Part 1 – What is administration?
March 2013
The administration procedure was introduced by the Insolvency Act 1986, as amended by the Enterprise Act 2002, to provide a company, limited liability partnership or partnership with a breathing space to allow a rescue package or more advantageous realisation of assets to be put in place (see paragraph 56.1.14 for details of the transitional provisions). The Enterprise Act 2002 introduced Schedule B1 of the Insolvency Act 1986 to provide the current legislative framework for administration making it quicker, cheaper and less bureaucratic than the previous legislation. One of the principal changes is that a company can enter administration without first obtaining a court order.
56.1.3 Aims and objectives of administration
The aim of administration proceedings is to rescue and rehabilitate insolvent but potentially viable companies. The word “company” in this chapter should be taken to include LLPs and partnerships, unless indicated otherwise. The word “director” should be taken to include members of limited liability partnerships and partners. A company is said to be in administration when the appointment of an administrator becomes effective [Note 1]. The objective of the administrator is, where appropriate, to restore profitability by reorganising the company’s business in whole or in part. This may involve making proposals to realise the company’s assets to obtain a better result for creditors than could be obtained on immediate winding up.
An administrator is a person or persons appointed under Schedule B1 of the Insolvency Act 2012 to manage the company’s affairs, business and property [Note 2] . On appointment an administrator becomes an officer of the court [Note 3]. A person must be qualified to act as an insolvency practitioner in relation to a company to be appointed as an administrator [Note 4]. Two or more persons may be appointed as an administrator of a company and they can act jointly or concurrently [Note 5]. The appointment of more than one person to act as administrator must specify the functions, if any, to be carried out by the persons so appointed [Note 6].
56.1.5 Appointment of an administrator
An administrator may be appointed:
56.1.6 The basic duties of an administrator
The administrator must generally perform his/her functions in the interests of the creditors as a whole [Note 8]. The only exception is where the administrator realises property to make a distribution to one or more secured or preferential creditors and it is not reasonably practicable to achieve the general objective. In these circumstances the administrator must ensure the actions he/she takes do not unnecessarily harm the interests of creditors as a whole [Note 9].
56.1.7 Purpose of administration
The functions of the administrator are:
The administrator should aim to rescue the company as a going concern unless it is not reasonably practicable to do so, or a better result could be obtained for creditors by not doing so [Note 11].
56.1.8 To whom does the administration legislation apply?
The administration procedure applies to companies or LLPs registered in England and Wales or in Scotland under the Companies Act 2006 or Limited Partnerships Act 2000, incorporated in an European Economic Area (EEA) state other than the United Kingdom and incorporated outside the EEA but having its centre of main interest in a member state other than Denmark [Note 12]. A company or LLP incorporated outside the United Kingdom that has a principal place of business in Northern Ireland may not enter into administration under the Insolvency Act 1986 unless it also has a principal place of business in England and Wales or Scotland [Note 13].
56.1.9 Liquidation and administration
Where a company has gone into voluntary or compulsory liquidation an application for administration may be only made by the liquidator [Note 14]. The only exception is where a company is in compulsory liquidation, a holder of a qualifying floating charge can apply to the court for an administration order. Where an administration order is made the court shall discharge the winding-up order with such additional provisions as it sees fit [Note 15].
56.1.10 Insurance and banking companies
Insurance and banking companies may go into administration, however the procedure is subject to certain modifications. The most important being that an insurance company can only be placed in administration by order of the court [Note 16]. The modifications applied to banking companies in liquidation are contained in Banks (Former Authorised Institutions) (Insolvency) Order 2006. The modifications applied to insurance companies are contained in Financial Services and Markets Act 2000 (Administration Orders relating to Insurers) Order 2010.
56.1.11 Other companies with modified administration regimes
Specific legislation modifies the administration regimes for a number of other companies. Examples include the following:
Since 1 July 2005 the current administration procedures have applied to a partnership [Note 23]. A partnership, including partnerships formed outside the UK, must have a centre of main interest (COMI) or, in the case of a Danish partnership, a principal place of business in England and Wales or in Scotland [Note 24].
56.1.13 Other bodies subject to administration
The administration procedure may apply to bodies incorporated in EEA countries other than those mentioned in paragraphs 56.1.10 to 56.1.12. For example a combination of a joint stock company and a limited partnership incorporated in Luxembourg was held to be a company for the purposes of administration [Note 25]. Where the official receiver has a concern in a particular case as to whether administration is an appropriate procedure he/she should contact Technical Section for advice.
56.1.14 Transitional provisions
The administration procedures introduced by Schedule B1 of the Insolvency Act 1986 applied for companies from 15 September 2003 [Note 26], for partnerships from 1 July 2005 [Note 27] and for LLPs from 1 October 2005 [Note 28]. Where an administration order was made prior to those dates the previous administration regime applies (see paragraph 56.1.2). If in the unlikely event that an official receiver has to deal with an “old style” administration order he/she should contact Technical Section for further guidance.
56.1.15 The Insolvency (Amendment) Rules 2010
A number of procedures in the administration process were changed by the Insolvency (Amendment) Rules 2010 which came into force on 6 April 2010 The changes apply to an administration commenced on or after 6 April 2010 with the following exceptions:
This chapter will refer to the current procedures. Where the old procedures are still relevant this will be stated in the text.
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