DIRECTORS & BUSINESS INSOLVENCY

Company Administration

Administration is a formal insolvency procedure in which an authorised insolvency practitioner is appointed as administrator and takes control of the company. It provides statutory protection from certain creditor action while the administrator determines how the purpose of the administration can best be achieved.

Protect the Company. Create Space to Act.
Understand Administration Get Support
Visual representation of a company being protected during financial distress
FORMAL INSOLVENCY PROTECTION A protected period in which an administrator takes control and assesses the company's future.
01
PROTECTION Statutory Moratorium
02
CONTROL Administrator Appointed
03
OBJECTIVE Rescue, Better Result or Realisation
UNDERSTANDING ADMINISTRATION

What Is Company Administration?

DIRECT ANSWER

Company administration is a formal insolvency procedure in which an authorised insolvency practitioner is appointed as administrator and takes control of the company. Administration provides legal protection from certain creditor action while the administrator determines how the statutory purpose of the administration can best be achieved.

Administration is not suitable for every company in financial difficulty and entering administration does not guarantee that the company itself will ultimately survive.

THE CORE PRINCIPLE

Administration creates a period of formal protection and professional control while the company's position and available outcomes are addressed.

THE BASIC JOURNEY

From Financial Distress to Formal Administration.

The circumstances differ from company to company, but the central concept is a move from escalating financial pressure into a formal insolvency process controlled by an appointed administrator.

01 FINANCIAL DISTRESS

Company Under Pressure

The company may be struggling with debts, cashflow, creditor action or other serious financial pressure.

02 FORMAL PROCESS

Administration Begins

The company enters a formal insolvency procedure and an authorised insolvency practitioner is appointed as administrator.

03 PROTECTION & CONTROL

Administrator Takes Control

The company receives statutory protection from certain creditor action while the administrator takes control of its affairs.

04 OUTCOME

A Route Forward Is Pursued

The eventual route may involve rescue, restructuring, a sale, asset realisation or closure depending on the circumstances.

THE CHANGE IN CONTROL

Administration Changes Who Controls the Company.

BEFORE ADMINISTRATION

Directors

The directors are responsible for the ordinary management and control of the company's business and affairs.

→ ADMINISTRATION
DURING ADMINISTRATION

Administrator

Control passes to the appointed administrator, who runs the business and determines how the administration should proceed.

IMPORTANT DISTINCTION

Administration Does Not Automatically Mean Liquidation.

Administration is a distinct formal insolvency procedure. Depending on what is achievable, the administrator may pursue a route that allows the business or company to continue, arrange a restructuring, sell the business or its assets, or move toward closure.

The outcome is therefore not identical for every company entering administration. The company's financial position, assets, creditors and commercial circumstances all matter.

Rescue WHERE ACHIEVABLE
Restructure INCLUDING POSSIBLE CVA
Business Sale WHOLE OR PART
Realisation / Closure WHERE REQUIRED
PROFESSIONAL INSOLVENCY PROCESS

Administration must involve an appropriately authorised insolvency practitioner. Stop Your Debt UK does not act as an administrator and does not itself place companies into administration. We can provide permitted administrative support, help organise relevant information and documents, and help connect a case with an appropriately authorised professional where formal insolvency assessment or action is required.

ASSESSING THE POSITION

When Might Administration Be Considered?

Administration may become relevant when a company is facing serious financial pressure, but there may still be a business, assets or underlying value that could benefit from the protection of a formal insolvency process.

Financial difficulty alone does not make Administration the right route. The company's complete position and the potential outcome for creditors need to be considered.

01 FINANCIAL PRESSURE

Is the Company Facing Escalating Pressure?

Administration is usually considered in the context of significant financial distress, rather than as a routine debt-management tool.

→
Unable to Pay Debts on Time

Cashflow is no longer sufficient to meet liabilities as they fall due.

→
Serious Creditor Pressure

Creditors are escalating recovery activity or demanding immediate payment.

→
Legal or Enforcement Action

Court or enforcement action is placing the company's position under increasing pressure.

→
Threat of Winding Up

The company may be facing action that could ultimately result in compulsory liquidation.

02 WHAT REMAINS?

Is There Something Worth Protecting?

The other side of the assessment is whether Administration could create an opportunity to preserve or realise value more effectively.

→
A Viable Underlying Business

The business may have commercial value despite the company's current financial difficulties.

→
Potential for Rescue

There may be a realistic route through restructuring or another formal solution.

→
A Business That Could Be Sold

A sale of all or part of the business may preserve more value than an immediate winding up.

→
Assets or Enterprise Value

The company's assets, contracts, goodwill or operations may have value that requires an orderly process.

THE CENTRAL QUESTION

Is there something within the company worth protecting, rescuing or realising?

01 Could the company itself realistically survive?

The first statutory objective of Administration is focused on rescuing the company as a going concern where that is reasonably practicable.

02 Could Administration produce a better result for creditors?

Where rescue is not reasonably practicable, the potential outcome for creditors compared with an immediate winding up becomes important.

03 Is there value that needs to be realised in an orderly way?

In the circumstances permitted by insolvency law, Administration may involve realising property for secured or preferential creditors.

COMPANY Serious Financial Distress
+
POTENTIAL Rescue, Business or Asset Value
=
ASSESSMENT Administration May Warrant Professional Review
ADMINISTRATION IS NOT AUTOMATIC

Insolvency does not automatically mean a company should enter Administration. Depending on the circumstances, another route may be more appropriate — including a Company Voluntary Arrangement, another restructuring process, Creditors' Voluntary Liquidation or a different professional strategy. Administration must be assessed against the company's actual financial and commercial position.

DIRECTOR RESPONSIBILITIES

Insolvency Changes the Director's Priorities.

