The Administration procedure has been a feature of the UK business rescue landscape for many years now and is aimed at rescuing an insolvent company with a sound underlying business.
For many companies, insolvency does not mean the end of the business and need not be terminal. If the underlying business is sound then a terminal procedure such as liquidation would be a step too far.
Some companies may be insolvent and will be experiencing cash flow problems, creditor pressure and possibly even a loss of business volumes and profitability. However underlying these issues may be a business that is fundamentally sound because it can be profitable but for the impact of its current liabilities.
The Administration procedure enables the company (the order is actually obtained by the directors on behalf of the company), the directors or indeed a creditor and others to obtain an Order from the Court to protect it from its creditors.
The Administration Order has the effect of appointing an Administrator, who will be a Licensed Insolvency Practitioner, to manage the company and its affairs and to try and rescue the business.
Rescue could come from either a sale of the business or some other procedure such as a Corporate Voluntary Arrangement.
Whilst the Administrator is developing his proposals for saving the business, creditors cannot take any action to enforce their debts and the company is therefore given a breathing space.
Although the company is managed by the Administrator, the directors do remain in office although they do not have the power to act in relation to the company without the agreement of the Administrator. Indeed, once the objective of the procedure has been achieved, the directors could take control over the business. This is usually the case if the outcome is a voluntary arrangement or indeed if they buy the business from the Administrator.
Administration can be a cost effective procedure requiring only that papers be filed in the court and not that a formal application be made to the Court. In many senses it is a rapid and effective approach to business rescue.