Administration: A UK director's guide to the rescue procedure

Administration is a formal insolvency procedure that places an insolvent company under the control of a licensed insolvency practitioner — the administrator — acting in the interests of the body of creditors as a whole. The directors' powers cease on appointment. The administrator takes over the management of the company, with full statutory authority to do whatever is necessary to achieve the chosen objective.

The procedure exists to provide a structured rescue framework for businesses that have value worth preserving but cannot continue trading without protection from creditor enforcement. The combination of professional control, statutory moratorium, and defined objectives is what distinguishes administration from informal restructuring. It is also what makes administration substantially more expensive and procedurally heavier than alternatives like a CVA or refinancing.

Administration was substantially reformed by the Enterprise Act 2002. Before 2002, administrative receivership — a procedure controlled by floating charge holders for the benefit of those charge holders — was the dominant secured-creditor remedy. The Enterprise Act prohibited new administrative receivership appointments under qualifying floating charges created on or after 15 September 2003 (subject to limited exceptions, principally in capital markets transactions), and made administration the principal rescue procedure for most UK companies.

Common confusions worth setting aside:

• Not liquidation. The company can survive administration as a going concern. Liquidation winds the company up; administration aims to rescue or realise.
• Not the same as a CVA. CVA is a statutory contract between the company and its creditors that allows continued trading under director control with light supervision. Administration places the company under the administrator's control with full statutory authority. The two procedures can be sequenced — administration followed by CVA is a recognised pathway — but they are distinct.
• Not bankruptcy. Bankruptcy is a personal insolvency procedure for individuals; administration is for companies.
• Does not automatically terminate contracts or employment relationships. Those continue unless the administrator elects to end them.
• Not appropriate for every distressed company. Where the underlying business has no going-concern value and no rescue is realistic, CVL is typically the right procedure — administration adds cost without adding value where neither rescue nor a going-concern sale is achievable.

Rescue

Rescuing the company itself as a going concern. The most ambitious outcome — typically delivered through a CVA approved during administration.

Better outcome

A better outcome for creditors as a whole than immediate winding-up. Typically delivered through a going-concern sale of the business.

Realisation

Realising property to pay secured or preferential creditors. The residual objective — used where neither rescue nor going-concern sale is achievable.

The first and preferred objective is rescue of the company itself — the existing legal entity, with its existing contracts, employees, and trading relationships. The company emerges from administration and continues trading. Where rescue is achieved, it is typically through a CVA proposed and approved during the administration period, or through a restructuring of the company's debt and equity.

Rescue of the company is the most ambitious outcome and the rarest in practice. It requires the underlying business to be viable, the legacy debt to be capable of being restructured, and the creditor body to be cooperative. Where any of these conditions fails, the administrator moves to Objective 2.

The second objective is achieving a better outcome for the body of creditors as a whole than would be achieved by an immediate winding-up. This is typically delivered through a going-concern sale of the business and assets to a third party (or, in pre-pack scenarios, to a connected party at independently valued market price). The buyer takes the trade, the employees, the customer contracts, and typically the trading premises. The residual entity — stripped of its valuable assets — is then placed into liquidation.

Objective 2 is the dominant outcome in administrations. In most cases where administration delivers a meaningful return to creditors, it does so through a going-concern sale rather than rescue of the original company. The arithmetic supporting Objective 2 is the comparison statement: the administrator must show that the going-concern sale produces more for creditors than they would receive on an immediate liquidation. Where it does, Objective 2 is satisfied.

The third objective is realising property to make a distribution to one or more secured or preferential creditors. This is the residual objective — used where neither rescue nor a going-concern sale is achievable. In substance, the administration becomes a means of realising the company's assets in an orderly way for the benefit of the creditors who have priority status. Other (unsecured) creditors typically receive nothing under Objective 3.

Objective 3 is sometimes the right answer but it is the weakest justification for administration. Where Objective 3 is the realistic outcome, the administrator must consider whether liquidation — specifically CVL — would produce the same result more cheaply. Administration adds cost relative to liquidation, and that cost reduces the amount available for distribution.