Where a company becomes insolvent, directors' responsibilities require particular attention to the interests of creditors. Decisions made while the company is in financial distress can therefore matter significantly.

COMPANY ASSETS

Protect the assets the company still has.

CREDITORS

Avoid improperly favouring one creditor over another.

FINANCIAL POSITION

Avoid worsening the financial position of creditors.

PROFESSIONAL INPUT

Consider professional insolvency advice or the appointment of an insolvency practitioner.

WIDER BUSINESS DEBT POSITION

Not sure whether Administration, restructuring or closure is relevant? Our Business Debt & Insolvency page explains the wider landscape for directors dealing with company financial difficulty.

Explore Business Debt & Insolvency
THE STATUTORY PURPOSE

What Is Administration Trying to Achieve?

Administration is not simply a period in which creditor action is paused. The administrator must use the procedure to pursue one of the statutory purposes set out under UK insolvency law.

Those objectives follow a hierarchy. The administrator does not simply choose between three equal outcomes.

THE STARTING POINT

The administrator must first consider whether rescuing the company as a going concern is reasonably practicable.

THREE STATUTORY OBJECTIVES

The Purpose of Administration Follows a Clear Order.

What ultimately happens depends on what is realistically achievable and what outcome can be produced for the company's creditors.

01 PRIMARY
OBJECTIVE
RESCUE

Rescue the Company as a Going Concern.

The first objective is to rescue the company itself as a going concern. In practical terms, this means seeking an outcome in which the company can continue rather than being wound up.

This objective takes priority unless the administrator considers that it is not reasonably practicable, or that pursuing the second objective would achieve a better result for creditors as a whole.

IF OBJECTIVE 1 IS NOT THE APPROPRIATE ROUTE
02 NEXT OBJECTIVE
BETTER CREDITOR OUTCOME

Achieve a Better Result for Creditors as a Whole.

If rescuing the company is not reasonably practicable — or the second objective would produce a better result — the administrator can pursue an outcome that is better for the company's creditors as a whole than would be likely if the company were wound up without first entering Administration.

This may involve, for example, preserving and selling a business or realising assets in a way that produces a better overall result.

03 LIMITED CIRCUMSTANCES
PROPERTY REALISATION

Realise Property for Secured or Preferential Creditors.

Where neither rescue nor a better result for creditors as a whole is reasonably practicable, the administrator may pursue the realisation of company property in order to make a distribution to one or more secured or preferential creditors.

When pursuing this objective, the administrator must not unnecessarily harm the interests of the company's creditors as a whole.

HOW THE HIERARCHY WORKS

Administration Starts With Rescue — But Rescue Is Not Guaranteed.

01
Can the company be rescued as a going concern?

The administrator begins with the primary statutory objective and considers whether company rescue is reasonably practicable.

PRIMARY
CONSIDERATION
02
If not, can creditors as a whole receive a better result?

The comparison is with the result likely if the company were wound up without first entering Administration.

CREDITOR
OUTCOME
03
If neither is reasonably practicable, can property be realised?

In the circumstances permitted by insolvency law, property may be realised for distributions to secured or preferential creditors.

ASSET
REALISATION
IMPORTANT DISTINCTION

Saving the Business Is Not Always the Same as Saving the Company.

A company may enter Administration and its underlying business, employees, contracts or operations may potentially be preserved through a sale, even where the original company itself is not ultimately rescued as a going concern.

This is why statements such as “Administration saves the company” can be misleading. The actual outcome depends on the statutory objective being pursued and the circumstances of the case.

THE PURPOSE MATTERS

Administration is a structured insolvency process designed to pursue the best available statutory objective — not a guarantee that the company will survive.

ENTERING ADMINISTRATION

How Does a Company Enter Administration?

Administration begins with the appointment of an authorised insolvency practitioner as administrator. There are different legal routes through which that appointment can take place.

For directors, the important point is that Administration is a formal legal process — not simply an agreement to pause creditor pressure.

APPOINTMENT ROUTES

Administration Can Begin Through Different Legal Routes.

01 OUT-OF-COURT ROUTE

Appointment Without an Administration Order.

Subject to the statutory requirements, the company or its directors can appoint an administrator through the out-of-court procedure.

A creditor holding a qualifying floating charge may also have the power to appoint an administrator.

02 COURT ROUTE

Appointment by Administration Order.

An administrator can also be appointed by the court following an administration application. The legislation allows applications to be made by specified parties, including the company, its directors and one or more creditors.

The precise procedure depends on the route being used and the company's circumstances.

WHO MAY INITIATE OR SEEK AN APPOINTMENT?
COMPANY The Company or Its Directors
SECURED CREDITOR Qualifying Floating Charge Holder
COURT ROUTE Eligible Applicant Through the Court
HIGH-LEVEL PROCESS

From Financial Distress to Administration.

The exact legal filings and notices depend on the appointment route. At a high level, however, the journey normally moves from assessment of the company's position to the formal appointment of an administrator and then into the Administration process.

01 DISTRESS

Serious Financial Pressure

The company's financial position has reached the point where formal insolvency options require consideration.

02 ASSESSMENT

Administration Is Considered

The company's financial position, business, assets, creditors and potential outcomes are assessed.

03 PROFESSIONAL

Insolvency Practitioner Involved

An appropriately authorised insolvency practitioner becomes involved in relation to the proposed Administration.

04 ROUTE

Appointment Route Identified

The applicable court or out-of-court appointment procedure is determined from the circumstances.

05 FORMALITIES

Required Documents & Notices

The relevant statutory documents, notices and filings for the appointment route are prepared and dealt with.

06 APPOINTMENT

Administrator Appointed

The formal appointment takes effect in accordance with the legal route being used.

07 CONTROL

Administrator Takes Control

Control of the company's affairs and assets passes to the appointed administrator.

