:
- First, try to rescue the company
- Second, aim for a better result for creditors than liquidation would deliver
- Third, realise property to pay secured or preferential creditors
This hierarchy isn’t optional. It’s the legal framework the administrator works within from the moment they’re appointed and it shapes the practical outcome of the process..
The first objective: Rescuing the company as a going concern
The first objective is to rescue the company itself. Not the business, not the assets, but the legal entity, with its trading operations preserved and continuing.
A successful rescue usually involves restructuring the company’s debts during the automatic moratorium period. The company exits Administration intact and continues trading under its directors’ control.
In practice, this objective is sometimes the hardest to achieve. It needs the underlying business to be fundamentally viable, the cooperation of major creditors and a workable restructuring plan. Where any of those is missing, the administrator has to look at the second objective.
The second objective: A better result for creditors as a whole
If rescuing the company isn’t reasonably practicable, the administrator pursues a better outcome for creditors as a whole than would be achieved through immediate liquidation.
In most cases, this means selling the business or its assets as a going concern. The trading operation, the contracts, the employees and the goodwill are sold to a buyer who takes them on.
The company itself is left as a shell and usually moves into insolvent liquidation afterwards. But the underlying business survives in different hands and creditors recover more than they would from a closure sale.
This is the most common outcome of Administration. It captures more value than breaking the company up, and it preserves jobs and trading relationships even where the original company can’t continue.
Considering an insolvency process for your company?
If your company is under creditor pressure and you’re weighing up which is the right route, we can help you understand what’s likely to work in your situation and what the realistic outcomes would be.
A short conversation with a qualified insolvency practitioner is often enough to give you a clearer picture of where things stand.
The third objective: Realising property for secured or preferential creditors
The third objective only applies where the administrator thinks neither of the first two is reasonably practicable, and where pursuing it doesn’t unnecessarily harm the interests of creditors as a whole.
Under this objective, the administrator realises specific assets to make a distribution to one or more secured or preferential creditors. There’s no expectation of a return for unsecured creditors as a class.
What it means for you as a director
Once an administrator is appointed, day-to-day control of the company passes to them. You remain a director in name but you don’t run the business. The administrator acts in the interests of creditors as a whole and is an officer of the court.
An automatic moratorium comes into effect on appointment which pauses most creditor action against the company. For directors, this often brings immediate relief from the calls, letters and enforcement threats that have built up before Administration. It doesn’t remove your legal duties but it does take the day-to-day pressure off while the administrator works through the position.
Your duties as a director continue throughout the process. The director conduct report covers the period leading up to and during the Administration as well as what came after. Cooperating with the administrator and providing the information they need is part of meeting those duties.
Key takeaways
- Administration has three statutory objectives set out in Schedule B1 of the Insolvency Act 1986
- The administrator has to pursue them in order of priority
- The first objective is to rescue the company as a going concern
- The second is to achieve a better result for creditors as a whole than liquidation would
- The third is to realise property to pay secured or preferential creditors
- The automatic moratorium pauses creditor action while the administrator works
- Directors remain in post but day-to-day control passes to the administrator
Get advice on whether Administration is right for your company
Administration isn’t the right route in every case. It’s used where the company has value worth preserving and where time and protection from creditor action are needed to find the best outcome.
A qualified insolvency practitioner can review the position with you, explain whether Administration is likely to work in your circumstances and walk you through what the alternatives would mean.