The administrator's choice of objective is recorded in the proposals filed with creditors within eight weeks of appointment. The proposals identify which objective is being pursued and why. The administrator must pursue Objective 1 if reasonably practicable; if not, Objective 2 if reasonably practicable; otherwise Objective 3. The hierarchy is enforced by the courts: an administrator who pursues a lower objective without proper justification can be challenged.

In practice, the chosen objective is often clear from the outset of the administration. The directors and the proposed administrator usually have a strategy mapped before appointment — whether that is to negotiate a CVA from administration (Objective 1), to deliver a going-concern sale (Objective 2), or to realise specific assets for a secured creditor (Objective 3). The administration procedure then implements that strategy under statutory protection.

Application to the court for an administration order can be made by the company itself, the directors, one or more creditors, the supervisor of a CVA, or other parties identified in paragraph 12 of Schedule B1. The court considers the application and, if satisfied that the company is or is likely to become unable to pay its debts and that an administration order is reasonably likely to achieve the purpose of administration, makes the order.

Court appointment is the slowest of the three routes — typically several days at minimum, longer if the application is contested. Court appointment is typically used where: the company is already subject to a winding-up petition (in which case out-of-court routes are not available); a creditor with no qualifying floating charge wishes to force administration; or the position is contested and a court order is needed for certainty.

Directors of a company can appoint administrators out of court under paragraphs 22-34 of Schedule B1. The directors must give five business days' notice of intention to appoint to any qualifying floating charge holder — the Notice of Intention to Appoint Administrators — to give the QFCH the opportunity to nominate its preferred administrator. After the notice period, the directors file the appointment documents at court and the appointment takes effect.

Director out-of-court appointment is the most common route in practice for SME administrations. It is faster than court appointment, gives directors control over the choice of administrator, and is less expensive. The five-business-day notice period is the principal procedural constraint; where speed is critical (for example, to protect against an imminent winding-up petition), an alternative route may be necessary.

A qualifying floating charge holder — typically a bank with a floating charge created on or after 15 September 2003 — can appoint administrators out of court under paragraphs 14-21 of Schedule B1. The QFCH must have served a written notice of appointment, and (if the charge is not yet enforceable) a default must have occurred or been deemed to have occurred.

QFCH appointment is the route used by secured lenders enforcing their floating charge security. It can be effected within a single day, making it the fastest of the three routes. The QFCH chooses the administrator (subject to the rules around independence) and is responsible for the costs of the procedure if there are insufficient floating charge realisations to cover them.

The Notice of Intention to Appoint Administrators is a critical procedural document for the director out-of-court route. It must be filed at court and served on any qualifying floating charge holder. From the moment of filing, an interim moratorium takes effect: creditors cannot commence enforcement action without the administrator's consent or court permission. The interim moratorium is the protection that allows directors to plan an orderly appointment without immediate enforcement risk during the five-business-day notice period.

The Notice of Intention is sometimes used tactically as a short-term moratorium tool — for example, where a director needs a few days of protection to negotiate a settlement, find funding, or arrange an alternative procedure. Care is needed: improper use of the procedure (filing a Notice of Intention with no genuine intention to appoint) can be challenged by creditors and undermines the firm's relationship with the court.

The moratorium covers a broad range of creditor enforcement steps:

• Presentation of winding-up petitions.
• Continuation of pending winding-up petitions (suspended on the appointment of administrators).
• Enforcement of security over the company's property.
• Repossession of goods under hire purchase, conditional sale, or retention of title agreements.
• Forfeiture of leases for non-payment of rent.
• Commencement or continuation of legal proceedings, including arbitration.
• Enforcement of judgment debts.

The breadth of the moratorium is what makes administration so commercially valuable as a rescue procedure. It buys the administrator time and space to develop and implement a strategy without the constant threat of enforcement disrupting the trading position.

Several things continue despite the moratorium:

• Set-off rights of creditors against amounts they owe to the company.
• Crystallisation of floating charges (although enforcement is stayed).
• Termination of contracts under express termination clauses.
• Regulatory action by HMRC, the FCA, or other regulators — although enforcement steps that would constitute legal proceedings are caught.
• Personal claims against directors or guarantors — the moratorium protects the company, not its officers or any personal guarantors.

The most important point in this list is the last one. The moratorium does not protect personal guarantors. Lenders who hold PGs from directors can call them when the company enters administration, irrespective of the moratorium. This is one of the principal points where administration's benefit to the company does not translate to benefit for the directors personally.