08 PROPOSALS

Route Forward Is Developed

The administrator assesses the company and develops proposals for achieving the purpose of the Administration.

THE FORMAL HANDOVER

Appointment Changes Who Controls the Company.

Once appointed, the administrator takes control of the company and its assets. The directors remain directors, but they cannot exercise management powers that interfere with the administrator's control.

Directors are also required to cooperate with the office-holder and provide relevant company information and records.

AFTER APPOINTMENT

The Administrator Begins the Formal Process.

01

Appointment Is Notified

The administrator must give the required notices of their appointment, including notification to creditors and public notice.

02

Company Position Is Assessed

Information about the company's affairs, assets, liabilities and business is gathered so the administrator can determine the route forward.

03

Proposals Are Prepared

The administrator develops formal proposals explaining how the purpose of the Administration is expected to be achieved.

8 WEEKS
Administrator's Proposals

As soon as reasonably practicable and before the end of eight weeks after the company enters Administration, the administrator must make a statement setting out proposals for achieving the purpose of the Administration, or explaining why that purpose cannot be achieved.

FORMAL INSOLVENCY PROCEDURE

The appointment of an administrator and formal Administration procedure must be handled through the appropriate insolvency process. Stop Your Debt UK does not act as an administrator and does not itself place companies into Administration. Where formal insolvency assessment or action is required, the case must involve an appropriately authorised insolvency practitioner.

CREDITOR PROTECTION

The Administration Moratorium

One of the defining features of Administration is the statutory moratorium that restricts creditors from taking certain enforcement and legal action against the company or its property.

It creates protected space in which the administrator can take control and pursue the purpose of the Administration.

THE CORE PRINCIPLE

Legal Protection — Not Immunity From Debt.

OUTSIDE THE PROTECTION

Creditor & Enforcement Pressure

The company may be facing court proceedings, enforcement against assets, landlord action, security enforcement or the threat of compulsory liquidation.

§ ADMINISTRATION MORATORIUM
INSIDE ADMINISTRATION

Protected Space to Act

The statutory restrictions create breathing space while the administrator controls the company and determines how the Administration should proceed.

WHAT THE PROTECTION DOES

Certain Creditor Actions Are Restricted.

Schedule B1 of the Insolvency Act places restrictions on insolvency proceedings, enforcement and other legal processes while the company is in Administration. The precise position can depend on the type of action and whether consent or court permission is available.

01 WINDING UP

Compulsory Liquidation Is Restricted

A creditor cannot simply proceed with winding the company up while the Administration moratorium is in force.

02 SECURITY

Security Enforcement Is Restricted

Steps to enforce security over company property are generally restricted without the administrator's consent or permission of the court.

03 COMPANY PROPERTY

Repossession Can Be Restricted

Certain steps to repossess goods in the company's possession under hire-purchase arrangements are restricted without the required consent or court permission.

04 LEGAL PROCESS

Proceedings & Enforcement Are Restricted

Legal proceedings, execution and other legal processes against the company or its property are generally restricted while the moratorium applies, subject to the statutory exceptions and permissions.

WHAT IT DOES NOT MEAN

The Company's Debts Do Not Disappear.

The moratorium restricts certain creditor actions; it does not automatically cancel, settle or write off the company's liabilities.

Creditors remain creditors of the company. Their claims must ultimately be dealt with through the Administration and whatever route follows from it.

DEBT

Existing company liabilities do not simply disappear because Administration begins.

CREDITORS

Creditors retain claims against the company even though certain recovery action is restricted.

EXCEPTIONS

Insolvency law contains exceptions and circumstances in which consent or court permission may be relevant.

OUTCOME

The company's eventual outcome still depends on what the administrator can achieve.

RESTRICTED DOES NOT ALWAYS MEAN IMPOSSIBLE

Some Actions May Require Consent or Permission.

CREDITOR Creditor Wants to Take a Restricted Action
→
FORMAL PROTECTION Administration Moratorium Applies
→
WHERE THE LAW ALLOWS Administrator's Consent or Court Permission May Be Required
WHY THIS MATTERS

The moratorium can prevent a race between individual creditors from determining the company's immediate future while the administrator assesses what can be achieved through the formal process.

IMPORTANT DISTINCTION

This section concerns the protection that applies in connection with Administration under Schedule B1 of the Insolvency Act 1986. It should not be confused with the separate standalone company moratorium introduced under Part A1 of the Insolvency Act, where directors generally remain in control under the supervision of a monitor. In Administration, the appointed administrator takes control of the company.

CONTROL DURING ADMINISTRATION

What Happens When the Administrator Takes Control?

Once appointed, the administrator takes control of the company's business, property and affairs and begins managing the company in accordance with the purpose of the Administration.

The directors remain directors, but control of the business is no longer theirs to exercise independently.

THE CHANGE IN CONTROL

The Company Remains — But Control Passes to the Administrator.

BEFORE & DURING ADMINISTRATION

A Formal Transfer of Management Control.

BEFORE APPOINTMENT

Directors Control the Company

The board ordinarily makes the company's management and commercial decisions and controls how the business and assets are used.

→ ADMINISTRATOR APPOINTED
DURING ADMINISTRATION

Administrator Controls the Company

The administrator manages the company's affairs, business and property while pursuing the statutory purpose of the Administration.

THE ADMINISTRATOR'S ROLE

What Can the Administrator Deal With?

Administration gives the office-holder extensive powers to manage the company and determine how its business, assets and affairs should be dealt with in pursuit of the statutory objective.

01 BUSINESS

Continue or Change Trading

The administrator can run the business while assessing and implementing the route they consider appropriate.

02 ASSETS

Control Company Property

Company assets fall under the administrator's control and may need to be preserved, used, sold or otherwise dealt with.

