Administration in United Kingdom law is the main kind of procedure in UK insolvency law when a company is unable to pay its debts. The management of the company is usually replaced by an insolvency practitioner whose statutory duty is to rescue the company, save the business, or get the best result possible. While creditors with a security interest over all a company's assets could control the procedure previously through receivership, the Enterprise Act 2002 made administration the main procedure.
History
The Insolvency Act 1986, Schedule B1 contains the procedure for a company entering administration, as updated by the Enterprise Act 2002. It was first introduced following the Cork Report's priorities for transparency, accountability and collectivity and, crucially, fostering a rescue culture for business.
Appointment
In general the conditions for a court to grant an administration order are first, whether the company is insolvent, or 'is or is likely to become unable to pay its debts'. Second, it has to be shown that one of the purposes of administration in paragraph 3 will be achieved. In Re Harris Simons Construction Ltd Hoffmann J held that 'likely to achieve the purpose of administration' meant a test lower than balance of probabilities, and more like whether there was a 'real prospect' of success or a 'good arguable case' for it. So here the company was granted an administration order, which led to its major creditor granting funding to continue four building contracts.
Floating charge holders
When applying to the court, the petitioners for administration may be either the company's directors, or any creditor. But an important change since the Enterprise Act 2002 is that it is also possible for a director and, crucially, the holder of a floating charge over the company's whole property to apply for appointment of an administrator out of court. If a director applies for an out of court appointment, they must give 5 days' notice to any such qualifying floating chargee, who may in turn intervene in court to have their own 'specified person' appointed as the administrator. The court may refuse if the 'particular circumstances of the case' (undefined) suggest otherwise. The effect is that the holder of a qualifying floating charge is in a robust position to have their preferred insolvency practitioner installed.
Pre-packaged administration
Because an administrator can, since the Enterprise Act 2002, be appointed out of court, a new practice of pre-packaged administration became increasingly popular, whereby typically the company directors negotiate with a prospective administrator for the sale of the business to take place immediately after entering administration, and often to the company's former management. The perceived benefits of this practice, originating in the 1980s in the United States, is that a quick sale without hiring lawyers and expending time or business assets through formalities, can be effected to keep the business running and employees in their jobs.