Trading through administration is permitted and often essential to the strategy — particularly under Objective 2, where preservation of going-concern value depends on continued operation pending the sale. The administrator manages the trading. Suppliers, customers, employees, and counterparties continue to deal with the company under the administrator's direction.

Two practical considerations matter for ongoing trading. First, administration expenses (including costs of trading) rank ahead of unsecured creditor claims for the period of administration, providing some comfort to suppliers continuing to deal with the company. Second, post-appointment supplier credit is typically tightened or withdrawn entirely; suppliers who continue to deal often do so on prepayment or cash-on-delivery terms. The trading position during administration is rarely the same as before.

On the appointment of the administrator, the directors' powers cease. The directors no longer have authority to manage the company's affairs, sign contracts, employ staff, or operate the bank account. The administrator takes over all management functions. The directors remain in office — they are not formally removed — but their role becomes essentially passive: providing information, cooperating with the administrator, and (where the administrator and the strategy require it) advising on the business and the trading relationships.

This is the most significant practical difference between administration and CVA. In a CVA, the directors continue to manage the business under supervision. In administration, the administrator manages and the directors observe. For directors who are accustomed to running their company, this transition is often the most uncomfortable aspect of administration — not because of any criticism of the administrator's management, but because the loss of control is disorienting.

Directors remain under a statutory duty to cooperate with the administrator under section 235 of the Insolvency Act 1986. The duty includes: providing books, records, and other information; attending meetings and interviews; answering questions about the company's affairs and specific transactions; and providing any further information the administrator reasonably requires. Failure to cooperate is a criminal offence and is reported in the administrator's subsequent conduct report.

In practice, directors who are willing to engage with the administrator constructively often find their input is genuinely valuable. The administrator does not have the directors' institutional knowledge of the business, the customer relationships, or the operational specifics. A cooperative director can materially influence the administrator's strategy and the outcome for stakeholders, even though formal control has passed.

Administration does not, by itself, create personal liability for directors. Personal exposure flows from the same mechanisms that operate in any insolvency context:

• Wrongful trading under section 214 IA 1986 — where the directors continued to trade after they knew the company could not avoid insolvent administration or liquidation.
• Misfeasance under section 212 IA 1986 — breaches of director duties to the company.
• Preference and undervalue claims for the period before administration.
• Director loan accounts owed to the company — pursued by the administrator or any subsequent liquidator.
• HMRC personal liability notices for unpaid NICs in cases of fraud or neglect.

The administrator files a confidential conduct report on each director under the Company Directors Disqualification Act 1986. The report assesses whether the directors' conduct in the period leading up to administration was that of fit persons. Where unfit conduct is identified, disqualification proceedings can follow. The conduct report is broadly comparable to that produced in a CVL or compulsory liquidation; administration does not, by itself, soften the scrutiny.

As with CVA, personal guarantees are not extinguished by administration. PGs are contracts between the director and the lender; the corporate moratorium does not affect them. Lenders typically call PGs at the point of administration — the company's entry into administration is treated as a default trigger under most PG terms. Settlement at a discount is often achievable but the negotiation runs in parallel with the administration, not as part of it.

Employees are not automatically dismissed on the appointment of administrators — they remain in employment unless and until the administrator decides otherwise. Where the administrator decides to dismiss employees (typically as part of a trading wind-down or to reduce costs pending sale), the dismissals must follow proper procedure. Claims for unpaid wages, holiday pay, statutory redundancy, and notice pay rank as preferential creditors subject to statutory caps; beyond the caps, claims rank as unsecured creditors.

Where the business is sold as a going concern, the TUPE regulations may apply, transferring some or all employees to the buyer on their existing terms. The TUPE position in insolvency is complex — special rules apply to administration that limit some of the protections normally available, particularly around variations to employment terms. Specific advice is required where employee transfer is part of the strategy.

Pre-appointment trade creditor claims rank as unsecured creditor claims in the administration. Their treatment depends on the strategy: in a rescue (Objective 1) the legacy debt is typically restructured under a CVA with a percentage return; in a going-concern sale (Objective 2) the unsecured creditors typically receive a distribution from net realisations after secured creditors and administration expenses; in a realisation under Objective 3, unsecured creditors typically receive nothing.