03 CONTRACTS

Review Commercial Arrangements

The administrator may review the company's contracts and, where legally and commercially appropriate, take decisions about how they should be dealt with.

04 EMPLOYEES

Make Staffing Decisions

The administrator may continue employing staff where required or make redundancies where the circumstances require them.

05 SALE

Explore a Business or Asset Sale

Where appropriate, the administrator may pursue the sale of all or part of the business or realise company assets.

06 OUTCOME

Determine the Route Forward

The administrator develops and implements proposals aimed at achieving the applicable statutory purpose of Administration.

WHAT ABOUT THE DIRECTORS?

Directors Have an Ongoing Duty to Cooperate.

Entering Administration does not mean the directors can simply walk away from the company. Directors must cooperate with the appointed office-holder and provide the information needed to deal with the Administration.

This allows the administrator to understand the company's financial position, business activity, assets, liabilities and events leading up to the insolvency.

INFORMATION Provide Company Information

Relevant information about the company's affairs and activities must be provided.

RECORDS Hand Over Relevant Paperwork

Company records and documents required by the office-holder must be made available.

QUESTIONS Explain the Company's Affairs

Directors may need to attend meetings, answer questions or provide a statement of affairs.

IMPORTANT

Directors remain directors during Administration, but their management powers are restricted. They cannot exercise management powers in a way that interferes with the administrator's control unless the administrator permits them to do so.

PRACTICAL CONTROL

Major Decisions Now Sit With the Administrator.

TRADING Continue the Business?

Whether trading should continue and on what basis becomes part of the administrator's assessment.

PEOPLE Retain or Reduce Staff?

Employment decisions may be required as the administrator manages the company's position.

VALUE Preserve or Sell Assets?

Assets and business value are considered against the purpose and proposed outcome of the Administration.

FUTURE What Happens Next?

The administrator determines which available route should be pursued through or after the Administration.

THE PRACTICAL REALITY

Administration does not remove the company overnight. It changes who controls it, how decisions are made and whose interests the formal process is designed to serve.

PRACTICAL IMPACT

What Happens to the Business, Assets & Employees?

Administration does not automatically mean the business closes when the administrator is appointed. The administrator decides how the business, company assets and workforce should be dealt with while pursuing the purpose of the Administration.

The outcome depends on what can realistically be preserved, sold, restructured or realised.

THE KEY POINT

A company entering Administration can still have an operating business, valuable assets, employees, customers and contracts. What happens to each must be assessed as part of the formal process.

THREE AREAS TO UNDERSTAND

The Company Is More Than Its Debts.

Administration can affect different parts of the organisation in different ways. The company itself, the underlying business, individual assets and the workforce do not necessarily share exactly the same outcome.

01 THE BUSINESS

Trading May Continue.

The administrator may continue operating the business where doing so supports the purpose of the Administration and the proposed route forward.

→

Existing trading may continue for a period.

→

Operations may be restructured or reduced.

→

All or part of the business may be marketed for sale.

→

Trading may cease if continuation is not appropriate.

02 COMPANY ASSETS

Assets Come Under Administrator Control.

The administrator takes control of company property and considers how those assets should be preserved, used or realised.

→

Assets may continue to be used in trading.

→

Assets may form part of a business sale.

→

Individual assets may be sold where appropriate.

→

Security and creditor rights can affect how value is dealt with.

03 EMPLOYEES

Jobs May Continue, Transfer or End.

Administration does not automatically make every employee redundant. What happens depends on whether the business continues, is sold, restructured or closed.

→

Some employees may continue working.

→

Redundancies may be required.

→

Employees may transfer if a business is sold, depending on the circumstances.

→

Employees may have statutory claims for qualifying sums owed.

WHAT CAN HAPPEN TO THE BUSINESS?

Administration Can Lead to Different Commercial Outcomes.

COMPANY IN ADMINISTRATION Administrator Assesses the Business and Available Value
CONTINUE

Business Continues Trading

The administrator may operate the business while pursuing rescue, restructuring or another outcome.

SELL

Business Is Sold

All or part of the business may be sold, potentially allowing its operations, customers, workforce or orders to continue under another owner.

REALISE

Assets Are Realised

Where continued trading or a business sale is not the appropriate outcome, assets may be realised and the company may ultimately move toward closure.

IMPORTANT DISTINCTION

The Business Can Survive Even if the Original Company Does Not.

The company is the legal entity. The business is the commercial operation — potentially including its workforce, customers, contracts, goodwill and trading activity.

Administration can therefore result in a sale of the business as a going concern even where the original company is not ultimately rescued. This distinction is central to understanding many Administration outcomes.

EMPLOYEE POSITION

What Can Happen to Employees?

Employees have specific rights when an employer becomes insolvent. Their position depends on whether they continue working, are made redundant or transfer as part of a business sale.

01 CONTINUE WORKING

Employment May Continue

Employees may be asked to continue working while the administrator operates or seeks to sell the business. Continuing to work does not necessarily remove later redundancy rights if employment subsequently ends.

02 REDUNDANCY

Some Roles May Be Terminated

The administrator may make employees redundant. Qualifying employees may then have rights to claim certain statutory payments, subject to eligibility rules and statutory limits.

03 BUSINESS SALE

Employment May Transfer

Where the business is sold or transferred, employment rights may be protected under TUPE. The precise position in an insolvency transfer is fact-specific and should be assessed professionally.

MONEY OWED TO EMPLOYEES

Where an employee is made redundant by an insolvent employer, qualifying claims may include statutory redundancy pay, certain unpaid wages, holiday pay and statutory notice pay, subject to eligibility requirements and statutory caps. The insolvency practitioner provides the information needed for relevant claims through the Redundancy Payments Service.

