Administration and liquidation

A company which is in financial difficulty may go into administration. An administrator is appointed to manage a company’s affairs whilst it is in administration. It usually continues to trade during the period of administration.

The function of the administrator is to fulfil objectives, in this specific order:

• 1)rescuing the company as a going concern
• 2)achieving a better result for the company’s creditors as a whole than would be likely if the company was wound up, and
• 3)realising property in order to make a distribution to one or more unsecured or preferential creditors

Insolvency Act 1986, Sch B1, para 3 (subscription sensitive)

These are not choices but a hierarchy. The rescue of the company is the priority.

An administrator can be appointed either out of court or with a court order. Out of court, an administrator can be appointed by the company, the directors or the holder of a qualifying floating charge.

Liquidation brings the existence of the company to an end. On completion of the winding up, the company is dissolved. Liquidation can be voluntary or compulsory (defined below). In either case, the liquidator becomes the beneficial owner of the company’s assets and is responsible for the payment of all corporation tax liabilities arising after the commencement of winding up. A liquidator is appointed to sell all the assets, pay all the debts and return any surplus capital to the shareholders of a company in liquidation.

Voluntary liquidation is where the company chooses to be liquidated. This normally applies where the company is solvent. The liquidation starts when the