Post-appointment supplier relationships are typically renegotiated. The administrator may continue with key suppliers on cash terms or short credit; non-essential suppliers are often discontinued. The cost of any continuing supply during administration ranks as administration expenses, with priority over unsecured pre-appointment claims.

Commercial landlords cannot forfeit leases for non-payment of rent during the administration moratorium without the administrator's consent or court permission. Where the company continues to occupy the premises during administration and the administrator uses the lease for the purposes of the administration (for example, for trading or for storage of saleable assets), rent for that period is treated as an administration expense — a priority claim against the company's assets.

Where the administrator does not require the lease, it is typically disclaimed or surrendered. Landlords whose leases are disclaimed have unsecured creditor claims for unpaid rent (subject to the rules around future rent and discounting). Landlord positions in administration have been the subject of significant case law in recent years and continue to develop.

Secured lenders' positions are not unwound by administration. Their security continues to attach to the secured assets. They cannot enforce during the moratorium without consent or court permission, but their priority position is preserved. Where the administration delivers a going-concern sale, secured creditors are typically paid out of the sale proceeds before unsecured creditors receive anything; where the administration delivers a realisation under Objective 3, secured creditors are usually the principal beneficiaries of the procedure.

Floating charge holders' positions are subject to the prescribed part — a portion of floating charge realisations reserved for unsecured creditors under section 176A IA 1986. The current prescribed part is calculated on a sliding scale: 50% of the first £10,000 of net floating charge realisations, plus 20% of the balance, up to a maximum of £800,000 (post-6 April 2020).

Customer relationships continue under the administrator's management. Existing contracts are not automatically terminated; the administrator decides which contracts to perform, assign, or disclaim. Customer deposits and prepayments held by the company at the date of appointment typically rank as unsecured creditor claims unless the deposit is held on trust under specific arrangements (rare in practice).

The reputational impact of administration on customer relationships varies materially by sector. In some sectors (manufacturing, distribution), customers tolerate administration and continue to deal with the company through the period. In others (consumer-facing retail, hospitality, professional services), administration is materially more damaging to customer confidence. The administrator's communication strategy in the first weeks of the procedure often determines whether customer relationships survive.

Where the administrator achieves Objective 1 (rescue), the company can be returned to its directors' management with a clean balance sheet — typically through a CVA approved during administration that restructures the legacy debt. The company exits administration and continues trading as a going concern. This exit is the rarest in practice but the most ambitious where it is achievable.

Where rescue is achieved through a CVA, the company exits administration and operates under the supervision of the CVA supervisor for the contribution period. The administration provides the protection and restructuring framework; the CVA delivers the long-term debt resolution. This sequence — administration to CVA — is a recognised pathway for companies needing both short-term moratorium and long-term debt restructuring.

The most common substantive exit. The administrator sells the business and assets to a third party (or, in pre-pack scenarios, to a connected party at independently valued market price). The buyer takes the trade, employees, customer contracts, and trading premises. The residual entity — stripped of its valuable assets — is then placed into liquidation, typically by conversion to CVL or by application to the court.

Going-concern sale delivers Objective 2 in most cases: the comparison statement supports a better creditor outcome than immediate liquidation, the trade and employees survive in the buyer's hands, and the unsecured creditors receive a distribution (typically modest) from the residual entity's realisations after secured creditor and administration expense priorities.

Where the administration cannot deliver Objective 1 or 2, or where it delivers Objective 2 through a sale of the business but the residual entity must still be wound up, the company moves into liquidation. The most common mechanism is automatic move to CVL by notice from the administrator under paragraph 83 of Schedule B1 — a streamlined procedure where the administrator effectively converts the case into a CVL with the same office-holder. Alternatively, the administrator can apply to the court for compulsory winding-up, or for the appointment of a different liquidator.

Where the company has no remaining assets and no realistic claims to pursue — typically because all assets have been realised and distributed during the administration — the administrator can apply to the registrar of companies for dissolution under paragraph 84 of Schedule B1. The company is dissolved without a separate liquidation procedure. This exit is used in straightforward asset-realisation cases where the cost of a separate liquidation would not deliver further value.