BUSINESS SALES & TUPE

Do not assume that a sale during Administration automatically removes employee rights. GOV.UK guidance states that TUPE will normally apply where an insolvent business is being rescued and taken over or transferred, while different rules can apply where a business is closing down. Insolvency transfers can involve modified rules, so the employment position should be reviewed in the circumstances of the particular transaction.

THE COMMERCIAL REALITY

Administration is not simply about deciding whether a company lives or dies. The administrator must consider what can be preserved, what can be sold and how available value should be dealt with through the formal insolvency process.

COMPANY LIABILITIES

What Happens to Creditors, HMRC & Company Debts?

Administration does not automatically erase the money a company owes. Existing creditors remain creditors and their claims must be dealt with through the formal insolvency process.

What each creditor ultimately receives depends on the company's assets, security, statutory priority and the outcome achieved by the administrator.

THE CORE PRINCIPLE

Administration can mean that a company does not pay all of its existing debts in full — but that is very different from saying the debts simply disappear when Administration begins.

WHAT HAPPENS TO EXISTING DEBT?

Creditor Claims Move Into the Formal Process.

The administrator identifies the company's liabilities, communicates with creditors and determines how available value should be dealt with in accordance with the Administration and insolvency law.

BEFORE ADMINISTRATION

Company Owes Its Creditors

Suppliers, lenders, HMRC, landlords, employees and other parties may have outstanding claims against the company.

→
DURING ADMINISTRATION

Claims Are Dealt With Collectively

The administrator controls the company and creditor claims are addressed within the formal insolvency framework rather than by allowing individual creditors simply to determine the company's future.

→
OUTCOME

Recovery Depends on Available Value

What creditors receive depends on the Administration outcome, assets available, security rights, costs and the statutory order of priority.

NOT ALL CREDITORS HAVE THE SAME POSITION

The Type of Creditor Can Affect What Happens Next.

01 FIXED-CHARGE SECURITY

Secured Creditors

Some lenders hold security over specific company assets. Their rights and the value of that security can materially affect how proceeds from those assets are dealt with.

02 STATUTORY PRIORITY

Preferential Creditors

Certain claims receive preferential status under insolvency law and therefore rank ahead of ordinary unsecured claims in the statutory payment order.

03 TAX LIABILITIES

HMRC

HMRC may hold claims in different categories. Certain specified taxes receive secondary preferential status, while other HMRC debts remain non-preferential.

04 FLOATING CHARGES

Floating-Charge Creditors

A lender may hold a floating charge over categories of company assets. Its recovery depends on the security, available assets and the statutory priority rules.

05 TRADE & OTHER DEBT

Unsecured Creditors

Suppliers, contractors and other creditors without security commonly fall within the unsecured creditor class and may recover only part of what they are owed.

06 EMPLOYMENT CLAIMS

Employees

Certain employee claims receive preferential treatment, while employees may also have rights to qualifying statutory payments through the insolvency framework.

STATUTORY PRIORITY

Available Money Is Not Simply Divided Equally.

Insolvency law establishes an order in which different claims and costs are dealt with. Security rights and statutory priority can therefore make a significant difference to creditor recoveries.

The amount owed to a creditor does not, by itself, determine when or how much that creditor will receive.

SIMPLIFIED VIEW OF INSOLVENCY PRIORITY
EARLIER PRIORITY Fixed-Charge Secured Creditors
PROCESS COSTS Relevant Insolvency Fees & Expenses
STATUTORY PRIORITY Preferential Creditors
SECONDARY PREFERENCE Certain HMRC Debts
SECURITY / PRESCRIBED PART Floating-Charge & Prescribed-Part Position
LATER PRIORITY Ordinary Unsecured Creditors

This is a simplified overview rather than a complete distribution calculation. The precise order and availability of funds can depend on the type of assets, security, insolvency expenses, preferential claims, the prescribed part and the circumstances of the particular Administration.

HMRC DEBT

Does HMRC Get Priority in Administration?

Some HMRC debts receive secondary preferential status in formal insolvency proceedings that commenced on or after 1 December 2020. This does not mean that every amount owed to HMRC has preferential status.

SECONDARY PREFERENTIAL

Certain Taxes Collected From Others

  • Value Added Tax (VAT)
  • PAYE Income Tax
  • Employee National Insurance contributions
  • Student loan repayments
  • Construction Industry Scheme deductions
NOT WITHIN THAT PREFERENCE

Other HMRC Liabilities

  • Corporation Tax
  • Employer National Insurance contributions
  • Penalties and interest
  • Other HMRC debts outside the specified preferential categories
WHY THE DISTINCTION MATTERS

Certain secondary preferential HMRC claims rank ahead of floating-charge creditors and ordinary non-preferential creditors. The administrator must apply the statutory priority rules when dealing with available insolvency realisations.

COMPANY DEBT VS PERSONAL DEBT

Company Debts Do Not Normally Become the Director's Debts.

A limited company is a separate legal entity. Directors are therefore not normally personally responsible for ordinary debts taken on in the company's name.

There are important exceptions. A director may have separate personal exposure where, for example, they have given a personal guarantee or where circumstances giving rise to personal liability apply.

BEFORE FORMAL INSOLVENCY

When a company is insolvent, directors' responsibilities shift toward protecting creditors. Directors should not attempt to protect themselves by repaying personally guaranteed debt or favouring selected creditors ahead of others without appropriate professional advice. Certain transactions made before Administration can later be challenged by the administrator.

THE CREDITOR POSITION

Administration changes how company debts are dealt with — it does not automatically turn those debts into personal liabilities or make the company's creditors disappear.

DIRECTOR EXPOSURE

Directors, Personal Guarantees & Conduct

A limited company is legally separate from its directors. Entering Administration therefore does not automatically make a director personally responsible for every company debt.

