Administration (insolvency)

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Administration is a procedure under the insolvency laws of a number of common law jurisdictions which functions as a rescue mechanism for insolvent companies and allows them to carry on running their business. The process — an alternative to liquidation — is often known as going into administration.

In United Kingdom law, the administration regime is governed by the Insolvency Act 1986, as amended by the Enterprise Act 2002. An Administrator can be appointed by the holder of a floating charge (created since 15 September 2003) or by the company or by its directors without petitioning the court. Other creditors must petition the court to appoint an administrator. The administrator must act in the interests of all the creditors and attempt to rescue the company as a going concern. If this proves impossible he must work to maximise the recovery of the creditors as a whole. Only then may the administrator attempt to realise property in favour of one or more secured creditor. Administration is very similar in effect to going into "Chapter 11" in the United States.

The administrator is an officer of the court and an agent of the company. He is not personally liable for any contracts he makes on behalf of the company. He has the power to do anything necessary or expedient for the management of the affairs, business and property of the company.

The new administration regime introduced by the Enterprise Act 2002 replaces receivership. This regime, allowed the holder of a floating charge to appoint an administrative receiver to realise assets in his favour. This was felt to be too favourable to the floating charge holder at the expense of other creditors. Holders of a floating charge created prior to 15 September 2003 retain their right to appoint an administrative receiver, but all purported rights to do so created after that date will be construed as rights to appoint an administrator.