CVA is the other major UK rescue procedure. The principal differences:

• Control: directors retain control in CVA; administrator takes over in administration.
• Moratorium: administration provides automatic statutory moratorium; CVA does not.
• Speed: administration can be in place within days (out-of-court routes); CVA typically takes weeks to draft and creditor-approve.
• Outcome: CVA aims at the survival of the company in its current form; administration can result in survival, sale, or transition to liquidation.
• Cost: administration is typically more expensive than CVA, particularly because administrators have wider operational responsibilities.
• Trading: trading through CVA is largely under directors' control; trading through administration is at the administrator's direction.

The choice between administration and CVA depends on: whether the directors are still in a position to lead the business (CVA) or whether independent professional control is needed (administration); whether immediate moratorium protection is essential (administration) or whether the timetable allows for the CVA approval process (CVA); and whether the strategy is preservation of the company in its current form (CVA) or a sale or restructuring of the business (administration).

Liquidation winds the company up; administration aims to rescue or realise. Administration is appropriate where there is going-concern value to preserve through a sale or rescue. CVL is appropriate where the underlying business has no going-concern value and the right course is an orderly wind-down. The choice between them depends on the specific facts: where there is a viable trade, valuable customer relationships, key staff, or saleable goodwill, administration typically delivers a better outcome; where these elements are absent, CVL is usually the right answer at lower cost.

Administrative receivership — the procedure that previously dominated UK insolvency before the Enterprise Act 2002 — is no longer available for most floating charges. New administrative receivership appointments under qualifying floating charges created on or after 15 September 2003 are prohibited by Part III of the Insolvency Act 1986 (as amended), with limited exceptions in capital markets transactions. For most secured lenders, administration is therefore the available enforcement route.

LPA receivership — receivership under the Law of Property Act 1925, typically over real estate — remains available and is regularly used. LPA receivers can be appointed by mortgagees over specific assets and act in the interests of the appointing chargeholder. LPA receivership is not a rescue procedure; it is an asset-realisation procedure for specific properties. Where a company has multiple assets and broader insolvency issues, administration is usually the appropriate procedure rather than LPA receivership.

Administration is intended to be a temporary procedure. The default duration is one year from appointment, subject to extension by creditor consent (six months) or by court order (any period). In practice:

• A pre-pack or fast going-concern sale can complete the substantive work within the first eight weeks — the period before the administrator's proposals must be filed.
• A more conventional going-concern sale typically takes three to six months from appointment to completion, plus several months for residual realisations and exit.
• A rescue through CVA typically requires the full one-year administration period to develop, propose, and approve the CVA.
• A Schedule B1 paragraph 83 conversion to CVL can occur shortly after the substantive realisation work is complete — typically six to twelve months after appointment.
• Complex cases with substantial litigation, contested transactions, or international elements can run for two to three years or longer, with periodic extensions.

From the directors' perspective, active involvement is concentrated in the first few months of the administration: providing information, attending interviews, supporting the administrator's strategy. After that, involvement is typically limited to occasional information requests.

Administration is typically the most expensive UK insolvency procedure for SMEs. The principal cost components:

• Administrator's fees — typically charged on a time-cost basis at hourly rates from £200 to £600+ per hour depending on seniority and complexity.
• Legal fees — typically substantial, particularly for complex sales, contested matters, or international cases.
• Other professional fees — valuation, agents' fees for asset realisation, tax advice, IT support.
• Trading expenses for the period of administration — if the company continues to trade, these can be substantial.
• Court fees and statutory disbursements — relatively minor in the overall picture.

Indicative ranges:

• Small administration (turnover £1-5m, simple structure): £40,000 to £100,000 plus VAT in total IP-related costs.
• Mid-size administration (turnover £5-25m, moderate complexity): £100,000 to £400,000 plus VAT.
• Large or complex administration: £400,000 to £1.5m+ plus VAT, sometimes substantially more.

These figures are illustrative; actual costs depend materially on complexity, duration, and the level of trading through the procedure. The cost is paid out of the company's realisations, ranking ahead of secured creditor distributions in respect of floating charge assets and ahead of unsecured creditor distributions generally. The cost of administration is therefore borne by the creditors (through reduced recoveries) rather than by the directors personally.