Personal guarantees, director's loan accounts and the director's conduct can, however, create separate issues that need to be considered.

THE COMPANY

Company Liabilities

Debts entered into in the company's name ordinarily belong to the limited company, including trade debts, company borrowing and tax liabilities.

≠
THE DIRECTOR

Personal Exposure

A director's personal position must be assessed separately. Exposure can arise from matters such as personal guarantees, money owed to the company or circumstances creating personal liability.

LIMITED LIABILITY

Company insolvency and director insolvency are not the same thing. The starting point is to separate what the company owes from any genuine personal liability of the director.

PERSONAL GUARANTEES

What Happens to a Personal Guarantee?

A personal guarantee is a separate legal commitment by the guarantor to repay a debt if the company fails to meet the guaranteed obligation. Administration does not, by itself, cancel that guarantee.

COMPANY BORROWING

Company Takes on a Debt

A lender, landlord, supplier or other creditor may require a director to support the company's obligation with a personal guarantee.

→
COMPANY CANNOT PAY

Guarantee May Become Relevant

If the company fails to meet the obligation, the creditor may seek to rely on the guarantee in accordance with its terms.

→
PERSONAL POSITION

Director May Face a Separate Claim

The guarantor's liability is personal and should be reviewed separately from the company's Administration.

DO NOT ASSUME THE OUTCOME

The existence of a personal guarantee does not tell you, by itself, exactly what is owed or what enforcement action can follow. The wording of the guarantee, the underlying debt, any security and the surrounding circumstances should be reviewed before conclusions are drawn.

WHERE PERSONAL ISSUES CAN ARISE

Three Areas Directors Should Separate From the Company's Debts.

01 GUARANTEES

Personal Guarantees

A director who personally guaranteed a company obligation may face a separate claim if the company cannot satisfy the guaranteed debt.

02 MONEY OWED TO COMPANY

Director's Loan Account

If a director has taken more money from the company than they have put in, the resulting overdrawn loan account may represent money owed back to the company.

03 CONDUCT

Potential Personal Liability

Limited liability does not protect a director from every consequence. Wrongful trading, fraudulent trading, misfeasance and other circumstances can create separate issues.

DIRECTOR'S LOAN ACCOUNT

What if the Director Owes Money to the Company?

A director's loan account records money moving between the director and the company. Where the account is overdrawn, the director may owe money back to the company.

Company insolvency does not automatically cancel an overdrawn director's loan. Money borrowed from the company can remain repayable following insolvency and should be properly disclosed to the administrator.

DIRECTOR DUTIES

Insolvency Changes the Director's Priorities.

When a company becomes insolvent, directors' responsibilities shift toward creditors. Decisions should therefore focus on protecting company assets and avoiding further harm to the creditor position.

01 Protect Company Assets

Company property should be protected rather than removed, transferred or used improperly.

02 Treat Creditors Fairly

Directors should not favour themselves, connected parties or selected creditors simply because doing so benefits them.

03 Avoid Worsening the Position

Directors should consider the effect of continued trading and significant decisions on creditors and seek professional insolvency advice where appropriate.

PERSONALLY GUARANTEED DEBT

A director should not cause an insolvent company to repay a particular creditor simply because that debt is personally guaranteed. Current Insolvency Service guidance specifically warns directors against repaying personally guaranteed debts ahead of other creditors. Transactions made before insolvency may later be examined and, in appropriate circumstances, challenged.

RELATED DIRECTOR GUIDANCE

Concerned About a Personal Guarantee?

Personal guarantees should be considered separately from the company's Administration. Our dedicated guide explains how guarantees work, potential director exposure and the issues that may need reviewing.

Personal Guarantee Help
THE DIRECTOR POSITION

The key is to separate company liabilities, genuine personal liabilities and director conduct. Administration does not automatically merge the three together.

POSSIBLE OUTCOMES

What Can Happen at the End of Administration?

Administration is often a route to another outcome rather than the final destination for the company. What happens next depends on what the administrator has been able to achieve.

The company may survive, its business may survive under different ownership, or the company may ultimately move toward liquidation or dissolution.

THE KEY DISTINCTION

The end of Administration does not have one fixed result. The exit depends on the statutory purpose pursued and what has happened to the company, business and assets during the process.

POSSIBLE ROUTES

Administration Can Lead in Several Directions.

Some Administrations result in the company continuing. Others preserve the underlying business through a sale. Where rescue is not achievable, the process may ultimately lead toward liquidation or dissolution.

COMPANY IN ADMINISTRATION Administrator Pursues the Statutory Purpose
01 COMPANY RESCUE

The Company Continues

Where the company itself has been rescued as a going concern, Administration can end with the company continuing outside the procedure.

02 RESTRUCTURING

A CVA or Other Restructuring Outcome

Administration may create the conditions for a restructuring solution. This can include a Company Voluntary Arrangement (CVA) where the statutory requirements for that procedure are met.

03 BUSINESS OR ASSET SALE

Value Is Preserved or Realised

All or part of the business may be sold as a going concern, or assets may be realised. The business can therefore survive even if the original company does not.

04 COMPANY CLOSURE

Liquidation or Dissolution

Where the company is not continuing, Administration may be followed by a move into creditors' voluntary liquidation in appropriate circumstances, or the company may move toward dissolution where the statutory conditions are met.

COMPANY ≠ BUSINESS

A Successful Business Sale Does Not Necessarily Mean the Company Was Rescued.

This is one of the most important distinctions in Administration. The company is the legal entity. The business is the underlying commercial operation.

A buyer may acquire all or part of the business and its assets, potentially allowing trading, customer relationships or employment to continue, while the original company later proceeds toward liquidation or dissolution.

ENDING THE PROCEDURE

When Does Administration End?

Administration does not continue indefinitely. It normally ends automatically after one year, although it can end earlier and the statutory period can be extended in appropriate circumstances.

01 PURPOSE ACHIEVED

Administration Can End Earlier

Where the administrator considers that the purpose of the Administration has been sufficiently achieved, the procedure can be brought to an end through the applicable statutory process.

02 NORMAL PERIOD

Automatic End After One Year

Unless it has already ended or the period has been extended, Administration normally ends automatically one year after it took effect.

03 EXTENSION

More Time May Be Available

The Administration period can be extended through the statutory mechanisms, including creditor consent or an application to the court where applicable.

1 YEAR — NORMAL PERIOD

The one-year period is a statutory duration rather than a target that every Administration must reach. An Administration may end sooner where the appropriate outcome has been achieved, while more complex cases can require an extension.

WHAT DOES “SUCCESS” MEAN?

The Company Surviving Is Not the Only Possible Administration Outcome.

Administration has statutory objectives. In some cases the company itself may be rescued. In others, achieving a better result for creditors than would have been likely on an immediate winding up may be the relevant objective. In other circumstances, property may be realised for secured or preferential creditors where the statutory conditions permit it. The outcome therefore has to be judged against the purpose of the Administration, not simply whether the original company remains trading afterwards.

THE END RESULT

Administration is a controlled route through serious financial distress. It can lead to rescue, restructuring, a business sale, asset realisation or the eventual closure of the company depending on what can lawfully and realistically be achieved.

UNDERSTANDING THE ROUTES

Administration, CVA or CVL?

Administration, a Company Voluntary Arrangement and a Creditors' Voluntary Liquidation are different formal insolvency procedures with different purposes and consequences.

The appropriate route depends on the company's financial position, viability, creditor position, assets and what can realistically be achieved.

ADMINISTRATION 01

Protection & Administrator Control

A formal insolvency procedure in which an administrator takes control and pursues the statutory purpose of the Administration. Certain creditor and enforcement action is restricted by the Administration moratorium.

CONTROL Administrator
FOCUS Statutory Administration Purpose
TRADING May Continue Where Appropriate
PROTECTION Administration Moratorium
You Are Here
COMPANY VOLUNTARY ARRANGEMENT 02

Restructuring Company Debts

A CVA is a formal agreement between a company and its creditors concerning the repayment of its debts. The company can continue trading while the arrangement is implemented.

CONTROL Directors Usually Continue
FOCUS Debt Restructuring
TRADING Company Normally Continues
STATUS Formal Insolvency Procedure
Understand CVAs
CREDITORS' VOLUNTARY LIQUIDATION 03

Orderly Company Closure

A CVL is a formal process for winding up an insolvent company. A liquidator takes control of the liquidation, realises company assets and deals with creditor claims.

CONTROL Liquidator
FOCUS Winding Up the Company
TRADING Normally Ceases
OUTCOME Company Dissolution
Understand CVLs
NOT INTERCHANGEABLE

These procedures should not be viewed simply as three versions of the same solution. A CVA is principally a restructuring procedure, Administration places the company under administrator control in pursuit of a statutory purpose, and a CVL is a process for winding up an insolvent company. An appropriately authorised insolvency professional should assess which formal procedure, if any, is suitable for the circumstances.

STOP YOUR DEBT UK

How We Can Help When a Company Is Under Pressure.

Directors facing creditor pressure often have large amounts of correspondence, financial information and competing issues to deal with. Stop Your Debt UK can help organise the position and coordinate the appropriate next stage.

01 UNDERSTAND

Build the Complete Picture

We help gather the information, creditor correspondence and documents needed to understand what is happening around the company.

02 REVIEW

Organise the Information

The circumstances and available information can be organised through our central support and case-coordination process so that the position can be considered clearly.

03 CONNECT

Involve the Right Professional

Where formal insolvency work, regulated debt advice, legal advice or another specialist service is required, we can help connect the case with an appropriately authorised professional.

04 SUPPORT

Ongoing Case Coordination

Stop Your Debt UK can remain available for permitted administration, document support and case coordination while the relevant professionals deal with work requiring their authorisation.

IMPORTANT

Formal Insolvency Work Requires an Authorised Professional.

Administration is a formal insolvency procedure. Stop Your Debt UK does not act as an administrator, liquidator, nominee or supervisor and does not itself make formal insolvency appointments.

Where Administration, a CVA, CVL or other formal insolvency procedure requires the involvement of an insolvency practitioner, that work must be carried out by an appropriately authorised professional.

RECEIVED COMPANY CORRESPONDENCE?

Understand the Letter Before Deciding What Needs Attention.

If creditor, HMRC, lender, solicitor or enforcement correspondence is adding to the pressure, LetterChekr™ can help identify the document and explain its key information in plain English.

LetterChekr™

Received a Creditor, HMRC or Company Debt Letter?

Upload creditor correspondence, an HMRC letter, lender demand, solicitor letter or other company debt document to LetterChekr™ for a structured, plain-English explanation of what the document appears to be and the important information it contains.

01
Upload your letter

Choose a PDF, JPG or PNG copy of the creditor, HMRC, lender, solicitor or other correspondence you have received.

02
LetterChekr™ analyses the document

The tool looks for key information including the sender, amount, reference, dates or deadlines and the type of correspondence you appear to have received.

03
Get a plain-English explanation

See what the document appears to mean, the important points identified from it and general information about possible next steps.

LetterChekr™ provides an automated explanation of uploaded correspondence. It can help you understand a document in plain English, but it does not determine which insolvency procedure is appropriate and is not a substitute for regulated legal, financial or insolvency advice.

Stop Your Debt UK

LetterChekr™

Upload a creditor, HMRC, lender, solicitor or other company debt letter and get a clear, plain-English explanation of what the document appears to mean and what may need attention.
📄
Choose your letter
PDF, JPG or PNG • Maximum 10MB

Book a Call With a Consultant

Complete your details below and one of our consultants can discuss the correspondence with you, help organise the surrounding information and identify where specialist or regulated support may be required.

COMPANY ADMINISTRATION FAQ

Common Questions About Administration.

Administration can affect control of the company, creditor action, employees, assets and the future of the business. These are some of the questions directors commonly ask when trying to understand what the procedure means in practice.

01 What is company Administration?

Company Administration is a formal insolvency procedure in which an authorised insolvency practitioner is appointed as administrator and takes control of the company's business, property and affairs. The administrator must pursue the statutory purpose of the Administration and determine the appropriate route forward.

02 What does an administrator actually do?

The administrator takes control of the company and assesses how the statutory purpose of Administration can best be achieved. Depending on the circumstances, this can involve continuing or changing trading operations, dealing with company assets, reviewing contracts, making staffing decisions, considering a business sale or pursuing another appropriate insolvency outcome.

03 Does Administration stop creditors taking action?

Administration provides a statutory moratorium that restricts certain creditor enforcement and legal action against the company. However, this should not be interpreted as complete immunity from creditors or as cancellation of the company's debts.

Some action may still be possible where the law permits it, including in circumstances where the administrator consents or the court gives permission.

04 Do directors remain in control during Administration?

No. The directors remain directors, but the administrator takes control of the company during Administration. Directors cannot independently exercise management powers in a way that interferes with the administrator's control.

Directors are also expected to cooperate with the office-holder and provide relevant company information, records and explanations when required.

05 Can a company continue trading while in Administration?

Yes, a company can continue trading during Administration where the administrator considers that appropriate. Continuing to trade may help preserve business value, complete existing work, maintain operations or facilitate a sale.

Continued trading does not mean that the original company is guaranteed to survive. The administrator may later pursue another outcome depending on the company's position.

06 What happens to employees during Administration?

Administration does not automatically make every employee redundant. Employees may be asked to continue working, some roles may be made redundant, or employees may potentially transfer if the business is sold, depending on the circumstances.

Eligible employees of an insolvent employer may be able to apply to the government for certain amounts owed to them, including qualifying redundancy pay, unpaid wages, holiday pay and statutory notice pay, subject to the relevant rules and limits.

07 What happens to company debts in Administration?

Entering Administration does not simply erase the company's debts. Creditor claims are dealt with through the Administration and any procedure or outcome that follows.

What individual creditors ultimately receive depends on matters including the assets available, the costs and expenses of the insolvency process, security interests, statutory priority and the outcome pursued by the administrator.

08 What happens to a director's personal guarantees?

Administration of the company does not automatically cancel a personal guarantee. A personal guarantee is a separate commitment under which a director or other guarantor may become personally liable if the company does not meet the guaranteed obligation.

The wording, scope and circumstances of the particular guarantee matter, so directors facing a demand under a personal guarantee may need specialist advice about their individual position.

09 How long does company Administration last?

Administration normally ends automatically one year after it takes effect. However, the period can be extended in accordance with the statutory procedure, including with creditor consent or by the court where applicable.

Administration can also end earlier where the relevant requirements are met, including where the purpose of the Administration has been sufficiently achieved.

10 What happens when Administration ends?

There is no single outcome for every Administration. Depending on what has happened during the procedure, the company may move into a Company Voluntary Arrangement, a business or assets may have been sold, the company may move into liquidation, or another appropriate exit may be used.

Once Administration has ended, the protection associated with the Administration moratorium also ends.

EVERY COMPANY IS DIFFERENT

Administration is a formal insolvency procedure with significant consequences for the company, directors, creditors and employees. The fact that Administration is available does not mean it is necessarily the appropriate route for a particular company. The circumstances should be assessed by an appropriately authorised insolvency professional.

RELATED DIRECTOR SUPPORT

Explore the Wider Business Debt Landscape.

Administration is only one part of the UK corporate insolvency landscape. These guides explain other issues and procedures that may become relevant when a company is under financial pressure.

01 DIRECTORS & BUSINESS

Business Debt & Insolvency

Understand creditor pressure, insolvency, director responsibilities and the wider routes that may need to be considered.

Explore Business Debt 02 RESTRUCTURING

Company Voluntary Arrangements

Learn how a CVA can provide a formal framework for an insolvent company to deal with creditor debts while continuing to trade.

Understand CVAs 03 COMPANY CLOSURE

Creditors' Voluntary Liquidation

Understand how an insolvent company can be placed into voluntary liquidation and what the process means for its directors, creditors and assets.

Understand CVLs 04 DIRECTOR EXPOSURE

Personal Guarantees

Understand why company insolvency does not automatically remove a director's separate obligations under a personal guarantee.

Explore Personal Guarantees
FREE UK DEBT GUIDES

Continue Your Research in the Stop Your Debt UK Knowledge Centre.

Knowledge Centre
COMPANY UNDER PRESSURE?

Understand the Position Before Pressure Escalates.

If your company is struggling to meet its liabilities, facing serious creditor pressure or receiving correspondence you are unsure how to deal with, the first step is to establish exactly what is happening. Stop Your Debt UK can help organise the information and connect your case with an appropriately authorised professional where regulated or formal insolvency work is required.

Get Support Explore Business Debt Help
No assumption that Administration or any particular insolvency procedure is suitable.

Stop Your Debt UK provides permitted administrative support, document assistance and case coordination. We do not act as an administrator, liquidator, nominee or supervisor and do not make formal insolvency appointments. Where regulated debt advice, legal advice or formal insolvency work is required, cases can be connected with appropriately authorised professionals. Information on this page is general information and should not be treated as legal, financial or insolvency advice.